B L PAINTING CO v UN PAC INS

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No. 12568 I N THE SUPREME C U T O THE STATE O M N A A OR F F OTN B & L PAINTING COMPANY, I N C , , Plaintiff UNITED PACIFIC INSURANCE C M A Y & E , L. MATELICH CONSTRUCTION O PN COMPANY, Defendants and Respondents, BOARD O TRUSTEES O KALISPELL HIGH SCHOOL DISTRICT #5 and F F KALISPELL HIGH SCHOOL DISTRICT O FLATHEAD COUNTY, MONTANA F and A T U B , HARKER, d / b / a OLE 'S PLUMBING AND HEATING, RH R Third P a r t y Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e Eleventh J u d i c i a l D i s t r i c t , Honorable Robert C. Sykes, Judge p r e s i d i n g . Counsel of Record : For A p p e l l a n t s : M. Dean J e l l i s o n , argued, K a l i s p e l l , Montana Rognlien, Hash, J e l l i s o n & OIBrien, K a l i s p e l l , Montana For Respondents: C. Eugene P h i l l i p s , argued, K a l i s p e l l , Montane Murphy, Robinson, Heckathorn & P h i l l i p s , K a l i s p e l l , Montana Submitted: Decided: September 12, 1974 O C i 9 7974 Chief J u s t i c e James T. Harrison d e l i v e r e d t h e Opinion of t h e Court . O May 1, 1967 a p p e l l a n t Board of T r u s t e e s of K a l i s p e l l n High School D i s t r i c t No. 5 ( t h e ~ o a r d )awarded c o n t r a c t s f o r c o n s t r u c t i o n of t h e new K a l i s p e l l J u n i o r High School t o respondent E. I?. Matelich Construction Company (I$atelich) a s g e n e r a l con- t r a c t o r ; o l e ' s Plumbing & Heating ( o l e ' s ) a s mechanical c o n t r a c t o r ; and Palmquist E l e c t r i c a s e l e c t r i c a l c o n t r a c t o r . Each of t h e s e c o n t r a c t o r s a c t e d a s a "prime c o n t r a c t o r ' ' s h a r i n g t h e r e s p o n s i b i l i t y f o r c o n s t r u c t i o n ; none was a s u b c o n t r a c t o r of any o t h e r . On May 8 , 1967 a n o t i c e t o proceed was i s s u e d making s p e c i f i c r e f e r e n c e t o t h e 580 c a l e n d a r day completion schedule s p e c i f i e d i n t h e c o n t r a c t , i n d i c a t i n g completion by December 10, 1968. The c o n t r a c t provided f o r e x t e n s i o n s of t i m e f o r s t r i k e s and d u r i n g t h e p r o j e c t a l l c o n t r a c t o r s were g r a n t e d 5 1 days d e l a y from t h i s cause. A d d i t i o n a l e x t e n s i o n s were g r a n t e d u n t i l t h e completion d a t e became A p r i l 7 , 1969 f o r a l l t h e c o n t r a c t o r s . On A p r i l 7, 1969 a change o r d e r was executed by Matelich and t h e Board which provided, among o t h e r t h i n g s , t h a t t h e completion d a t e be extended t o J u l y 1, 1969 and t h e c o n t r a c t ' s l i q u i d a t e d damages p r o v i s i o n be changed from $50 p e r day t o $500 p e r day. O t h e same day a change o r d e r was a l s o executed by n o l e ' s and t h e Board which l i k e w i s e provided f o r t h e e x t e n s i o n of t h e completion d a t e t o J u l y 1, 1969, b u t w i t h no i n c r e a s e whatsoever i n t h e liquidateddamages t o be a s s e s s e d a f t e r t h a t d a t e . O August 31, 1969 t h e a r c h i t e c t i s s u e d a c e r t i f i c a t e of n s u b s t a n t i a l completion. Matelich was p a i d t h e c o n t r a c t p r i c e l e s s $30,500 withheld a s l i q u i d a t e d damages f o r t h e 61 day d e l a y from J u l y 1 t o August 31, 1969. $3,050 (61 times $50) was t o b e w i t h h e l d from t h e money due O l e ' s . P l