Title: Hagerstown v. Hagerstown

State: maryland

Issuer: Maryland Supreme Court

Document:

Circuit Court for Washington County
Case No. 21-C-96-0980-CN
IN THE COURT OF APPEALS OF MARYLAND
No. 29
September Term, 2001
______________________________________________
HAGERSTOWN ELDERLY ASSOCIATES LIMITED
PARTNERSHIP
v.
HAGERSTOWN ELDERLY BUILDING ASSOCIATES
LIMITED PARTNERSHIP, H. B. ALEXANDER, INC.,
AND SEABOARD SURETY COMPANY
______________________________________________
HOUCK & COMPANY, INC.
v.
DRYVIT SYSTEMS, INC.
______________________________________________
Bell, C.J.
Eldridge
Raker
Wilner
Harrell
Battaglia
Karwacki, Robert L. (retired, specially 
assigned),
JJ.
________________________________________________
Opinion by Raker, J.
Bell, C.J., concurring in part and dissenting in part
Wilner & Battaglia, JJ., concurring in part and dissenting
in part
______________________________________________
Filed:   March 12, 2002
1Unless otherwise indicated, all subsequent statutory references are to Maryland Code
(1957, 1998 Repl. Vol., 2001 Supp.), Courts and Judicial Proceedings Article.
Appellant, Hagerstown Elderly Associates Limited Partnership, is the owner of a
public housing facility in Hagerstown, Maryland known as Elizabeth Court.  On or about
October 14, 1995, a portion of an exterior wall of the eleven-story building fell to the ground.
A year later, on October 16, 1996, appellant filed suit in the Circuit Court for Washington
County against appellees Hagerstown Elderly Building Associates (HEBA), the contractor
that erected the building, and Seaboard Surety Company (Seaboard), the surety on the
performance bond filed by HEBA in connection with that construction, to recover the
expense of restoring the building and correcting what appellant regarded as deficient work.
Various subcontractors were eventually added as third-party defendants.
The Circuit Court granted summary judgment to appellees on the grounds that (1) the
action against the contractor, HEBA, was barred by the ten-year statute of repose codified
in Maryland Code (1957, 1998 Repl. Vol., 2001 Supp.) § 5-108 (b) of the Courts and Judicial
Proceedings Article1 and (2) the action against the surety, Seaboard, was barred by the
twelve-year statute of limitations codified in § 5-102.  We granted certiorari on our own
initiative, prior to any decision by the Court of Special Appeals, to review the issues
presented in those rulings.
We find no error in the Circuit Court’s granting of summary judgment to HEBA on
Count I and shall, therefore, affirm that judgment.  We find, however, that the court erred in
granting summary judgment to appellees on Count II and shall, therefore, reverse that
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judgment.
I.
Elizabeth Court is a public housing facility for elderly and disabled persons.
Construction of the project was financed by the State Community Development
Administration (CDA) and the Maryland Housing Fund (MHF), using funds provided by the
United States Department of Housing and Urban Development.  The construction contract
between appellant and HEBA, dated October 22, 1982, required HEBA to provide a payment
and performance bond assuring appellant and CDA that the contractual work would be
completed, and, in conformance with that obligation, appellees issued such a bond, running
jointly to appellant and CDA.  The bond obligated appellees, jointly and severally, to
appellant and CDA in the amount of $4,284,000 – the construction contract price – for the
prompt and faithful performance of the contract, but provided that any suit under the bond
must be instituted before the expiration of two years “from the date on which final payment
under the Contract falls due.”
HEBA subcontracted the installation of the exterior wall system to Novinger’s, Inc.
That system, referred to by the parties as an exterior insulation finish system (EIFS),
consisted of multiple layers of different materials intended to provide thermal insulation and
protection against infiltration of the elements.
The City of Hagerstown conducted a final inspection and issued a Use and Occupancy
Permit for the building on December 16, 1983.  HEBA and the architect filed a Certificate
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of Substantial Completion on December 21, 1983.  On the same day, appellant granted
permission for the occupancy of all 110 units of the project.  Pursuant to the Certificate of
Substantial Completion, HEBA was presented with a “punch list” of final items to be
corrected or completed, for which, in accordance with the construction contract, part of the
final payment was placed in escrow.  On February 28, 1984, HEBA advised the architect that
it had completed all of the items listed on the architect’s final inspection report and requested
that the architect reinspect those items so that no escrow would be required at final closing.
