Title: B L PAINTING CO v UN PAC INS

State: montana

Issuer: Montana Supreme Court

Document:

No. 12568 I N T H E S U P R E M E C O U R T O F T H E STATE O F M O N T A N A B & L PAINTING C O M P A N Y , INC,, P l a i n t i f f UNITED PACIFIC INSURANCE C O M P A N Y & E, L. MATELICH CONSTRUCTION C O M P A N Y , Defendants and Respondents, BOARD O F TRUSTEES O F KALISPELL HIGH S C H O O L DISTRICT #5 and KALISPELL HIGH S C H O O L DISTRICT O F F L A T H E A D C O U N T Y , MONTANA and A R T H U R B , HARKER, d/b/a O L E 'S P L U M B I N G AND HEATING, Third Party Defendants and Appellants. Appeal from: D i s t r i c t Court of the Eleventh J u d i c i a l D i s t r i c t , Honorable Robert C. Sykes, Judge presiding. Counsel of Record : For Appellants : M. Dean J e l l i s o n , argued, Kalispell, Montana Rognlien, Hash, J e l l i s o n & OIBrien, Kalispell, Montana For Respondents: C. Eugene P h i l l i p s , argued, Kalispell, Montane Murphy, Robinson, Heckathorn & P h i l l i p s , Kalispell, Montana Submitted: September 12, 1974 Decided: O C i 9 7974 Chief J u s t i c e James T. Harrison delivered the Opinion of the Court . O n May 1, 1967 appellant Board of Trustees of Kalispell High School D i s t r i c t No. 5 (the ~ o a r d ) awarded contracts f o r construction of the new Kalispell Junior High School t o respondent E. I ? . Matelich Construction Company (I$atelich) a s general con- t r a c t o r ; o l e ' s Plumbing & Heating (ole's) a s mechanical contractor; and Palmquist Electric a s e l e c t r i c a l contractor. Each of these contractors acted a s a "prime contractor'' sharing the responsi- b i l i t y f o r construction; none was a subcontractor of any other. O n May 8, 1967 a notice t o proceed was issued making specific reference t o the 580 calendar day completion schedule specified i n the contract, indicating completion by December 10, 1968. The contract provided f o r extensions of t i m e f o r s t r i k e s and during t h e project a l l contractors were granted 51 days delay from t h i s cause. Additional extensions were granted u n t i l the completion date became April 7, 1969 f o r a l l the contractors. O n April 7, 1969 a change order was executed by Matelich and the Board which provided, among other things, t h a t t h e completion date be extended t o July 1, 1969 and the contract's liquidated damages provision be changed from $50 per day t o $500 per day. O n the same day a change order was a l s o executed by o l e ' s and the Board which likewise provided f o r the extension of t h e completion date t o July 1, 1969, but with no increase what- soever i n the liquidateddamages t o be assessed a f t e r t h a t date. O n August 31, 1969 the a r c h i t e c t issued a c e r t i f i c a t e of substantial completion. Matelich was paid the contract p r i c e l e s s $30,500 withheld a s liquidated damages f o r the 61 day delay from July 1 t o August 31, 1969. $3,050 (61 times $50) was t o be withheld from t h e money due Ole's. P l a i n t i f f B & L Painting Company, Inc., on October 30, 1969 f i l e d a complaint alleging t h a t it was a subcontractor of Matelich on t h e Kalispell Junior High School project and was e n t i t l e d t o payment of $8,067.75 on i t s subcontract. United Pacific Insurance Company, surety f o r Matelich, was a l s o named a s a defendant. Matelich f i l e d a t h i r d party complaint alleging the Board was indebted t o it on i t s contract i n t h e amount of $30,500, which was improperly withheld a s liquidated damages. The d i s t r i c t court ordered the issues between B & L Painting and Matelich be separated from the issues between Matelich and the Board. The i n s t a n t appeal therefore only involves Matelich and t h e Board. The Board answered t h a t the project was completed 61 days l a t e ; t h a t a change order t o the contract extending the time of completion a l s o provided f o r liquidated damages of $500 per day f o r delay i n completion; and t h a t it was e n t i t l e d t o deduct $30,500 from the contract price a s an o f f s e t . Matelich moved f o r summary judgment and f o r an order limiting liquidated damages t o $50 per day. The d i s t r i c t court denied summary judgment, but granted the order limiting damages t o $50 per day. In the c o u r t ' s memorandum i n support of i t s order two of the reasons given were (1) that the change order extending time and increasing liquidated damages was invalid because no notice of the changes was given t o any subcontractor o r surety, and therefore, the completion date was April 7 , 1969 and the o r i g i n a l $50 per day liquidated damages provision was applicable; and (2) t h a t the Board contracted with Matelich a s one of three "prime" con- t r a c t o r s , and since delays might be occasioned by any of the three, the increase i n liquidated damages should be affected only upon a detailed and i n t e r r e l a t e d basis. O n t h i s appeal the Board contends t h a t a l l the provisions of the April 7, 1969 change order between it and ~ a t e l i c h should be allowed t o stand. Matelich i n s i s t s t h a t not only should the l i q u i - dated damages be limited t o $50 per day, but they should be figured using July 1, 1969 a s the scheduled completion date. , . . .