Sentry Ins. v. Lardner Elevator Co.

• Decision Date: 05 November 1986
• Docket Number: Docket No. 78667
• Citation: 395 N.W.2d 31,153 Mich.App. 317
• Parties: SENTRY INSURANCE A Mutual Company, Plaintiff-Appellee-Cross-Appellant, v. LARDNER ELEVATOR COMPANY, Defendant-Appellant-Cross-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 31

395 N.W.2d 31

153 Mich.App. 317

SENTRY INSURANCE A Mutual Company, Plaintiff-Appellee-Cross-Appellant, v. LARDNER ELEVATOR COMPANY, Defendant-Appellant-Cross-Appellee.

Docket No. 78667.

Court of Appeals of Michigan.

Submitted Aug. 8, 1985.

Decided May 9, 1986.

Released for Publication Nov. 5, 1986.

Tolley, Fisher & Verwys, P.C. by Thomas F. Koernke and Sharon R. Brinks, Grand Rapids, for plaintiff-appellee-cross-appellant.

William J. Monaghan, St. Clair Shores, for defendant-appellant-cross-appellee.

Before HOOD, P.J., and HOLBROOK and KERWIN ^*, JJ.

PER CURIAM.

Plaintiff, Sentry Insurance A Mutual Company (Sentry), the surety on a performance bond for Division Products, Inc. (Division), sued defendant,Lardner Elevator Company (Lardner), in circuit court for breach of a subcontract between Lardner and Division. Following a bench trial, the circuit court found Lardner in breach and entered judgment in favor of Sentry for $54,933.84. Part of the award represented reimbursement for a portion of Sentry's attorney fees and costs. Both parties appeal as of right. We affirm the judgment, but remand to the lower court for further proceedings with respect to attorney fees.

I

Division contracted with Ingham County in February, 1981, to renovate the Ingham County Shelter Home. Division secured a performance bond from Sentry. In March, 1981, Division subcontracted with Lardner to install the elevator. Lardner was to be paid $40,485 for the job. Additionally, all the obligations on the primary Division-Ingham County contract were incorporated in the Division-Lardner subcontract. The elevator was to be completed by November, 1981.

Division abandoned the project in October, 1981, after running into serious financial difficulties. Under the performance bond, Sentry hired Omega Construction Company (Omega) to complete the project for Division. Because of Lardner's concern that it might not receive proper payment under the subcontract, a resolution was drawn between Sentry, Lardner, and Ingham County in which Lardner was to be paid $20,000 up front and was to proceed posthaste to complete construction of the project. Under the resolution, the balance of the funds owing to Lardner was to be placed in escrow.

Lardner accepted the $20,000, but performed sporadically. There was a great deal of testimony at trial about Lardner's difficulties with the elevator project, and how those difficulties impaired progress on construction of the shelter home. Moreover, the parties had misunderstandings about payments due Lardner.

There was evidence that Lardner did not work at all on the project between October 7 and October 26, 1981, but that this was unrelated to Division's default. Lardner also failed to do any work during deer-hunting season, during Thanksgiving or the week immediately thereafter. Further, Lardner removed equipment from the construction site for storage.

Technical problems arose in October, 1981, involving alteration of the size of the elevator's cab and platform. Initially, Lardner contended that Division was to pay for altering the elevator platform and Lardner would pay for altering the cab. Division was to pay $300 to $500. Sentry stood behind Division's agreement after Division defaulted. Later, Lardner insisted that Sentry should pay the entire cost of both the cab and platform alterations, and issued an invoice for $1,350 for the alterations on November 19, 1981. Sentry indicated it had never agreed to pay Lardner in advance for installation of the elevator. Moreover, Sentry posited that little work was done on the elevator after it paid Lardner the $20,000 pursuant to the resolution.

When Omega took over for Division in mid-October, 1981, Charles DeYoung, vice-president in charge of construction, arrived at the site and noted that the elevator was the most incomplete item. This delayed other aspects of the construction, and Lardner was only working sporadically. DeYoung contacted Bruce Lardner, who told DeYoung he did not trust Sentry and hung up the phone. Two hours later DeYoung tried again and Bruce Lardner hung up again. Little work on the elevator was done after Lardner received the $20,000. Lack of progress on the shelter home project was attributable to Lardner's slow progress on the elevator, according to DeYoung.

Under the subcontract between Division and Lardner, certification and approval of the project architect was a condition of payment. Ingham County's architect on the project, James Gray, indicated that he approved paying Lardner $20,000 because he believed all the materials were at the construction site. He did not approve Lardner's subsequent invoices for $5,000 and $7,000 because he had inadequate proof that Lardner was entitled to those funds. Gray was dissatisfied with Lardner's performance on the elevator as early as November, 1981. After November, 1981, the elevator was the only major incomplete item on the project.

Lardner contended that other difficulties had hampered its performance. While the elevator was initially to be completed by September, 1981, a state permit to install the elevator was not issued until September 23, 1981. Lardner immediately began installation, and issued an invoice for $27,000 to cover materials and labor. Lardner was informed it would receive only $20,000, with the remaining $7,000 subject to approval. Lardner never received the remaining $7,000. When the problem of the elevator's size arose in October, 1981, Lardner told Division to pay for altering the platform. Lardner was to modify the cab. Initially, Lardner believed the modification would cost nothing because the cab had not yet been constructed. Subsequently, Lardner learned that the canopy had been completed, and issued an invoice to Sentry for the total overage of $1,350. Lardner also indicated it was dissatisfied with a penalty clause in the contract. Lardner could not proceed as of November 15, 1981, until the general contractor had completed some work. Lardner did not contact Omega because Lardner and Omega had had problems in the past regarding another construction project. Lardner indicated it remained ready, willing, and able to install the elevator in mid-November, 1981.

In January, 1982, Sentry hired Otis Elevator Company to complete the elevator installation at a cost of $40,000.

In the lower court's judgment for Sentry for $54,933.84, $21,515 represented damages for the cost of replacement, $5,926.88 represented damages for delay, and $15,521.29 represented reimbursement for a portion of Sentry's attorney fees.

II

First, we consider whether the trial court properly found that Lardner breached its subcontract and had to answer in damages. We hold that it did.

We review the trial court's findings of fact and conclusions of law by determining whether they were clearly erroneous. MCR 2.613(C); Harper Woods Federation of Teachers v. Harper Woods Bd. of Ed., 103 Mich.App. 649, 658, 302 N.W.2d 857 (1981); Tuttle v. Dep't of State Highways, 397 Mich. 44, 46, 243 N.W.2d 244 (1976). A finding is clearly erroneous where we are left with a definite and firm conviction that a mistake has been made. Tuttle, supra, p. 46, 243 N.W.2d 244.

The basic issue before the trial court was: who breached the contract first--Sentry by not paying Lardner's periodic invoices or Lardner by not performing under the contract?

Here, Sentry was responsible for Division's contract because of the performance bond, and was subrogated to all of Division's rights and remedies under the subcontract. Had Division breached the subcontract with Lardner, Lardner could assert that breach against Sentry to excuse its performance. See National Surety Corp. v. Allen-Codell Co., 70 F.Supp. 189 (E.D.Ky.1947). One who commits the first substantial breach of a contract cannot maintain an action against the other contracting party for failure to perform.

Lardner cites as "glaring error" the trial court's finding that Lardner did not abandon the job because of Division's poor performance and that Division did not materially breach before it defaulted. However, our review of the record supports the trial court's finding that Division did not materially breach prior to its default. While...