CDA applied to MHF for insurance of the advance of mortgage proceeds on October 10,
1984.  On October 26, 1984, MHF approved an advance of $316,818.00.  A final loan
closing, for the release of the remaining funds, was set for and took place on November 1,
1984.  Final payment was made to HEBA the following day, on November 2, 1984.
On October 14, 1995, an unusually severe storm hit Hagerstown, during which a large
section of the exterior wall surface of the building blew out and fell to the ground.  After
conducting an investigation, appellant concluded that the incident occurred because of faulty
construction of the EIFS system, causing the wall surface to debond and eventually fall.
Appellant claimed that it had no knowledge, and no reason to know, of the faulty
construction until the actual collapse.  On October 16, 1996, appellant filed this suit, seeking
in Count I of its complaint to recover against HEBA for breach of contract and in Count II
to recover against HEBA and Seaboard under the performance bond.
The Circuit Court for Washington County granted summary judgment in favor of
-4-
2 Maryland Code (1957, 1998 Repl. Vol., 2001 Supp.) § 12-104 (a) of the Insurance
Article states that a provision in an insurance or surety contract that sets a shorter time to
bring an action under that contract than that required by the law of the State when the
contract was issued or delivered is against state public policy and void.  Section 12-104 (b)
provides that a state court may not give effect to such an illegal provision and that a defense
to liability under the contract may not be based on the shorter limitations period.
appellees on both counts of the complaint.  With respect to Count I, the court found that the
action was barred by statute of repose contained in § 5-108 (b).  With respect to Count II, the
court declined to apply the two-year statute of limitations provided for in the performance
bond, holding that, by virtue of Maryland Code (1957, 1998 Repl. Vol., 2001 Supp.) § 12-
104 of the Insurance Article, that provision was against public policy and void.2  The court
concluded that the applicable period of limitations was that set forth in § 5-102 (a) (2) –
namely, that an action on a bond shall be filed within twelve years of accrual of the cause of
action.  Although the court found the two-year limitations period set forth in the bond
unenforceable, it looked to that provision to determine the parties’ intent as to when the
accrual time commenced, which was “the date on which final payment under the Contract
falls due.”  Although the court consulted Article 3C of the contract and § 9.9.2 of the General
Conditions, it ultimately found dispositive CDA’s October 10, 1984 request for final payment
from MHF of the “punch list” items, in which CDA declared its belief that that amount was
then “payable.”  As the suit was filed twelve years and six days after that date, the court held
Count II to be barred by limitations.
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II.
In this appeal, appellant urges that (1) the statute of repose set forth in § 5-108 (b)
does not bar the action in Count I because it does not apply to breach of contract actions or
claims arising out of injury to the property containing the allegedly defective and unsafe
condition and (2) the Circuit Court erred in fixing the final payment due date for purposes
of the action on the performance bond as October 10, 1984, rather than November 1, 1984.
Appellant contends that § 5-108 (b) is not applicable for two, somewhat overlapping,
reasons.  First, appellant claims that the section is directed only at tort actions and not at
actions based on breach of contract.  The language, it urges, “is expressly couched in the
classic terminology of tort, not contract.”  Second, it argues that the section applies “only to
actions either for personal injury or for damages to real or personal property other than the
property containing the defective and unsafe improvement.”  (Emphasis added).  It posits that
the section “expressly refers only to situations where (a) a defective and unsafe ‘condition’
of an improvement to real property separately causes (b) a separate injury to other real or
personal property.”  In this setting, it avers, the appropriate limitation period is that set forth
in subsections (c) and (e) – three years from when the damage occurred, from when the wall
collapsed.
With respect to Count II, the action on the performance bond, appellant concedes that
the trial court was correct in applying the twelve-year statute of limitations and in finding that
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the limitations period commenced when final payment to HEBA fell due.  Appellant’s only
disagreement is over when the final payment fell due.  Appellant urges that final payment did
not fall due until either October 26, 1984, the date that MHF approved the advance of
mortgage proceeds, or November 1, 1984, the date of the final loan closing, both dates being
within the twelve-year period prior to commencement of the action.  Appellant argues that
there were essentially two conditions precedent to final payment: CDA’s approval (which it
claims occurred on October 10, 1984, when CDA stated in its application for insurance of
advance payment that the sum was “now payable”), which itself was conditioned on the prior
approval of MHF (which occurred on November 1, 1984).
