Opinion ID: 1511669
Heading Depth: 3
Heading Rank: 1

Heading: The Parties and the Contract

Text: Petitioner, V.L. Nicholson Company, is a Tennessee corporation doing business as a general building construction contractor. Respondent, Transcon Investment and Financial, Ltd., Inc., also a Tennessee corporation, is in the business of real estate development. Transcon promotes and develops public housing projects throughout the southeastern United States. Respondent, Johnson City Leased Housing Corporation, is a Tennessee not-for-profit corporation which presently owns the land and one hundred units of housing which are involved in this lawsuit. This property is presently leased to Johnson City Housing Authority. In 1971, the United States Department of Housing and Urban Development (HUD) approved the construction of one hundred low-rent housing units to be constructed as a leased housing project by the Johnson City Housing Authority. This project was to be built under Section 23 of the United States Housing Act of 1937, as amended, with the Federal Housing Authority guarantee of a portion of all the rent if the housing met requirements and standards promulgated by HUD. In May 1972, the Johnson City Housing Authority issued a letter of intent naming Transcon as project developer. Transcon (or Transcon's attorney) set up the Johnson City Leased Housing Corporation (JCLHC) to finance, construct and own the property. JCLHC's charter characterizes it as an agency and instrumentality of the Johnson City Housing Authority. The creation of JCLHC served several purposes: To facilitate the issuing of tax-exempt revenue bonds in the principal amount of $1,480,000.00, to purchase the land and to lease the completed project to Johnson City Housing Authority. The Commerce Union Bank of Nashville handled the details of financing the project. As promoter and developer, Transcon selected for the project the architectural firm, Ost, Follis, Wagner and Bekemeyer of Memphis, and the general contractor, Nicholson. Transcon was involved in the negotiations which were conducted primarily between Nicholson and Bob Beeler, a hardware salesman known to both Nicholson and Transcon. The original contract was between JCLHC (owner) and Nicholson (contractor); Transcon was not a party signatory to the contract. The contract was drawn on May 15, 1973, based on plans and specifications which were later discovered to be preliminary and incomplete. The price of the contract was set at $1,115,000.00. This contract, executed by JCLHC, was delivered to Nicholson on May 23, 1973, by Bob Beeler, along with an unsigned addendum. That same day Nicholson sent to Transcon the executed contract and a letter stating that Nicholson's acceptance of the contract was conditioned upon the acceptance of certain conditions, including the addendum to the specifications. The addendum and eight (8) conditions contained in the letter incorporated changes made during the negotiations which Nicholson found not reflected in the contract. Transcon acknowledged receipt of the contract and in reply told Nicholson to proceed. Nicholson refused to proceed with the work until the letter, with its conditions and addendum, was accepted. Transcon wired acceptance on June 14, 1973, stating that the addendum and conditions were between Transcon and V.L. Nicholson Company. Transcon also stated in the telegram that completion date would be nine months after start and [a]djustment will be made for any delays to this time between Transcon and Nicholson. JCLHC was not involved in acceptance of the conditions and addendum. Nicholson received revised plans on or about July 30, 1973, a month after the original start date set out in the contract. The revisions reflected additions necessitated by HUD specifications and contained many items eliminated during the negotiations preceding the contract. Nicholson replied that the revisions were not those contemplated. Finally it was agreed between Nicholson and architect Bekemeyer that the additional items and the revisions would be incorporated into written change orders to be submitted for approval. The original contract was a standard form contract of the American Institute of Architects. It set commencement day as June 1, 1973, and completion day as February 15, 1974. It contained clauses on change orders and liquidated damages. The addendum to the contract adjusted the completion date to nine months after the building permit could be obtained. All change orders were to be written and approved by the owner and the architect, or by the architect alone if the architect had written authority from the owner for that procedure. The liquidated damages clause provided that should the project not be completed on time the contractor would pay liquidated damages estimated at approximately $350.00 per day for every day past completion. Final payment was conditioned upon approval by the owner, the Johnson City Housing Authority and HUD. Revised plans were sent to HUD for approval on July 25th and then on to Nicholson on July 30th. Further revisions were received by Nicholson on August 6th. These revisions brought the contract in line with HUD standards and changed the scope of the work defined in the May 23rd contract. For the purpose of discussing the differences between the original contract and the revised plans and specifications, a meeting was held on August 9, 1973, with Nicholson, Transcon's vice-president, Erlewood Barden, and the project architect, Bekemeyer. Bekemeyer agreed that several items in the revisions had been in the project as it was originally drawn, but were negotiated out prior to the execution of the contract. Bekemeyer explained these items would have to be included because they were required by HUD. Bekemeyer agreed to send revised plans as soon as they were completed. By the end of August 1973, things were to the point that Nicholson could begin site work but by early September Nicholson once again stopped because, according to Nicholson, extra work had not been approved. Transcon instructed Bekemeyer to work out the problems with Nicholson. Thus, in a meeting on September 14th, between Bekemeyer and Nicholson, the architect directed Nicholson to submit change orders. The eight change orders in dispute in this case were prepared by Nicholson and were submitted between September 18 and December 18, 1973, but were never approved by either JCLHC, as required by the contract, or by Transcon with whom Nicholson continued to deal. [1] Work did proceed, however, based upon the change orders. These change orders eventually resulted in cost overruns and/or additional charges and increased the number of work days needed to complete the project. Under its development contract with JCLHC, Transcon was authorized to make progress payments. Transcon, in turn, authorized its vice-president, Barden, to execute progress payments to Nicholson, which Barden did several times in the course of the work, at least up through June 1974. Not included in these payments was any amount for the extra work being done by Nicholson; on the applications for payment Transcon marked these subject to review. After completion of the project, JCLHC or Transcon continued not to pay for the extra work described in the change orders and did not release the contract retainage. In February 1975, JCLHC and Transcon executed an Assignment and Hold Harmless Agreement. In the agreement JCLHC assigned to Transcon its right to sue Nicholson for damages under the construction contract. Transcon in return agreed to defend and hold JCLHC harmless against any claims made by Nicholson. On February 18, 1975, Nicholson filed a lien against the housing units to secure payment for the extra work done.