a i n t i f f B & L P a i n t i n g Company, I n c . , on October 30, 1969 f i l e d a complaint a l l e g i n g t h a t i t was a s u b c o n t r a c t o r o f Matelich on t h e K a l i s p e l l J u n i o r High School p r o j e c t and was e n t i t l e d t o payment of $8,067.75 on i t s s u b c o n t r a c t . United P a c i f i c Insurance Company, s u r e t y f o r Matelich, was a l s o named a s a defendant. Matelich f i l e d a t h i r d p a r t y complaint a l l e g i n g t h e Board was indebted t o i t on i t s c o n t r a c t i n t h e amount of $30,500, which was improperly w i t h h e l d a s l i q u i d a t e d damages. The d i s t r i c t c o u r t ordered t h e i s s u e s between B & L P a i n t i n g and Matelich be s e p a r a t e d from t h e i s s u e s between Matelich and t h e Board. The i n s t a n t a p p e a l t h e r e f o r e only i n v o l v e s Matelich and t h e Board. The Board answered t h a t t h e p r o j e c t was completed 61 days l a t e ; t h a t a change o r d e r t o t h e c o n t r a c t extending t h e time of completion a l s o provided f o r l i q u i d a t e d damages of $500 p e r day f o r d e l a y i n completion; and t h a t i t was e n t i t l e d t o deduct $30,500 from t h e c o n t r a c t p r i c e a s an o f f s e t . Matelich moved f o r summary judgment and f o r an o r d e r l i m i t i n g l i q u i d a t e d damages t o $50 p e r day. The d i s t r i c t c o u r t denied summary judgment, b u t g r a n t e d t h e o r d e r l i m i t i n g damages t o $50 per day. I n t h e c o u r t ' s memorandum i n support of i t s o r d e r two of t h e r e a s o n s given were (1) t h a t t h e change o r d e r extending time and i n c r e a s i n g l i q u i d a t e d damages was i n v a l i d because no n o t i c e of t h e changes was given t o any s u b c o n t r a c t o r o r s u r e t y , and t h e r e f o r e , t h e completion d a t e was A p r i l 7 , 1969 and t h e o r i g i n a l $50 p e r day l i q u i d a t e d damages p r o v i s i o n was a p p l i c a b l e ; and (2) t h a t t h e Board c o n t r a c t e d w i t h Matelich a s one of t h r e e "prime" cont r a c t o r s , and s i n c e d e l a y s might be occasioned by any o f t h e t h r e e , t h e i n c r e a s e i n l i q u i d a t e d damages should be a f f e c t e d only upon a d e t a i l e d and i n t e r r e l a t e d b a s i s . O t h i s appeal t h e Board contends t h a t a l l t h e p r o v i s i o n s of n t h e A p r i l 7 , 1969 change o r d e r between i t and allowed t o s t a n d . ~atelich should be Matelich i n s i s t s t h a t n o t only should t h e l i q u i - d a t e d damages b e l i m i t e d t o $50 p e r day, b u t t h e y should be f i g u r e d u s i n g J u l y 1, 1969 a s t h e scheduled completion d a t e . . . , . - w I*. **' O appeal t h e s e q u e s t i o n s a r e posed: n * . (1) Is t h e i n c r e a s e i n l i q u i d a t e d damages from $50 t o $500 p e r day e n f o r c e a b l e a g a i n s t only one of t h r e e "prime" c o n t r a c t o r s , when a l l t h r e e had c o n t r a c t o b l i g a t i o n s which were i n t e r r e l a t e d and independent? (2) Would a f i n d i n g t h a t t h e i n c r e a s e i n l i q u i d a t e d damages i s unenforceable n e c e s s a r i l y i n v a l i d a t e t h e accompanying A p r i l 7 t o J u l y 1, 1969 time e x t e n s i o n ? W have i n t e n t i o n a l l y bypassed t h e t h e i s s u e s of whether t h e e i