III.  Count I: Contract Action Against HEBA
Count I of appellant’s complaint, captioned Breach of Contract, alleges that appellant
and HEBA entered into a construction contract that obligated HEBA to design and construct
the building in accordance with the plans, specifications, and other contract documents, that
HEBA warranted, either expressly or impliedly, that its performance would be full, complete,
and free from defects, and that the defects sued upon, including the deterioration of the east
wall surface, were the direct result of latent defects in the design and construction of the
building and the failure of HEBA to perform its work in accordance with the contract, its
warranties, and proper construction practices.
Section 5-108 sets forth several forms and degrees of limitation on actions for
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3 Section 5-108 (d) provides an exception to the twenty-year period set forth in
subsection (a) and the ten-year period set forth in subsection (b) for certain actions based on
injuries arising from exposure to asbestos products.  That exception does not apply in this
case.
damages arising from defective and unsafe improvements to real property.  Section 5-108 (a),
which we have regarded as a statute of repose rather than one of limitations, places an
absolute twenty-year period on actions for damages for wrongful death, personal injury, or
injury to real or personal property resulting from the defective and unsafe conditions of an
improvement to real property.  No such cause of action accrues when the defective and
unsafe condition of the improvement occurs more than twenty years after the date that the
entire improvement first became available for its intended use.  Section 5-108 (b), with which
we deal here, uses the same format and the same language to impose a ten-year period of
repose on actions against an architect, professional engineer, or contractor.  It provides:
“Except as provided by this section,[3] a cause of action for
damages does not accrue and a person may not seek contribution
or indemnity from any architect, professional engineer, or
contractor for damages incurred when wrongful death, personal
injury, or injury to real or personal property, resulting from the
defective and unsafe conditions of an improvement to real
property, occurs more than 10 years after the date the entire
improvement first became available for its intended use.”
In addition to these periods of repose, § 5-108 also contains a statute of limitations.
Subsection (c) provides that, upon accrual of a cause of action referred to in subsections (a)
and (b), an action shall be filed within three years.  Subsection (e), in turn, states that “an
action for an injury described in § 5-108 accrues when the injury or damage occurs.”
-8-
It is clear that Count I of appellant’s complaint, which is against contractors and was
based on the defective and unsafe condition of an improvement, was not filed within ten
years after the date that the entire improvement – the building – first became available for
its intended use in December, 1983, when the City of Hagerstown’s final inspection was
completed, a certificate of occupancy was issued, CDA’s permission to occupy all units was
issued, and the first occupancy by a tenant occurred.  If § 5-108 (b) applies, therefore, it
would bar the action.
The question of whether § 5-108 (a) or (b) is limited in its application to tort actions
or applies as well to claims for breach of contract or breach of warranty was essentially
answered in Rose v. Fox Pool, 335 Md. 351, 643 A.2d 906 (1994).  In that case, the
homeowners had purchased an in-ground swimming pool from the respondent, which,
pursuant to the contract, had installed the pool in their yard.  The installation occurred in
1971.  In 1991, the petitioner, a guest of the homeowners, injured himself when he struck his
head during a dive into the pool.  Arguing that the pool was defectively designed and was
unsafe for diving, the petitioner sued the respondent for negligence, strict liability, and
breach of warranty.  The respondent defended on the basis of § 5-108 (a) – the twenty-year
statute of repose applicable to defendants other than architects, professional engineers, and
contractors – and obtained summary judgment.  The principal issues before us were whether
(1) § 5-108 applied to manufacturers of consumer goods in product liability actions, and (2)
there was a genuine dispute of fact whether twenty years had, in fact, passed between the
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time that the improvement first became available for its intended use and the petitioner’s
injury.
In resolving the first issue, we concluded that, under subsection (a), a defendant’s
immunity from suit after twenty years did not depend on the defendant’s occupation or on
the type of service it provided.  Having concluded that § 5-108 (a) covered actions against
defendants like the respondent, we found the section applicable not only to the negligence
and strict liability claims, but to the breach of warranty claim as well.  We remanded the case
for further proceedings only because of our conclusion, with respect to the second issue, that
there was a legitimate dispute of material fact as to whether the action was brought within
the allowable twenty-year period.
