Volpe Const. Co., Inc. v. First Nat. Bank of Boston

• Decision Date: 15 March 1991
• Docket Number: No. 89-P-569,89-P-569
• Citation: 567 N.E.2d 1244,30 Mass.App.Ct. 249
• Parties: VOLPE CONSTRUCTION CO., INC. v. The FIRST NATIONAL BANK OF BOSTON et al. 1
• Court: Appeals Court of Massachusetts

Page 1244

567 N.E.2d 1244

30 Mass.App.Ct. 249

VOLPE CONSTRUCTION CO., INC. v. The FIRST NATIONAL BANK OF BOSTON et al. ¹

No. 89-P-569.

Appeals Court of Massachusetts Suffolk.

Argued Nov. 9, 1990.

Decided March 15, 1991.

James W. Murphy, Boston, for plaintiff.

George E. Donovan (Domenic P. Aiello, Boston, with him), for defendants.

Before FINE, KAPLAN and PORADA, JJ.

KAPLAN, Justice.

This is an unusual situation of a building project for "affordable" housing, in which the general contractor, which had direct contractual relations only with the owner-developer, tried to recover its alleged losses--amounts supposedly due it from the owner and unpaid--from the bank which made the construction loan to the owner. The contractor proposed a number of theories for shifting the onus onto the bank, but they fail.

A. The Documents.

San Marco Housing Corporation (San Marco), a nonprofit community housing corporation, conceived a plan to build on Lincoln Wharf, Boston, on the site of a surplus power station of the Massachusetts Bay Transportation Authority (MBTA), a mixed income condominium development which would provide affordable housing to purchasers of the units, with preference to members of the North End community. San Marco bought the property from the MBTA; secured a construction loan of twenty-four million dollars from The First National Bank of Boston (Bank); and engaged Volpe Construction Company (Volpe) as general contractor for the project.

At the closing on June 5, 1984, the following documents were executed (various details of the instruments, as well as events postdating them, will be considered in the body of this opinion): Between San Marco and the Bank, a construction loan agreement, mortgage, and conditional assignment of interest in San Marco's construction contract with Volpe; a letter from Volpe to the Bank, by which Volpe assented to the conditional assignment of interest (see point D[a] infra ); between San Marco and Volpe, a construction contract; between the MBTA and San Marco a deed conveying the property, and among these parties and the Executive Office of Transportation and Construction (EOTC), a Land Disposition Agreement (LDA). ²

Further about the LDA: this instrument reflected the fact that the MBTA was conveying the property to San Marco pursuant to a special act of the Legislature, St.1979, c. 784, as amended by St.1981, c. 807. The statute authorized the sale for a below market price of $475,000 (paid by San Marco with the proceeds of the construction loan). Statutory conditions on the transfer were intended to assure that the property would be used for the housing purpose. If not so used for five years, the property was to revert to the Commonwealth. The condominium units were to be sold below market prices and so that the total sales revenues would equal the costs of the acquisition of the property plus the construction costs and (if required by the construction lender) a construction "contingency." Certain of the units would be sold to the general public at above cost but below market rates. The "profit" from these sales would be used to subsidize the below cost sales of the other units to a "preference class" of low-income North End residents. The initial unit owners would reimburse the Commonwealth to the extent of any profit they made in selling their units. The LDA stated that "the provisions of this Agreement shall be enforceable by the Secretary of Transportation and Construction ... and the covenants contained herein shall be deemed to be covenants running with the land and enforceable against any party holding title to the land through foreclosure or a deed in lieu thereof or any purchaser from such a holder ...".

B. Performance and Default.

Volpe's construction contract was in the fixed amount of $16,002,450 and called for completion of the work within twenty-three and one-half months from the date of "commencement."

Work on the project did not proceed as planned. Volpe and San Marco fell out in disputes about delays due to alleged irregularities in the drawings provided by San Marco and about alleged withholding of progress payments. In June, 1986, Volpe informed the Bank (by the terms of the June 5, 1984, letter) that San Marco was in breach of the construction contract. On July 30, Volpe stopped work, and on August 19, San Marco formally terminated Volpe as general contractor. On August 12, Volpe had purported to file a mechanic's lien on the property.

