Opinion
44050 Record No. 781821.
January 16, 1981
Present: All the Justices.
Interest on retainage awarded contractor from date of completion of contract to date alleged interest deposited in escrow.
Contracts — Construction — Interest on Retainage — Time for which Awarded.
Henrico Hospital retained $527,802.93 under a construction contract with Doyle Russell. Henrico Hospital occupied its new building on 24 June 1974. However, a sterilization system was found defective and Henrico Hospital refused to pay the retainage. Doyle Russell sued to obtain the retainage and Henrico Hospital counterclaimed for the defective sterilization system. As part of a settlement of this litigation, Henrico Hospital, on 15 December 1976, paid $67,269.53 into an escrow account, this being the alleged interest on the retainage. The Trial Court awarded interest on the retainage from 24 June 1974 to 15 December 1976, deducting from this amount the interest which would be attributable to an amount which would have been required to pay a mechanic's lien from the time the lien was filed until the time it expired. Pursuant to the construction contract, Henrico Hospital could require from Doyle Russell full and complete releases of all liens for all labor, materials and services furnished and all work done under the contract "before making any final payment hereunder". The AIA General Conditions, incorporated by reference into the contract, provided that final payment became due only after the contractor submitted to the architect data concerning releases and waivers of liens "to the extent and in such form as may be designated by the owner". The stipulation of facts does not indicate whether or not there was a request by Henrico Hospital for the releases, but these were furnished by Doyle Russell on 11 February 1977. On appeal, Henrico Hospital contends Doyle Russell was not entitled to any interest on the retainage until 11 February 1977 since these releases were required by the contract.
Interest upon contract retainage should be awarded the contractor from the date of actual completion of the hospital construction contract (24 June 1974 — when Henrico Hospital occupied and put to use the hospital building) to 15 December 1976 (the date the interest allegedly owed by the Hospital on the retainage was deposited in an escrow account). Properly excluded was interest on the amount of a mechanic's lien filed but never enforced. Interest on the retainage was proper although the contractor did not deliver the releases of subcontractors and material suppliers as required by the contract until 11 February 1977. Roanoke Hospital v. Doyle and Russell, 215 Va. 796, 214 S.E.2d 155 (1975) followed.
Appeal from a judgment of the Circuit Court of Henrico County. Hon. Robert M. Wallace, judge presiding.
Affirmed.
William H. King, Jr. (Elizabeth M. Allen; McGuire, Woods Battle, on briefs), for appellant.
Lewis T. Booker (Gregory N. Stillman; Hunton Williams, on brief), for appellee.
In this appeal, we must resolve whether a general contractor's delay in providing releases and waivers of liens from subcontractors precludes the contractor's claim for retainage interest accruing prior to the date of the submission of those releases and waivers.
The litigants in this case entered into a stipulation of facts which, together with the exhibits, provides the evidentiary basis for this appeal. On June 8, 1972, Doyle Russell, Inc., (hereinafter, Doyle Russell) entered into a contract with Henrico Doctors' Hospital and Diagnostic Clinic, Inc., (hereinafter, Henrico Hospital) for the construction of a general hospital in Henrico County. Paragraph 12 of the contract provided that, before making final payment, Henrico Hospital had the right to require from, Doyle Russell releases of all liens for labor and materials furnished under the agreement. Paragraph 1 of the contract incorporated by reference the architect's plans and specifications, including the American Institute of Architects (AIA) General Conditions of the Contract for Construction. Article 9.7.3 of the AIA General Conditions provided that final payment became due only after the contractor submitted to the architect data concerning releases and waivers of liens "to the extent and in such form as may be designated by the Owner."
The pertinent language of Paragraph 12 provided that: "Before making any final payment hereunder, the Owner or the Owner's Representative shall have the right to require from the Contractor full and complete releases of all liens for all labor, materials, and services furnished and all work done under this Agreement and absolute releases from claims of any kind that might result from the performance of this Agreement."
Article 9.7.3, as amended by the parties, provided: "Neither the final payment nor the remaining retained percentage shall become due until the Contractor submits to the Architect. . . (3) other data establishing payment or satisfaction of all such obligations, such as receipts, releases and waivers of liens arising out of the Contract, to the extent and in such form as may be designated by the Owner. . . ."
On June 24, 1974, Henrico Hospital occupied and put to use the hospital building constructed by Doyle Russell. Thereafter, Doyle Russell made demand upon Henrico Hospital for the payment of the contract retainage ($527,802.93). Unknown to Henrico Hospital at the time it occupied the building on June 24, the sterilizer system was defective. As a result, Henrico Hospital curtailed its surgical procedures until July 1974 and refused to pay Doyle Russell the retainage.
