Atlantic States Construction Co. v. Drummond & Co.

McWilliams, J., delivered the opinion of the Court. The parties are at odds over the meaning of their contract. The amount at stake is $20,701.63. There is disagreement also as to the date from which interest ought to be calculated.

Our recital of the undisputed facts is based on a statement agreed to by counsel pursuant to Maryland Rule 828 g. In August 1964, Laurel Plaza, Inc. (owner) contracted with appellant 1 (Atlantic) for the construction of a shopping center at Laurel, in Prince George’s County. In March 1965, Atlantic contracted 2 with appellee (Drummond) for the installation of the paving. Article XII of the contract reads as follows: “Article XII — Contractor [Atlantic] agrees to pay Subcontractor [Drummond] for said work ........

Dollars, (any exchange shall be borne by Subcontractor) subject to additions and deductions as hereinbefore provided, payable as the work progresses, based upon estimates approved by Contractor and Architect, or their authorized representatives, and payment by Owner to Contractor. Contractor may at his option retain 10% of each estimate until final settlement and may withhold payment of any estimate until Subcontractor has furnished Contractor with suitable evidence, that he has paid in full for all labor, materials, supplies, tools and equipment used in the work through the date of the estimate. Final acceptance of the work ⁷⁹ performed under this Subcontract, and the final retain-age withheld will not be due or payable until such time as the Subcontractor shall have furnished the Contractor proper and satisfactory evidence, under oath, that all claims for labor, materials, supplies, tools and equipment employed or used in the performance of this Subcontract have been settled. Final payment shall be made within 30 days after the completion of the work included in this Subcontract, written acceptance of same by the Architect and Owner, or their authorized representatives and FULL PAYMENT 3 therefor by the Owner.” Atlantic completed the shopping center and Drummond installed the paving, all of which was approved and accepted by the architect and the owner.

In the spring of 1966 the owner ran out of money. Holders of the first trust foreclosed and the property was sold to a third party. On 18 August, when the owner’s attempt to reorganize under the bankruptcy laws was denied by the United States District Court, it owed Atlantic a balance of $84,808.58 and Atlantic owed Drummond $20,701.-63. Further recovery from the owner was, and ever since has been, impossible.

Neither Atlantic nor Drummond was able to avail itself of the remedy provided by the mechanics’ lien law, Code, Art. 63 § 1 et seq., because of the superiority of the lien of the deed of trust which was foreclosed. Drummond filed suit against Atlantic on 2 March 1967. On 11 October 1967 Judge Loveless granted Drummond’s motion for summary judgment, allowing interest from the date of the judgment. Atlantic has appealed from the entry of the judgment; Drummond’s appeal seeks interest thereon from 18 September 1966 instead of from 11 October 1967.

I. Atlantic relies principally on Peacock Construction Co. v. West, 111 Ga. App. 604 , 142 S. E. 2d 332 (1965), where the language of the contract is similar to the language in the case at bar. Trial in the lower court resulted in a judgment for West, the subcontractor. The appellate court reversed, stating that ⁸⁰ the trial judge should have sustained the demurrers to West’s petition (declaration) which, the court pointed out, did not “allege facts showing or excusing written acceptance by the architect and full payment by the owner.” Atlantic quotes the following language from the court’s opinion: “The contract evinces the parties’ intentions that plaintiff’s work should conform absolutely to the specified architectural standards: Plaintiff was to perform ‘in strict accordance with’ plans drawn by the architect; all work was to be done under the direction of the architect; plaintiff was to be paid in installments according to progress of the work (in conformity with the required standards) as estimated by the architect.

These provisions lend emphasis to our conclusion that the contract contained conditions precedent to liability for final payment to the plaintiff that the payment be made ‘within 30 days after the completion of the work included in this sub-contract, written acceptance by the Architect and full payment by the owner.’ Written acceptance by the architect in itself is one condition precedent to liability for final payment. See 3A Corbin, Contracts (1960 Ed.) § 650, pp. 112-116; Ann. 54 A.L.R. 1255 ; Ann. 110 A.L.R. 137 , 140. “In addition, the contract is open to the construction that possibility of the owner’s nonpayment on account of plaintiff’s work in the construction is the subcontractor’s risk rather than that of the prime contractor and that the owner’s payment to the prime contractor for the subcontractor’s work is yet another condition precedent to defendants’ liability, so that the plaintiff’s failure to allege the owner’s payment tO‘ the prime contractor renders his petition further defective.” Id. at 334. (Emphasis added.) It will be noticed that the Georgia court chose to base its decision on the inadequacy of West’s initial pleading which, of course, explains the absence of any recital of the facts and circumstances. It is not at all clear to us, therefore, that the court would have reached the same result had it been faced with the facts and circumstances of the case now before us.

In any event, ⁸¹ we are not persuaded that its decision is apposite here. There was no appeal to the Supreme Court of Georgia. Thos. J. Dyer Co. v. Bishop Int’l Eng.

Co., 303 F. 2d 655 (6th Cir. 1962), presents a set of facts very close to the facts in the instant case. There the contractual provision under consideration was as follows: “3. The total price to be paid to Subcontractor shall be ... . Dollars ($115,000.00) lawful money of the United States, no part of which shall be due until five (5) days after Owner shall have paid Contractor therefor, provided however, that not more than .... per cent (90%) thereof shall be due until thirty-five (35) days after the entire work to be performed and completed under said contract shall have been completed to the satisfaction of Owners, and provided further that Contractor may retain sufficient moneys to fully pay and discharge any and all liens, stop-notices, attachments, garnishments and executions.

Nothing herein is to be construed as preventing Contractor from paying to the Subcontractor all or any part of said price at any time hereafter as an advance or otherwise.” Id. at 656 . The court stated what is considered to be the “crucial issue” as follows: “* * * whether, as contended by the appellant, paragraph 3 of the subcontract is to be construed as a conditional promise to pay, enforceable only when and if the condition precedent has taken place, which in the present case has not occurred, or, as contended by the appellee, it is to be construed as an unconditional promise to pay with the time of payment being postponed until the happening of a certain event, or for a reasonable period of time if it develops that such event does not take place.” Id. at 659 . The court then went on to say: “It is, of course, basic in the construction business for the general contractor on a construction project ⁸² of any magnitude to expect to be paid in full- by the owner for the labor and material he puts into the project. He would not remain long in business unless such was his intention and such intention was accomplished.

That is a fundamental concept of doing business with another. The solvency of the owner is a credit risk necessarily incurred by the general