As we indicated, subsections (a) and (b) are almost identically worded in substance,
the only significant difference between them being that, with respect to architects,
professional engineers, and contractors, the action must be brought within ten, rather than
twenty, years.  If subsection (a) applies to breach of warranty actions, perforce so does
subsection (b).
The United States Court of Appeals for the Fourth Circuit has reached the same
conclusion with respect to § 5-108.  In Hartford Ins. Co. v. American Automatic Sprinkler,
201 F.3d 538 (4th Cir. 2000), an action was brought by the appellant, an insurance company
subrogee, for damages done to a hotel from the bursting of a water standpipe installed by the
appellee.  The pipe, which was part of the overall sprinkler and fire-protection system, had
-10-
4 In Hartford Ins. Co. v. American Automatic Sprinkler, 201 F.3d 538 (4th Cir. 2000),
as in Rose v. Fox Pool, 335 Md. 351, 643 A.2d 906 (1994), the warranty at issue dealt with
the condition of the improvement at the time that it was completed.  The warranty was not
a continuing one of future performance, where it might not be known until the end of the
warranty period whether a breach had occurred.  See Joswick v. Chesapeake Mobile, 362 Md.
261, 765 A.2d 90 (2001).  Therefore, we need not address the question of whether § 5-108
would serve to bar an action based on a warranty that was not, in fact, breached until after
the ten- or twenty-year period provided for in the statute or, if it did have that effect, whether
the provision would be constitutionally invalid.
been installed in 1982.  The appellee had done some repair work to the sprinkler system in
January 1996, and the bursting and flooding occurred within a month thereafter.  The
complaint, which was based on both the initial installation work in 1982 and the repair work
in 1996, relied on theories of negligence, strict liability, and breach of contract under
Maryland law.  See id. at 540.
The principal issue in the case, which reached the appellate court from the granting
of summary judgment, was whether § 5-108 (b) applied to a subcontractor.  The court ruled
that it did apply and affirmed the judgment of the District Court with respect to the claims
based on the 1982 work.  That judgment included a barring of the claim based on breach of
contract.4  Cf. First United Methodist Church v. U.S. Gypsum Co., 882 F.2d 862, 864-65 (4th
Cir. 1989) (applying § 5-108 (a) to a breach of warranty action by a property owner against
the manufacturer of asbestos-containing acoustical plaster when the action was filed prior
to the enactment of § 5-108 (d)).
Although many States have adopted statutes of repose with respect to actions based
on defective improvements to real property, the statutes vary in terms of what they cover,
-11-
who is protected, and the time periods allowed.  Some statutes expressly exclude breach of
contract actions.  See, e.g., D.C. CODE ANN. § 12-310 (2001); N.M. STAT. ANN. § 37-1-27
(Michie 2001).  Others expressly include breach of contract claims.  See, e.g., ALA. CODE §
6-5-218 (2001); CONN. GEN. STAT. § 52-584a (2001).  In those states that have statutes
similar in wording to § 5-108, there appears to be a split over whether the statute applies to
contract claims.  
In Kocisko v. Charles Shutrump & Son Co., 488 N.E.2d 171 (Ohio 1986), in an action
for damages due to the installation of a leaky roof, the court held that the statute applied only
to tortious conduct.  A similar result was reached in Kittson Cty. v. Wells, Denbrook &
Assoc., Inc., 241 N.W.2d 799 (Minn. 1976), in which the court noted that, although there was
no legislative history available to indicate the purpose of the statute, it assumed that the
statute was a response to the expansion of liability from elimination of the privity of contract
doctrine and found it logical to confine the law to tort actions by persons not in privity with
the defendant.
In contrast, in Dallas Mkt. Ctr. v. Beran & Shelmire, 824 S.W.2d 218 (Tex. App.
1991), the court rejected the notion that the statutes of repose – one for architects and
engineers and one for contractors – applied only to tort claims, noting:
“The statutes of repose demonstrate legislative recognition of
the protracted and extensive vulnerability to lawsuits of building
professionals and contractors.  We face this same evil with
respect to contract claims based on negligent performance as
previously addressed in tort cases.  The only limitation in both
statutes of repose is that the actions arise out of a defective or
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unsafe condition of the real property.”
Id. at 222 (internal citations omitted).