n c r e a s e i n l i q u i d a t e d damages c o n s t i t u t e s an unenforceable p e n a l t y , o r whether i t i s unenforceable f o r want o f n o t i c e t o s u b c o n t r a c t o r s and s u r e t i e s , s i n c e t h e p e c u l i a r circumstances of t h i s c a s e make t h e i n c r e a s e unenforceable i n any event. Counsel a g r e e t h a t no precedent has been found, b u t i t i s our opinion t h a t t h e d i s t r i c t c o u r t has s e t f o r t h what appears t o be t h e only p r a c t i c a b l e and j u s t r u l e . That is-- where s e v e r a l separ- a t e and d i s t i n c t c o n s t r u c t i o n c o n t r a c t s a r e executed, and d e l a y s may be caused by any one o f t h e c o n t r a c t o r s , t h e interdependency of t h e c o n t r a c t o r s must b e considered i n a s c e r t a i n i n g l i q u i d a t e d damages. For example: one o f t h e problems h e r e i s t h a t Matelich a t t r i b u t e d a t l e a s t p a r t of t h e d e l a y t o O l e ' s . Yet t h e i n e q u i t a b l e r e s u l t was t h a t t h e Board o f f s e t $500 p e r day a g a i n s t t h e money due Matelich, b u t only one-tenth o f t h i s amount o r $50 p e r day a g a i n s t O l e ' s . The only p a r t y having any r e a l c o n t r o l over t h e damages t o b e charged a g a i n s t a l l t h r e e of t h e "prime" c o n t r a c t o r s was t h e Board. To permit a p a r t y i n t h e ~ o a r d ' sp o s i t i o n t o avoid c o n s i d e r i n g p o s s i b l e d e l a y s by any one of t h e s e c o n t r a c t o r s o r t h e i r subcontractors w i l l inevitably lead t o a s i t u a t i o n needlessly complicated by counterclaims. This Court i s n o t about t o condone such a p o l i c y . The time e x t e n s i o n t o J u l y 1, 1969 i s a n o t h e r m a t t e r . The d i s t r i c t c o u r t reasoned t h a t s i n c e t h e l i q u i d a t e d damages p r o v i s i o n of t h e A p r i l 7 , 1969 change o r d e r between Matelich and t h e Board was void, so was t h e time e x t e n s i o n . A s an element of l o g i c t h i s conclusion sounds a p p e a l i n g , b u t i t i s n o t c o n s i s t e n t w i t h t h e r u l e d i s c u s s e d h e r e t o f o r e concerning l i q u i d a t e d damages i n t h a t i t n e g l e c t s t o t a k e i n t o account t h e interdependency of t h e t h r e e '1 Thus, Matelich i s r e q u i r e d t o f i n i s h by prime" c o n t r a c t o r s . A p r i l 7, 1969 o r pay damages, d e s p i t e b e i n g dependent i n some measure upon O l e ' s who by v i r t u e of i t s own change o r d e r had u n t i l J u l y 1, 1969 t o complete t h e mechanical work. f e r e n c e does i t make whether Matelich i s h e l d What d i f - t o a g r e a t e r amount of l i q u i d a t e d damages o r an e a r l i e r scheduled completion d a t e ? E i t h e r way t h e same p o t e n t i a l r e s u l t o b t a i n s : money because of t h e a c t i o n s of no c o n t r o l . Matelich l o s e s a n o t h e r p a r t y over whom he h a s I f a n y t h i n g , t h e J u l y 1 completion d a t e given o l e ' s p r a c t i c a l l y guaranteed t h a t Matelich would n o t f i n i s h t h e g e n e r a l c o n s t r u c t i o n work by A p r i l 7. The Board i s estopped from denying t h a t Matelich had u n t i l J u l y 1, 1969 t o complete i t s p o r t i o n of t h e p r o j e c t . First, it is important t o n o t e t h e l i m i t i n g terms o f t h e c o n t r a c t between Matelich and t h e Board i n s o f a r a s time of completion and l i q u i d a t e d damages a r e concerned: *** "19. 