NSC Contractors, Inc. v. Borders

BLACKWELL, Judge. This construction contract dispute involves an interpretation of the appeal provisions of a standard form contract. The controversy arose regarding an architect’s decision to withhold money due to an unremedied artistic defect in brickwork. Our central concern is whether the architect’s judgment regarding the amount of damages is subject to judicial review.

The trial judge affirmed the architect’s decision to withhold final payment from the contractor, ruling that this decision was not subject to judicial review. ³⁹⁶ We hold the lower court erred in ruling that the architect's determination as to the amount of damages was “final'' and therefore binding upon the parties. On December 21, 1984, Petitioner, NSC Contractors, Inc. (NSC), and Respondent, Most Reverend William D. Borders, Roman Catholic Archbishop of Baltimore (Borders), entered into a contract for the. construction of a new church building for the Roman Catholic Parish of Our Lady of Perpetual Help in Howard County, Maryland. The contract was modeled after widely-used standard forms published by the American Institute of Architects. 1 The firm of Meyers and D’Aleo was designated as the architect for the project. The exterior walls of the building were to be constructed with a special facing brick.

On March 11, 1985, Borders directed a change in the type of facing brick originally specified in the contract and selected Maryland Clay Products “Plantation” brick for use at the project. NSC subsequently constructed the work with the newly specified brick. The specified brick was manufactured in a full range of twenty to twenty-five different shades of colors from light to dark. Ideally, the different color bricks are randomly distributed throughout the finished walls.

No single color was to dominate any particular area of the walls. A sample panel of the brickwork, consisting of approximately twenty-four bricks, was prepared and was to be used as a standard against which the bricks were to be judged. About three months after the project commenced, the brickwork was found to have a coloration discrepancy in portions of the exterior south wall near the west corner. The size of the discrepancy was in dispute.

NSC alleged the portions of the brick walls which showed color concentrations were limited to ten to fifteen percent of the entire surface area. Borders claimed that “large areas of the ³⁹⁷ walls appeared to be one color creating an unsightly appearance.” NSC later removed and replaced portions of the south wall, but the replacement brick similarly appeared to the architect to have the same color concentration problems. On two other sections of the exterior walls, NSC attempted to “mask” color concentrations with a paint application. The architect reviewed each of the masking attempts and rejected the result for numerous reasons.

Among the reasons for rejection included the following: 1) the masking paint did not properly match the colors of the bricks, 2) the masking paint flaked off easily, and 3) there were still concentrations of colors. The architect rejected the brickwork on the exterior walls of the building as not being in conformity with the approved sample and as being “aesthetically undesirable.” The architect notified NSC that the defective brickwork would necessarily need to be removed and properly replaced. Because the type of brick was no longer produced, the architect determined that the entire brickwork would have to be replaced as replacement of only portions of the walls would likely result in another coloration problem. The architect also notified NSC that the cost of the work would be withheld.

NSC refused to replace the brick and the architect refused to certify final payment. On March 20, 1986, NSC filed a petition to establish and enforce a mechanics lien in the amount of the balance due on the contract, $142,009.88. Borders filed an answer and later an amended counterclaim seeking to recover the cost of replacing the defective walls, an amount claimed to be $216,000. An interlocutory mechanic’s lien was established by the Circuit Court for Howard County for the amount stated in the original petition on May 21, 1986.

The contract balance was later increased to $144,097.88 by agreement of the parties. NSC filed a claim for breach of contract and in a second count sought damages on a theory ³⁹⁸ of quantum meruit seeking to recover the total amount of the contract balance withheld, plus interest. 2 Although NSC entitled this pleading as a separate “counterclaim,” we shall refer to it as a claim for monetary damages seeking a final order. 3 A court trial was held in the Circuit Court for Howard County on March 17, 1987. The court terminated the interlocutory mechanic’s lien and denied NSC’s claim for the balance due on the contract. The trial judge additionally determined that the architect had authority under general condition 2.2.11 (G.C. 2.2.11) to reject the brickwork on the grounds of “artistic effect.” 4 Paragraph 9.6.1 of the general conditions specifies that, “The Architect may ... decline to certify payment ... to such extent as may be necessary in his opinion to protect the owner from loss because of: .1 defective work not remedied____” The court found it appropriate to allow Borders to retain the $144,-097.88 withheld from the contract amount. 5 The court further noted pursuant to G.C. 13.2.1 it was agreed that NSC would “correct all work rejected by the Architect as ³⁹⁹ defective____ NSC contracted that it would promptly correct any defective work, and it was obligated to do so.” Finally, the trial court ruled that Borders had not met its burden of proof with regard to proving “its measure of damages to the requisite reasonable certainty.” 6 Nevertheless, the court concluded that G.C. 9.6.1 and 9.6.2 provided the appropriate remedy in authorizing the architect to withhold payment until the defective work was remedied.