The view of the Texas Court of Appeals in Dallas Market is much more consistent
with our holding in Rose and the holdings of the United States Court of Appeals for the
Fourth Circuit in Hartford Insurance and First United.  As we made clear in Rose, §§ 5-108
(a) and (b) were intended to protect architects, engineers, contractors, and others involved
in the construction industry from being hauled into court by reason of latent defects that did
not become manifest until years after the completion of construction.  In providing that
protection, the General Assembly carefully weighed the competing interests and struck the
balance noted – ten years for architects, engineers, and contractors and twenty years for
others.  That protection would be fragile, indeed, if it depended on how a plaintiff chooses
to frame and plead its cause of action.  As noted, most cases of this nature involve claims in
both tort and contract, all emanating from the assertion that the defendant was in some way
negligent in the performance of its contractual duties.  The issue should be whether, if the
injury or damage arises from the defective and unsafe condition of an improvement to real
property, that injury or damage occurs more than ten (or twenty) years after “the date the
entire improvement first became available for its intended use,” and not whether the claim
is pleaded as one in contract or tort.
Section 5-108 (b) speaks of actions for damages when personal injury “or injury to
real or personal property” results “from the defective and unsafe condition of an
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improvement to real property.”  We can find no justification, in either the wording or the
purpose of the statute, for drawing a distinction between situations in which the latent
defective condition has caused damage to property other than the property that was the
subject of the contract and those in which it has caused damage to the property containing
the defective condition.  The clear intent of § 5-108 (b) was to terminate liability after ten (or
twenty) years for the damage caused by the latent defect to any property.  Therefore,
appellant’s breach of contract claim is barred by the ten-year statue of repose codified in §
5-108 (b), and the Circuit Court’s grant of summary judgment to HEBA on Count I of the
complaint is affirmed.
IV. Count II: Action on the Performance Bond
The Circuit Court was correct in substituting the twelve-year statute of limitations
contained in § 5-102 (a) (2) for the two-year limitation contained in the performance bond,
and none of the parties dispute that finding in the case before us.  The sole disagreement
between the parties, with respect to the application of § 5-102 (a) (2) to appellant’s
performance bond claim, is when the final payment was “due” under the Construction
Contract, because that was the triggering event for the statute of limitations on the
performance bond action.
Section 3 of the Construction Contract between the parties called for monthly progress
payments to be made to HEBA, “[s]ubject to the approval of CDA,” in an amount equal to
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the value of acceptably completed work, plus the value of materials and equipment delivered
to the construction site and properly stored.  Section 3C of the Construction Contract, which
dealt specifically with final payment, stated that the balance due to HEBA “shall be payable
upon the expiration of 30 days after the work hereunder is fully completed” (emphasis
added), provided that all required government inspections had been completed, all required
government approvals had been issued, and CDA had issued permission to occupy all units
of the project.
Section 14 of the Construction Contract contained provisions dealing with the escrow
of funds for incomplete items.  In relevant part, it provided that, when CDA issued its final
project report declaring construction complete, it could designate certain specific
improvements as incomplete, along with an estimated cost for the completion of each such
item (the “punch list” items).  The Contract provided that CDA would require, as a condition
of final loan closing, that the parties enter into an escrow agreement, pursuant to which
appellant would withhold from the final payment and deposit in escrow an amount equal to
twice the CDA estimate of the cost of the incomplete items.  Under § 14, HEBA would
forfeit any claim or interest in the escrowed funds allocable to any punch list item still
incomplete at the time specified in the escrow agreement.
Section 9.9.2 of the General Conditions of the Construction Contract stated, in
relevant part, that neither the final payment nor the remaining retained percentage would
become due to HEBA until HEBA submitted to the architect an affidavit that all bills
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5As indicated supra, Paragraph 9.9.2 of the General Conditions of the Construction
Contract specifically dictated that the final payment would not “become due” until the
Contractor had submitted an affidavit attesting that all outstanding debts had been paid, that
the surety had consented to final payment, and that all releases and satisfactions had been
completed.
connected with the work had been paid and the consent of the surety to final payment, as well
as certain other assurances, releases, or satisfaction that might be required by appellant.
The critical date for determining the commencement of the statute of limitations on
appellant’s performance bond claim is the date that the final payment fell due.  The mere fact
that CDA declared that the sum requested was payable on October 10, 1984 does not mean
that the final payment was due on that date.  Black’s Law Dictionary defines a “payable”
amount as a sum of money “that is to be paid.”  BLACK’S LAW DICTIONARY 1150 (7th ed.
1999).  It goes on to explain: “An amount may be payable without being due.  Debts are
commonly payable long before they fall due.”  Id.