11 It i s f u r t h e r agreed t h a t time i s o f t h e e s s e n c e of each and every p o r t i o n o f t h i s c o n t r a c t and of t h e s p e c i f i c a t i o n s wherein a d e f i n i t e and c e r t a i n l e n g t h of time i s f i x e d f o r t h e performance o f any a c t whatsoever; and where under t h e c o n t r a c t an a d d i t i o n a l t i m e i s allowed f o r t h e completion o f any work, t h e new time l i m i t f i x e d by such e x t e n s i o n s h a l l b e t h e e s s e n c e of t h i s c o n t r a c t . Provided, t h a t t h e c o n t r a c t o r s h a l l n o t b e charged w i t h l i q u i d a t e d damages o r any excess c o s t when t h e d e l a y i n t h e completion of t h e work i s due: (b) t o unf o r e s e e a b l e c a u s e beyond t h e c o n t r o l and without t h e f a u l t o r n e g l i g e n c e of t h e c o n t r a c t o r , i n c l u d i n g , b u t n o t r e s t r i c t e d t o , a c t s of God, o r o f p u b l i c enemy, a c t s of t h e owher, a c t s of a n o t h e r c o n t r a c t o r i n t h e performance of a c o n t r a c t w i t h t h e owner (Emphasis added). * * * * *". C e r t a i n l y " a c t s of t h e owner" and " a c t s of a n o t h e r c o n t r a c t o r i n t h e performance of a c o n t r a c t w i t h t h e owner" i n c l u d e t h e making of an agreement allowing t h e o t h e r c o n t r a c t o r , who i s under no duty t o Matelich, a d d i t i o n a l time t o f i n i s h . How can t h e Board now b e heard t o complain t h a t Matelich f a i l e d t o f i n i s h by A p r i l 7, 1969, when i t gave Ole's--upon dependent-- u n t i l J u l y 1, 1969? whom Matelich was p a r t l y Second, t h e r e c o r d shows t h a t a t v a r i o u s times d u r i n g t h e p e r i o d from December 1968 t o May 1969 t h e Board proceeded t o move f u r n i t u r e , equipment, and s u p p l i e s i n t o t h e new school b u i l d i n g . Gregory Matelich t e s t i f i e d t h a t Iqatelich cooperated i n t h i s v e n t u r e p r i o r t o being completely o u t o f t h e b u i l d i n g i n o r d e r t h a t t h e r e would n o t be any d i f f i c u l t y i n s t a r t i n g t h e coming school t e r m . Having t h e school people und.er f o o t s u r e l y was more hindrance than h e l p i n g e t t i n g t h e job done by A p r i l 7 ; it t h u s h a r d l y seems f a i r t o p e n a l i z e Matelich f o r f a i l u r e t o do so. F i n a l l y , t h e r e c o r d a l s o shows i n August 1969 Matelich twice c l e a n e d t h e e n t i r e school b u i l d i n g i n p r e p a r a t i o n f o r an II open house". T h i s t e n d s t o i n d i c a t e Matel-ich was t h i n k i n g o f t h e J u l y 1, n o t A p r i l 7 , completion d a t e . Going t o such t r o u b l e and $ expense i s s t r a n g e behavior indeed f o r a p a r t y i t i t r e a l i z e d i t was a l r e a d y f o u r months t a r d y i n i t s o b l i g a t i o n s . The judgment of t h e d i s t r i c t c o u r t i s modified t o t h e e x t e n t t h a t Matelich should b e a s s e s s e d l i q u i d a t e d damages i n t h e amount o f $50 per day o n l y a f t e r J u l y 1, 1969. , , ---------------p-------------------- Chief J u s t i c e W concur: e ............................. Justices.

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