Kelley Construction Co. v. Washington Suburban Sanitary Commission

Finan, J., delivered the opinion of the Court. Appellant, Kelley Construction Company, Inc., is in the business of constructing underground utilities, such as water and sewer mains and connections. A great deal of its business is with the appellee, Washington Suburban Sanitary Commission, it having done several millions of dollars of work for the appellee in the past. On November 29, 1960, and again on December 21, 1961, appellant and appellee entered into two contracts, known as Contract No. 2841-W&S; Water and Sewer House Connection Construction, Central Avenue and Area South, Prince George’s County, and Contract No. 3278-W&S, Water and Sewer House Connection Construction, Central Avenue and Area South, Prince George’s County.

These contracts were awarded the appellant through competitive bidding and are for the construction of sewer and water house connections in a large area of ²⁴³ Prince George’s County. Pursuant to the first of these contracts, appellant purchased equipment and embarked upon the installation of such sewer and water house connections as were given to him by the appellee’s engineers. Each of the above mentioned contracts, although dated at different times, covered a year commencing in the first instance, January 1, 1961, and in the second, January 1, 1962. In both cases, all work started prior to December 31, was to be completed.

The proposal form on Contract No. 2841-W&S, which is a tabulated form giving quantities, unit prices and total prices, shows a total proposal of $173,803. The proposal form on Contract No. 3278-W&S used for the same purpose, shows a total proposal of $206,643.50. The two contracts contain what are known as “Special Provisions,” which cover several pages of the contracts, and which are almost identical in nature. The slight differences found in the two contracts in the “Special Provisions” are immaterial.

The appellant regarded these two contracts as giving it the exclusive rights to install all sewer and water house connections in the areas delineated in Prince George’s County, Maryland, which areas are substantially the same in both contracts. Shortly after commencing work on the first of these two contracts (No. 2841-W&S), appellant discovered that it was not receiving all of the sewer and water house connections in its exclusive area. Sometime thereafter, the appellee was notified as to appellant’s objection, but informed the appellant that it did not have to give it all of these connections. No satisfaction resulted from a conference with the officials of appellee.

Thereafter, on June 27, 1962, appellant filed a bill of complaint in the Circuit Court for Montgomery County praying for construction of the contracts, for an accounting, damages for breach of contract and for the referral of the matter to an auditor or special master. Appellee’s demurrer was overruled and it answered the bill on July 23, 1963. At the hearing on June 21, 1966, the court dismissed, without prejudice, appellant’s motion, filed March 15, 1966, for reference of the matter to a special auditor or master. Following testimony by the president of the appellant, the chancellor, after argument, granted ²⁴⁴ the appellee’s motion for a directed verdict; 1 from which this appeal has been taken.

At the trial the only testimony offered was that of Mr. Kelley, president of appellant corporation. He testified that he regarded the contracts as exclusive contracts for the installation of all sewer and water house connections in the areas involved. At the hearing before the chancellor much time was consumed with argument to the court upon the interpretation to be given the contracts; that is, whether or not the construction and language of both contracts could reasonably lead to the interpretation that in the area delineated by the contracts the appellant had exclusive right to make all water and sewer house connections; or whether or not the language of ¶[ 5 limited the nature of the contract, and if so, to what extent. Appellant took the position that considering the contract as a whole it was reasonable to conclude that the contract was in fact exclusive in nature, limited only by the actual count of sewer and water house connections received by the chief engineer of the appellee and subject to dollar limitations created thereby as spelled out in ¶ 5.

The appellee took the position that ¶ 5 gave the right to appellee to reduce the amount of the contract by any sum. It is provided in ¶ 1 of the “Special Provisions” of the contracts, that in the case of conflict with the “General Provisions” 2 of the contracts, the “Special Provisions” shall prevail; since the hub around which the argument of both parties revolves is ¶ 5 of the “Special Provisions,” we set it forth in toto: ²⁴⁵ “APPROXIMATE QUANTITIES. 5. The quantities of the various items as shown on the proposal form have been estimated, using the best information available, and are approximate only. The Contractor is advised that the quantity of any single item may be increased or decreased in any amount.

The total value of the contract may be increased by 50 percent, or may be decreased in any amount, as the interest of the Commission may require; and the Contractor shall not be entitled to any additional compensation, for loss of anticipated profits or for any other reason, over the unit prices bid for the number of units actually used.” One of the requirements imposed upon the successful bidder was the furnishing of a performance bond running in favor of the appellee in a sum equal to 100% of the amount of his proposal and accordingly the appellant posted two bonds totaling $380,446.60. To understand the cause of the contention between the parties it is necessary to be familiar with the difference between water and sewer main lines and water and sewer house connections. Water and sewer main lines are what their names connote; they carry the water and sewage for comparatively long distances and usually are installed in the bed of the street running parallel to the property lines of the property owners. A water or sewer house connection is connected to the main line but runs at a right angle to it in the direction of the property line of the property owner and usually stops at the property line.

When a sewer or water main line is laid, it is necessary to excavate a ditch or trench in which to lay the main after which the ditch or trench is backfilled. Should water or sewer connections be desired where the main line parallels property that is improved, it is naturally more expeditious and less expensive to make the house connections while the main line is still uncovered prior to backfilling. In areas where real estate subdivisions have prospered and many dwellings are under construction or have been constructed, the appellee found it feasible to have the successful bidder for the water or sewer main line construction also make the house connections. This was one of the areas of dispute between the parties to this case. ²⁴⁶ The appellee argues that it was less costly to have the main line contractor make house connections at the time of the installation of the main line, rather than to have the appellant go in later and duplicate the original excavations by digging up the backfill to make the house connections onto the main line.

It was also argued that two contractors could not work in the same area at the same time, as the main line contractor could not schedule his work so as to accommodate the contractor who may be making the house connections under a separate contract. However, once the main line has been constructed and the backfill completed, the requests for house connections are usually scattered and sporadic. The chancellor found that the appellant did not have an exclusive right in the area defined in the contracts to install anything, reaching this conclusion from his interpretation of ¶ 5 of the “Special Provisions.” The practical effect of such an interpretation is to hold that the appellee had on option on the services of the appellant at a preagreed unit price, if they chose to use its services; and we might add, an option which, according to the appellee, was binding on the appellant although without any consideration moving from the appellee to the appellant. Counterposed to this, the appellant contends that it had the exclusive right to install all water and sewer house connections, not only those represented by scattered and sporadic requests, but those germane and incidental to main line construction and which were normally accomplished as the main line contractor completed the laying of a specific section of the line and prior to backfilling.

The chancellor made an informed effort to interpret ¶ 5 of the “Special Provisions,” and although it is true that under the terms of the contract itself any conflict between the general terms of the contract and the “Special Provisions” are to be resolved in favor of the “Special Provisions,” such a principle of construction does not prevent the Court from attempting to reconcile a “Special Provision” with the general purpose of the contract. Judge Barnes, speaking for this Court in Cadem v. Nanna, 243 Md. 536 , 221 A. 2d 703 , (1966), restated one of ²⁴⁷ the primary rules of construction of a contract where ambiguity is present, stating at p. 544: “In the first place, the courts will prefer a