Pursuant to the Construction Contract between the parties, the final payment was not
due until the final loan closing, which occurred on November 1, 1984.5  The contract
specifically contemplated that a portion of the “final payment” would be escrowed at the
closing to cover the cost of incomplete items, and, in fact, more than $17,000 was withheld
and put into escrow at the final loan closing.  Therefore, final payment could not have been
made any earlier than the closing on November 1st.
Support for this interpretation can be found in Perlmutter v. Minskoff, 196 Md. 99, 75
A.2d 129 (1950).  In that case, a subcontractor brought a breach of contract suit for final
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payment under a construction contract, claiming that it was entitled to payment for
substantial completion of the terms of the contract.  The contracts at issue in that case
provided that the final ten percent payments were to be paid to the subcontractor upon
approval by the Federal Housing Administration.  See id. at 107, 75 A.2d at 132.  This Court
upheld the trial court’s dismissal of the contract claim, explaining:  “Substantial compliance
does not fulfill the terms of an agreement.  Of course, under the terms thereof, there must be
full compliance before the final amount payable under the contracts is due.”  Id. (emphasis
added).
This case somewhat parallels the earlier decision by this Court in Bal. Co. Dep’t v.
Henry A. Knott, 234 Md. 417, 199 A.2d 369 (1964).  That case involved a suit by a
contractor to recover on a school construction contract.  The trial court dismissed the suit on
the basis of the statute of limitations, finding that a letter from the construction engineer for
the Board of Education constituted a “final acceptance” of the building, thereby triggering
the running of the one-year statute of limitations for school construction contract suits.  See
id. at 419-20, 199 A.2d at 370-71.  This Court reversed, holding that a “final acceptance” had
to be unqualified and unconditional and did not take place until the contract had been
completely performed, reasoning that final settlement could not take place until full payment
had been made.  See id. at 424, 199 A.2d at 373.  
By the same token, the CDA’s certification in this case that the remaining sum was
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6In its brief, HEBA also maintains that, as a substantive matter, no action based on
breach of warranty lies under the performance bond.  As it granted summary judgment based
solely on the statute of limitations, the Circuit Court did not address that issue.  Appellate
courts generally will not address matters that were not raised or decided in the trial court.
See Davis v. DiPino, 337 Md. 642, 655-56, 655 A.2d 401, 407-08 (1995).  Absent
exceptional circumstances, an appellate court will review a grant of summary judgment only
upon the grounds relied upon by the trial court.  See PaineWebber v. East, 363 Md. 408, 422,
768 A.2d 1029, 1036 (2001); Bishop v. State Farm, 360 Md. 225, 234, 757 A.2d 783, 787-88
(2000); Gresser v. Anne Arundel County, 349 Md. 542, 552, 709 A.2d 740, 745 (1998); Geisz
v. Greater Baltimore Medical, 313 Md. 301, 314 n.5, 545 A.2d 658, 662 n.5 (1988).  When
an appellate court reviews a trial court’s grant of summary judgment and finds its basis to be
erroneous, the appellate court will not ordinarily undertake to sustain the judgment by ruling
on another ground not ruled upon by the trial court.  See Bishop, 360 Md. at 234, 757 A.2d
at 787-88; Gresser, 349 Md. at 552, 709 A.2d at 745; Three Garden v. USF&G, 318 Md. 98,
107-08, 567 A.2d 85, 89-90 (1989); Geisz, 313 Md. at 314 n.5, 545 A.2d at 662 n.5.  The
proper procedure, upon reversing a trial court’s grant of summary judgment, is to remand to
the trial court for further proceedings.  See Bishop, 360 Md. at 234, 757 A.2d at 787; Davis,
337 Md. at 656, 655 A.2d at 408.  In view of the fact that we are remanding to the Circuit
Court, there will be an opportunity for the parties more fully to develop their arguments
regarding whether appellant’s breach of warranty claim can lie under the performance bond
in this case.
“payable” on October 10th did not automatically make the final payment due on that date.6
Therefore, the Circuit Court erred in granting summary judgment to appellees on Count II,
the performance bond claim, on the basis that it was not timely filed within the twelve-year
statute of limitations codified in § 5-102 (a) (2).
