Frederick Contractors, Inc. v. Bel Pre Medical Center, Inc.

Singley, J., delivered the opinion of the Court. In August, 1971, the petitioner, Frederick Contractors, Inc. (Frederick) entered into a contract with the respondent Bel Pre Medical Center, Inc. (Bel Pre), under which Frederick undertook to construct an addition to Bel Pre’s nursing home in Silver Spring, Maryland for a stipulated sum of $341,732.00, subject to additions and deductions by change order. The agreement and the general conditions appended to it were on forms A101 and A201, respectively, promulgated in 1967 by the American Institute of Architects (the A.I.A.). Construction was substantially completed in December, 1972.

On 12 January 1973, Frederick’s president, J. Bernard Vallandingham, Jr.; Bel Pre’s president, Dr. Carsbie C. Adams; Bel Pre’s architect, Louis Battistone, and Bel Pre’s administrator and head nurse made a tour of the building for the purpose of preparing a “punch list,” a copy of which was sent by Battistone to Bel Pre on 16 January with a covering letter which read: “We hereby certify that to the best of our knowledge, information and belief, and on the basis of our observation and inspection the Work has been completed in accordance with the terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor, except as noted below is due and payable. “We have attached herewith a copy of our final ³⁰⁹ ‘Punch List’ dated 12 January 1973. We feel an equitable sum of $5,000.00 should be withheld from final payment of retainage until this ‘Punch List’ is complete.” Upon receipt of Battistone’s letter, Frederick sent to Bel Pre a requisition for $148,335.00, the unpaid balance of the contract price, less $5,000.00, the amount to be withheld pending completion of the items on the punch list. About 27 January, Mr. Vallandingham met with Dr. Adams a second time. The record does not disclose what happened at this meeting, but it did not result in Frederick’s receiving payment.

On 22 March, Frederick recorded a mechanics’ lien in the office of the Clerk of the Circuit Court for Montgomery County, and on 30 April, filed in that court a bill of complaint to foreclose the lien. On 24 May, Bel Pre countered with a motion to strike the mechanics’ lien, grounded on the contention that the contract between Frederick and Bel Pre compelled arbitration of disputes arising out of the contract, which Bel Pre had demanded. On 8 June, Frederick, in a letter to the American Arbitration Association, sought to protect its right to take part in the selection of arbitrators should it be ordered by the circuit court to participate in the arbitration proceedings. The motion to strike came on for hearing on 12 June and was denied.

Bel Pre answered the complaint, again relying on the arbitration provision of the contract. On 27 June, Frederick sought injunctive relief, contending that Bel Pre had failed to comply in timely fashion with the contract provision requiring that notice be given of intention to submit a controversy to arbitration. After an evidentiary hearing, an order was issued permanently enjoining Frederick and Bel Pre from proceeding with arbitration, and Bel Pre appealed to the Court of Special Appeals. The Court of Special Appeals, in Bel Pre Medical Center, Inc. v. Frederick Contractors, Inc., 21 Md. App. 307 , 320 A. 2d 558 (1974) vacated the permanent injunction restraining the parties from proceeding in arbitration, and remanded ³¹⁰ the case to the Circuit Court for Montgomery County for the entry of an order compelling arbitration and staying further proceedings there.

We granted certiorari in order that we might review the decision of the Court of Special Appeals. Under the terms of the contract, $365,000.00 of a construction loan commitment of $485,000.00 made by United Virginia Bank/First & Citizens National Bank to Bel Pre had been assigned by Bel Pre to Frederick to the end that Frederick would receive progress payments directly from the lender. The record discloses that late in November, 1972, when Bel Pre was about to enter into permanent financing, Frederick was requested to execute a release of liens, which Frederick’s counsel delivered on 1 December, subject to the condition that the proceeds of the permanent financing after payment of the construction loan be held in escrow to- be disbursed in accordance with the construction contract. For reasons not apparent to us, this was never accomplished.

On 30 November, Bel Pre borrowed $1,400,000.00 from Metropolitan Federal Savings and Loan Association of Bethesda, a loan secured by a first deed of trust on the medical center. 1 On 18 April 1973, a second deed of trust was executed to secure a loan of $160,000.00 made by Residential Industrial Loan Company. The provisions of A.I.A. form A201, General Conditions of the Contract for Construction, on which Bel Pre relies, are these: “7.10.1 All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, except as set forth in Subparagraph 2.2.9 with respect to the Architect’s decisions on matters relating to artistic effect, and except for claims which have been waived by the making or acceptance of final payment as provided by Subparagraphs 9.7.5 and 9.7.6, shall be decided ³¹¹ by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. “7.10.2 Notice of the demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect.

The demand for arbitration shall be made within the time limits specified in Subparagraphs 2.2.10 and 2.2.11 [infra] where applicable, and in all other cases within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made after institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. (Emphasis supplied.) “2.2.7 Claims, disputes and other matters in question between the Contractor and the Owner relating to the execution or progress of the Work or the interpretation of the Contract Documents shall be referred initially to the Architect for decision which he will render in writing within a reasonable time. “2.2.9 The Architect’s decisions in matters relating to artistic effect will be final if consistent with the intent of the Contract Documents. ³¹² “2.2.10 Any claim, dispute or other matter that has been referred to the Architect, except those relating to artistic effect as provided in Subparagraph 2.2.9 and except any which have been waived by the making or acceptance of final payment as provided in Subparagraphs 9.7.5 and 9.7.6, shall be subject to arbitration upon the written demand of either party. However, no demand for arbitration of any such claim, dispute or other matter may be made until the earlier of: .1 the date on which the Architect has rendered his decision, or .2 the tenth day after the parties have presented their evidence to the Architect or have been given a reasonable opportunity to do so, if the Architect has not rendered his written decision by that date. “2.2.11 If a decision of the Architect is made in writing and states that it is final but subject to appeal, no demand for arbitration of a claim, dispute or other matter covered by such decision may be made later than thirty days after the date on which the party making the demand received the decision. The failure to demand arbitration within said thirty days’ period will result in the Architect’s decision becoming final and binding upon the Owner and the Contractor.

If the Architect renders a decision after arbitration proceedings have been initiated, such decision may be entered as evidence but will not supersede any arbitration proceedings except where the decision is acceptable to the parties concerned.” (Emphasis supplied.) Assuming that the rejection of a requisition for payment is arbitrable, 2 we shall have to determine under which ³¹³ section of the conditions arbitration could be sought. Mr. Battistone’s letter of 16 January did not come within the ambit of § 2.2.11 because it failed to state that his decision “is final but subject to appeal.” As a