San Marco engaged another firm, Napoli Wrecking Company, to complete the project. The Bank, on August 15, agreed with San Marco to extend the construction loan for one year and to modify its repayment and interest terms. However, the loan agreement as revised went into borrower's default, and in November, 1986, the Bank proceeded to foreclose. At the foreclosure sale on February 3, 1987, the Bank bid in for $21,038,736, an amount approximately equal to the sums laid out by the Bank up to the date of filing of Volpe's purported lien. The Bank assigned its bid to its wholly-owned subsidiary, SUFA Corporation (SUFA) for a consideration of $4,086,525. SUFA then purchased the property for the $21,038,736, with the Bank receiving a total of $25,125,261--approximately what San Marco owed the Bank under the construction loan agreement. SUFA completed the project using the Napoli company.

The disputes between Volpe and San Marco are still unresolved. Volpe, having received approximately $14.5 million under its construction contract prior to dismissal, claims it is owed $4,964,960 for work done and unpaid. San Marco opposes the claim and asserts claims of its own against Volpe. An arbitration proceeding and a court action are pending between the parties and are ramified in content.

At best Volpe can likely recover little from San Marco, which has few assets. Volpe brings the present action against the Bank, as main defendant, upon the same alleged indebtedness. In addition to denials, the defendants asserted sundry counterclaims. We do not deal with the counterclaims, as the defendants' motions for summary judgment did not extend to them. ³

C. Matters Under Review.

Volpe's complaint, in seven counts, was met by the defendants' motions for summary judgment. The record includes, besides the documents already mentioned, sworn statements on either side. ⁴

Volpe contends that it perfected a mechanic's lien on the property (count 2). The Bank says the effort failed. The Bank would also submit that the mortgage foreclosure would extinguish the mechanic's lien if one ever came into existence. Volpe contends generally that the mortgage foreclosure was illegal and invalid (count 6). Volpe claims further as third-party beneficiary of promises contained in the LDA (counts 1 and 7) and in the construction loan agreement (count 5). The judge granted summary judgment to the defendants on these five counts and Volpe appeals.

Volpe also sought relief against the defendants on grounds of unjust enrichment (counts 3 and 4). On these counts the judge denied summary judgment, and the defendants cross-appeal.

We affirm as to the five counts and reverse on the two remaining counts and order judgment for the defendants dismissing them.

D. Plaintiff's Appeal.

(1) Mechanic's lien not perfected. The mechanic's lien statute is zealous of its own particular requirements and, like other disappointed claimants in, e.g., Pratt & Forrest Co. v. Strand Realty Co., 233 Mass. 314, 123 N.E. 771 (1919), Adams & Powers Co. v. Seder, 257 Mass. 453, 154 N.E. 184 (1926), Baltimore Contractors v. Dupree, 352 Mass. 83, 223 N.E.2d 702 (1967), and Blount Bros. v. Lafayette Place Assoc., 399 Mass. 632, 506 N.E.2d 499 (1987), the plaintiff Volpe did not exert itself sufficiently to comply. The construction contract of June 5, 1984, set no calendar date as the "completion date," but provided that "substantial completion shall be achieved not later than twenty-three and one-half ... months after commencement," and commencement was to be "within days after the later of the date on which a building permit issues and the date the owner closes construction financing." The financing was closed on the date of the contract, June 5, 1984. If we assume that the building permit was issued immediately, we may project the completion date to about June 2, 1986. More than 200 change orders were approved between February 8, 1985, and May 28, 1986, which had the effect of extending the "contract time" by 272 days, moving the completion date ahead to about mid-February, 1987. As noted, it was on August 12, 1986, that Volpe filed its "notice of contract" at the registry of deeds. Under the statute, the notice must specify a "completion date," see Blount Bros., 399 Mass. at 635, 506 N.E.2d 499. Volpe gave June 2, 1986, as that date, which had already passed. Simultaneously with the notice of contract, on August 12, 1986, Volpe filed a "notice of extension" stating that the contract term had been extended and the later completion date was March 1, 1987. But a notice of extension must "be filed or recorded ... prior to the date stated in the notice of the contract for the completion thereof," G.L. c. 254, § 2. This was not done. ⁵

As the notice of extension failed, the effective completion date remained June 2, 1986, and subsequent steps to perfect the lien were unseasonable and also failed. Thus the "statement of account," to be filed within thirty days after the completion date, see G.L. c. 254, § 8, was not in fact filed until September 17, 1986, well beyond the measuring period of thirty days from June 2, 1986. ⁶

(2) Regarding the mortgage foreclosure. On the assumption that it perfected a mechanic's lien, Volpe has contended that it has priority to some or all of the funds realized at the auction. ⁷ We agree with the defendants that no such result would follow. The property was purchased by SUFA for $21,038,736, which was approximately equal to the Bank's...