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JUDGMENT OF THE CIRCUIT COURT FOR
WASHINGTON COUNTY AFFIRMED IN
PART AND REVERSED IN PART.  CASE
REMANDED  TO THE CIRCUIT COURT
FOR 
WASHINGTON 
COUNTY 
FOR
FURTHER PROCEEDINGS CONSISTENT
WITH THIS OPINION.  COSTS TO BE
SHARED EQUALLY  BETWEEN 
APPELLANT AND APPELLEES.
Bell, C.J., joins this opinion only with respect to Parts I, II, and IV.
Concurring and Dissenting Opinion follows:
IN THE COURT OF APPEALS OF MARYLAND
No. 29
September Term, 2001
______________________________________
HAGERSTOWN ELDERLY ASSOCIATES
LIMITED PARTNERSHIP
v.
HAGERSTOWN ELDERLY BUILDING
ASSOCIATES LIMITED PARTNERSHIP,
H. B. ALEXANDER, INC. AND
SEABOARD SURETY COMPANY
_______________________________________
HOUCK & COMPANY, INC.
v.
DRYVIT SYSTEMS, INC.
______________________________________
Bell, C.J.
Eldridge
Raker
Wilner
Harrell
Battaglia
Karwacki, Robert L.  (retired, specially         
                  assigned),
   JJ.
______________________________________
Concurring and dissenting opinion by Wilner, J.,
in which Battaglia, J., joins
______________________________________
Filed:   March 12, 2002
I join the Court’s opinion and judgment with respect to Count I of the complaint, but,
with respect, I dissent from its judgment as to Count II – the action on the bond.  I believe
that the Court has both failed to consider and misconstrued the relevant documents in
concluding that final payment under the contract did not fall due until the final loan closing
on November 1, 1984.
The Court notes that § 3C of the construction contract, which dealt specifically with
final payment, stated that the balance due HEBA “shall be payable upon the expiration of 30
days after the work hereunder is fully completed, provided that all required government
inspections had been completed, all required government approvals had been issued, and
CDA had issued permission to occupy all units of the project.”  It notes as well that (1) under
§ 14 of the construction contract, CDA, upon issuing its final project report declaring
construction complete, could designate certain specific improvements as incomplete, along
with an estimated cost for the completion of those items, and (2) in that event, CDA would
require, as a condition of final closing, that the parties enter into an escrow agreement,
pursuant to which the owner would withhold from the final payment and deposit in escrow
a sum equal to twice the CDA estimate of the cost of the incomplete items.  What the Court
omits to mention, however, because it flatly precludes the result that the Court reaches, is
that, although the escrowed sum was to carry no interest, the contract expressly declared that
the escrowed sum belonged to HEBA, subject only to its completion of the work set forth in
the escrow agreement not later than the time specified in the agreement.
The full contract between the parties included a number of attachments known as the
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Contract Documents, one of which was a document entitled General Conditions of the
Contract for Construction, a form document prepared by the American Institute of Architects
and approved by the Associated General Contractors of America.  Section 9.9.2 of those
General Conditions stated, in relevant part, that neither the final payment nor the remaining
retained percentage shall become due to HEBA until HEBA submitted to the architect (1) an
affidavit that all payrolls and other bills connected with the work, for which the owner might
be responsible, had been paid, (2) the consent of the surety to final payment, and (3) if
required by the owner, certain other assurances of payment, releases, or satisfaction.
The evidence before the court showed that the City of Hagerstown conducted a final
inspection of the project on December 16, 1983, that it issued a Use and Occupancy Permit
the same day, that on December 21, 1983, the architect certified and appellant accepted that
the work was substantially complete, and that, also on December 21, CDA granted
permission for the occupancy of all 110 units of the project.  The first tenant assumed
occupancy on December 20.  Attached to the architect’s Certificate of Substantial
Completion was the “punch list” items to be corrected or completed.  Some amount, not
clearly identified in the record, was withheld and placed in escrow in order to assure
completion of those items.  On February 28, 1984, HEBA advised the architect that it had
completed all of the items listed on the architect’s final inspection report of October 6, 1983,
and requested the architect to reinspect those items so that no escrow would be required at
final closing.