NSC filed a timely motion to alter and amend the judgment which was denied by the circuit court in a memorandum and order filed August 28, 1987. In ruling on the motion to alter and amend the judgment, the trial judge clarified his decision by writing, The court reads the language of this provision [9.6.1.1] as vesting the architect with unqualified authority to withhold certification of payment in order to protect the owner____ The court interprets the authority granted by G.C. 9.6 to be final and binding. The court does not agree with NSC that General Conditions 2.2.12 and 7.9.1 limit the authority conveyed in G.C. 9.6____ The court does not read the general language of this provision [2.2.12] as controlling the explicit language of G.C. 9.6.1. (Emphasis added).

In an unreported opinion, the Court of Special Appeals affirmed holding “that the trial court was not clearly erroneous in finding that the amount of payment withheld under G.C. 9.6.1 was a final and binding decision of the architect where such payment was withheld due to artistic defects.” In order to fully understand the essential terms of the parties’ agreement, we shall set forth the following relevant provisions of the contract in dispute: ⁴⁰⁰ GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION ARTICLE 2 ARCHITECT 2.2.7 The Architect will be the interpreter of the requirements of the Contract Documents and the judge of the performance thereunder by both the Owner and Contractor. * sfs sH * sjc $ 2.2.9 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. Sfc S}t sj{ $ s[s 2.2.11 The Architect’s decisions in matters relating to artistic effect will be final if consistent with the intent of the Contract Documents. 2.2.12 Any claim, dispute or other matter in question between the Contractor and the Owner referred to the Architect, except those relating to artistic effect as provided in Subparagraph 2.2.11 and except those which have been waived by the making or acceptance of final payment as provided in Subparagraphs 9.94 and 9.9.5, shall be subject to arbitration upon the written demand of either party____ When such a written decision of the Architect states (1) that the decision is final but subject to appeal, and (2) that any demand for arbitration of a claim, dispute or other matter covered by such decision must be made within thirty days after the date on which the party making the demand receives the written decision, failure to demand arbitration within said thirty days’ period will result in the Architect’s decision ⁴⁰¹ becoming final and binding upon the Owner and the Contractor. * 5k * Sü * * ARTICLE 7 MISCELLANEOUS PROVISIONS 7.9.1 All claims, disputes and other matters in question between the Contractor and the Owner arising out of, or relating to, the Contract Documents or the breach thereof, except as provided in Subparagraph 2.2.11 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 9.9.4 and 9.9.5, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise.... ARTICLE 9 PAYMENTS AND COMPLETION 9.6 PAYMENTS WITHHELD 9.6.1 The Architect may decline to certify payment and may withhold his Certificate in whole or in part, to the extent necessary reasonably to protect the Owner, if in his opinion he is unable to make representations to the Owner as provided in Subparagraph 9.4.2. If the Architect is unable to make representations to the Owner as provided in Subparagraph 9.4.2 and to certify payment in the amount of the Application, he will notify the Contractor as provided in Subparagraph 9.4.1.

If the Contractor and the Architect cannot agree on a revised amount, the Architect will promptly issue a Certificate for Payment for the amount for which he is able to make such representations to the Owner. The Architect may also decline to certify payment or, because of subsequently discovered evidence or subsequent observations, ⁴⁰² he may nullify the whole or any part of any Certificate for Payment previously issued, to such extent as may be necessary in his opinion to protect the Owner from loss because of: .1 defective Work not remedied. 9.6.2 When the above grounds in Subparagraph 9.6.1 are removed, payment shall be made for amounts withheld because of them. Our initial focus is whether the architect’s decision regarding the amount of money withheld under G.C. 9.6.1 (“necessary in his opinion to protect the Owner from loss because of: .1 defective Work not remedied.”) is subject to the review provisions of G.C. 2.2.12 (“Any claim, dispute or other matter in question between the Contractor and the Owner shall be subject to arbitration upon the written demand of either party.”) and G.C. 7.9.1 (“All claims, disputes and other matters in question between the Contractor and the Owner ... shall be decided by arbitration.”). The parties agree that the architect’s initial decision rejecting the brickwork on the ground of artistic effect is “final” and therefore not subject to further review.

We note that the disputed provisions specifically refer to the parties’ right to review of the architect’s decisions through arbitration. In Chas. J. Frank, Inc. v. Assoc. Jewish Ch., 294 Md. 443 , 450 A.2d 1304 (1982), we stated the general rule that parties may waive their right to arbitration if such intention is clearly established from the facts and circumstances of the case.

Id. at 448-49 , 450 A.2d at 1306-07 (other citations omitted). Where the parties seek to resolve certain arbitrable matters through