In early November 1974, Doyle Russell filed this action seeking recovery of the retainage. Henrico Hospital filed a counterclaim in the amount of $279,451.59 for damages arising out of the failure of the sterilizer system. In April 1976, the trial court granted Doyle Russell's motion for summary judgment on the portion of the retainage in excess of Henrico Hospital's counterclaim, but reserved judgment on the issue of interest on the contract retainage. In October 1976, the parties agreed to settle the litigation. The settlement agreement, dated April 5, 1978, resolved all issues except the question of interest on the contract retainage. As a part of this agreement, Doyle Russell paid Henrico Hospital $75,000 in full settlement of its counterclaim. In addition, Henrico Hospital agreed to establish an interest-bearing escrow account consisting of $79,269.53, $67,269.53 of which was for interest allegedly owed on the total retainage and $12,000 of which was for costs associated with construction defects. The funds were deposited into the escrow account on December 15, 1976. On February 11, 1977, Doyle Russell submitted to Henrico Hospital the final releases and waivers from six subcontractors and material suppliers on the project in compliance with paragraph 12 of the contract.
On September 26, 1978, the trial court held that Doyle Russell was entitled to all interest on the retainage from June 24, 1974, until December 15, 1976, except for $1,128.53, which represented the interest on the amount of a mechanic's lien filed but never enforced. The trial court also held that Doyle Russell was entitled to all interest which had accumulated on the amount held in escrow from December 15, 1976, until the date of its withdrawal.
On appeal, Henrico Hospital contends that Doyle Russell is not entitled to retainage interest accruing before February 11, 1977, the date on which Doyle Russell delivered the releases of subcontractors and material suppliers, because the contract required Doyle Russell to provide the releases. Doyle Russell, on the other hand, contends that it was not contractually bound to supply the releases in the absence of Henrico Hospital's request for the releases and that the stipulation of facts is barren of any indication the releases were requested. Doyle Russell further argues that even if the releases were requested, it is entitled to the retainage interest because of our decision in Roanoke Hospital v. Doyle and Russell, 215 Va. 796, 214 S.E.2d 155 (1975), a case which Henrico Hospital contends is factually distinguishable from this appeal.
We agree with Doyle Russell's contention that Roanoke Hospital is controlling here. In Roanoke Hospital, the Roanoke Hospital Association, because of the contractor's delay in completing the building, withheld the contract retainage even after construction had been completed and the building had been occupied and put to use for three years. Justifying its actions, Roanoke Hospital argued that the contractor had failed to provide releases and waivers of claims, as required by Clause 28(E) of the contract. We held that the contractor's failure to provide releases, contrary to the terms of the contract, did not require reversal of the trial court's award to the contractor of the contract retainage and interest accruing thereon.
Clause 28(E) of the contract provided: "Neither the final payment nor any part of the retained percentage shall become due until the contractor shall deliver to the owner through the architects a complete release of all claims against the owner arising under and by virtue of this contract, including claims of all subcontractors and suppliers of either materials or labor, other than such claims, if any, as may be specifically excepted by the contractor."
We disposed of the issue with the following language: "We find no prejudicial error in the judgment awarding the contract retainage, with interest from the date of actual completion, to the contractor. It is true that the contractor did not deliver the release of claims required under clause 28(E) of the contract. However, the time for filing mechanic's liens had expired, see Code Sec. 43-1 et seq. (Repl. Vol. 1970); there is nothing in the record concerning an unsatisfied lien or unsecured claim against the owner; and the performance surety, a party litigant, did not file a counterclaim or a cross-claim. The owner has enjoyed the usufruct of the retainage fund from the date the contractor discharged its contract duties, and any error in awarding the retainage before a formal release was delivered is harmless error." 215 Va. at 804, 214 S.E.2d at 162.
The similarities between this case and Roanoke Hospital are obvious. In both cases, the time for filing mechanic's liens and for bringing actions on any unsecured claims had elapsed when the lower court rendered its decision. Likewise, in both cases, the contractor failed to provide releases upon completion of the construction project. In both cases, the hospital "enjoyed the usufruct of the retainage fund" while occupying and using the hospital building constructed by the contractor.
The contract in Roanoke Hospital made the contractor's obligation to provide these releases unconditional. Here, the contractor was obliged to provide the releases only if requested to do so by Henrico Hospital.
The sole significant distinction between this case and Roanoke Hospital concerns the presence of a mechanic's lien. Whereas no mechanic's liens were filed in Roanoke Hospital, such was not the case here. On November 14, 1974, William H. White, Jr., Inc., a subcontractor in the construction of the Henrico Hospital building, filed a mechanic's lien, which was never enforced and expired on May 15, 1975. In computing the interest due the contractor, the trial court deducted the interest accruing from the amount of money at issue in the mechanic's lien during the period from its filing until its expiration. Nothing in the stipulation of facts and the record suggests that other claims were being made against the Henrico Hospital. The trial court's deduction of interest on the amount of the mechanic's lien removes the only potentially meaningful distinction between this case and Roanoke Hospital.
For the reasons stated, the judgment of the trial court is
Affirmed.