1 The record in this case is terribly confusing.  Appellant’s draw requisition, attached
to the CDA application, showed a “FAF Escrow Refund” of $110,000, a construction surplus
account of $17,706, and a “Balance to Sponsor” of $189,112, those three items totaling
$316,818.  CDA’s ultimate authorization to release the remaining funds identified the
$17,706 as the “Construction Surplus Account – Final Draw.”  It is impossible to tell from
these documents, or from anything else in the record, whether the “final payment” to HEBA
was to be $110,000, $17,706, or some other amount.  As noted, the apparent final payment
was $111,360.  Apart from this confusion, so far as I can tell, the escrow agreement, the list
of incomplete items, and the architect’s final inspection of the “punch list” items are not in
the record.  There was a nearly eight-month hiatus between the time HEBA certified final
completion of the “punch list” items and the time CDA confirmed that completion, with no
explanation for the cause of the delay.  I cannot tell from the documents how much was
(continued...)
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It is not clear from the record when the architect reinspected the items.  We know only
that, on October 10, 1984, CDA applied to MHF for insurance of the advance of mortgage
proceeds and that, on October 26, 1984, MHF approved an advance of $316,818.  In its
October 10 application, CDA certified that, to the best of its knowledge, information, and
belief, “the sum requested is now payable.”  A final loan closing, for the release of the
remaining funds, was set for and took place on November 1, 1984.  On that day, CDA
instructed its trustee to wire $24,839 to a New Jersey bank for the account of appellant and
to transfer $17,706 to a special escrow account as a “Construction Surplus Account – Final
Draw.”  A supporting memorandum shows that the disbursement would be $17,706 from the
construction surplus account and $79,112 to the “sponsor.”  However one may view these
instructions, it appears that final payment was, in fact, made to HEBA the next day, on
November 2, 1984.  We are told by appellant that the final payment to HEBA was in the
amount of $111,360, although there is no explanation as to how that amount was calculated.1
(...continued)
withheld after substantial completion and put in escrow for the “punch list” items, or whether
additional funds were also withheld.  The copies of the CDA application to MHF and the
Fund’s approval of that application included in the record contain blanks and are not signed;
nor is appellant’s draw requisition.  Compounding these uncertainties is the fact that,
notwithstanding the direction in Maryland Rule 8-501(i) that documents presented to the trial
court more than once shall be reproduced in full only once in the record extract, many of the
documents, such as the construction contract, are reprinted several times.  It would certainly
have been helpful if the record were more complete and the record extract had been prepared
in a more coherent way.
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Appellant urges that there were essentially two conditions precedent to final payment.
Keying on the language in § 3 B of the contract that payments to HEBA were “[s]ubject to
the approval of CDA,” it contends that CDA’s approval was one condition to payment.
CDA’s ability to provide that approval, it argues further, was conditioned on the prior
approval of MHF.  For that proposition, it relies on the statement in CDA’s October 10
application for insurance of advance payment that it intended to disburse the sum on a
particular date (that was left blank in the document included in the record) “provided we
receive prior approval.”  That approval from MHF, appellant claims, did not occur until
November 1.
Appellant’s reasoning, which has become the Court’s reasoning, is unduly strained.
Under the most rational reading of the contract, final payment was due to HEBA on
December 21, when the architect certified substantial completion.  By that time, all required
inspections had been completed, a use and occupancy permit had been issued by the City of
Hagerstown, and CDA had granted permission for the occupancy of all 110 units.  The final
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draw was then authorized.  It is true that some part of that amount was required to be placed
in escrow, to assure the completion of the “punch list” items, but, under the clear wording
of § 14 of the contract, dealing with that situation, the money placed in escrow belonged to
HEBA, subject only to the forfeiture of its right to such of those funds allocable to an item
that it thereafter failed to complete.  The escrowed funds, therefore, constituted part of the
final payment to HEBA under the construction contract.  Section 14 treated a declaration of
substantial completion as a declaration of 100% completion and the escrow arrangement as
a delay in disbursement of the final payment, rather than as a delay in when final payment
became due.
Even if the escrowed funds were to be treated as a withholding from final payment
under the construction contract itself, as appellant insists and the Court seems to hold, CDA’s
certificate to MHF that “the sum requested is now payable” establishes October 10 as the
date final payment was due.  Although, as a practical matter, CDA could not actually pay that
sum until its loan closing with the MHF, the critical date, in my view, is not when CDA was
able to disburse the final payment but when that payment fell due.  It is not at all unusual for
the disbursement of sums due to be delayed pending lender sign-offs and the preparation of
closing documents.  Accordingly, I would hold that the Circuit Court did not err in finding
Count II barred by limitations.
Judge Battaglia joins in this concurring and dissenting opinion.