- I * . w **' * . O n appeal these questions a r e posed: (1) Is the increase i n liquidated damages from $50 t o $500 per day enforceable against only one of three "prime" contractors, when a l l three had contract obligations which were i n t e r r e l a t e d and independent? (2) Would a finding t h a t the increase i n liquidated damages i s unenforceable necessarily invalidate the accompanying April 7 t o July 1, 1969 time extension? W e have intentionally bypassed the the issues of whether the increase i n liquidated damages c o n s t i t u t e s an unenforceable penalty, o r whether i t i s unenforceable f o r want of notice t o subcontractors and s u r e t i e s , since the peculiar circumstances of t h i s case make the increase unenforceable i n any event. Counsel agree t h a t no precedent has been found, but it i s our opinion t h a t the d i s t r i c t court has s e t f o r t h what appears t o be the only practicable and j u s t r u l e . That is-- where several separ- a t e and d i s t i n c t construction contracts a r e executed, and delays may be caused by any one of the contractors, the interdependency of t h e contractors must be considered i n ascertaining liquidated damages. For example: one of the problems here i s t h a t Matelich a t t r i b u t e d a t l e a s t part of the delay t o O l e ' s . Yet the inequitable r e s u l t was t h a t the Board o f f s e t $500 per day against the money due Matelich, but only one-tenth of t h i s amount o r $50 per day against Ole's. The only party having any r e a l control over the damages t o be charged against a l l three of t h e "prime" contractors was the Board. To permit a party i n the ~ o a r d ' s position t o avoid considering possible delays by any one of these contractors o r t h e i r subcontractors w i l l inevitably lead t o a s i t u a t i o n needlessly complicated by counterclaims. This Court i s not about t o condone such a policy. The time extension t o July 1, 1969 i s another matter. The d i s t r i c t court reasoned t h a t since the liquidated damages provision of the April 7, 1969 change order between Matelich and the Board was void, so was the time extension. A s an element of logic t h i s conclusion sounds appealing, but it i s not consistent with t h e r u l e discussed heretofore concerning liquidated damages i n t h a t it neglects t o take i n t o account the interdependency of the three '1 prime" contractors. Thus, Matelich is required t o f i n i s h by April 7, 1969 o r pay damages, despite being dependent i n some measure upon Ole's who by v i r t u e of i t s own change order had u n t i l July 1, 1969 t o complete t h e mechanical work. What d i f - ference does it make whether Matelich i s held t o a greater amount of liquidated damages o r an e a r l i e r scheduled completion date? Either way the same p o t e n t i a l r e s u l t obtains: Matelich loses money because of t h e actions of another party over whom he has no control. I f anything, the July 1 completion date given o l e ' s p r a c t i c a l l y guaranteed t h a t Matelich would n o t f i n i s h the general construction work by April 7. The Board i s estopped from denying t h a t Matelich had u n t i l July 1, 1969 t o complete i t s portion of the project. F i r s t , it i s important t o note the limiting terms of t h e contract between Matelich and the Board insofar a s time of completion and liquidated damages a r e concerned: "19. * * * 11 It i s further agreed t h a t time is of the essence of each and every portion of t h i s contract and of t h e specifications wherein a d e f i n i t e and c e r t a i n length of time i s fixed f o r t h e performance of any a c t whatsoever; and where under the contract an additional t i m e i s allowed f o r the completion of any work, t h e new time l i m i t fixed by such extension s h a l l be the essence of t h i s contract. Provided, t h a t the contractor s h a l l n o t be charged with l i q u i - dated damages o r any excess c o s t when the delay i n t h e completion of the work i s due: * * (b) t o un- foreseeable cause beyond the control and without the f a u l t o r negligence of the contractor, including, but not r e s t r i c t e d t o , a c t s of God, o r of public enemy, a c t s of the owher, a c t s of another contractor i n t h e performance of a contract with t h e owner * * *". (Emphasis added). Certainly "acts of the owner" and "acts of another contractor i n the performance of a contract with the owner" include the making of an agreement allowing the other contractor, who i s under no duty t o Matelich, additional time t o finish. H o w can t h e Board now be heard t o complain t h a t Matelich f a i l e d t o f i n i s h by April 7, 1969, when it gave Ole's--upon whom Matelich was p a r t l y dependent-- u n t i l July 1, 1969? Second, the record shows t h a t a t various times during the period from December 1968 t o May 1969 the Board proceeded t o move furniture, equipment, and supplies i n t o the new school building. Gregory Matelich t e s t i f i e d t h a t Iqatelich cooperated i n t h i s venture p r i o r t o being completely out of the building i n order t h a t there would not be any d i f f i c u l t y i n s t a r t i n g t h e coming school t e r m . Having t h e school people und.er foot surely was more hindrance than help i n g e t t i n g the job done by April 7; it thus hardly seems f a i r t o penalize Matelich f o r f a i l u r e t o do so. Finally, the record a l s o shows i n August 1969 Matelich twice cleaned t h e e n t i r e school building i n preparation f o r an I I open house". This tends t o indicate Matel-ich was thinking of the July 1, not April 7, completion date. Going t o such trouble and $ expense i s strange behavior indeed f o r a party it i t realized i t was already four months tardy i n i t s obligations. The judgment of t h e d i s t r i c t court i s modified t o t h e extent t h a t Matelich should be assessed liquidated damages i n t h e amount of $50 per day only a f t e r July 1, 1969. , , - - - - - - - - - - - - - - - p - - - - - - - - - - - - - - - - - - - - Chief J u s t i c e W e concur: ............................. Justices.