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Thompson-Starrett International Inc. v. Tropic Plumbing Inc.

decided: March 17, 1972.


Seitz, Chief Judge, and Aldisert and Gibbons, Circuit Judges.

Author: Gibbons


GIBBONS, Circuit Judge.

Appellant, Thompson-Starrett International, Inc. (Thompson-Starrett), a general contractor, appeals from a final order, D.C., 325 F. Supp. 449, granting a summary judgment of $24,123.63 to Tropic Plumbing, Inc. (Tropic Plumbing), a subcontractor for labor and materials furnished by Tropic in the erection of a housing project in St. Thomas, Virgin Islands, owned by Bluebeard Housing Corp. (Bluebeard). Bluebeard is a non-profit sponsor approved for federal mortgage insurance issued by the Federal Housing Administration pursuant to § 221(d) (3) of the National Housing Act, 12 U.S.C. § 1715 l (d) (3). Under this program the federal government insured mortgages from non-profit sponsors of housing projects for 100% of approved project costs. Since such a project is built essentially upon the credit of the federal government's 100% mortgage guarantee, the F.H.A. has established procedures under which it approves plans and specifications, sets limits upon costs, and supervises interim and final advances on the insured mortgage loans. See 24 C.F.R. §§ 221.547-558. The construction contract between the nonprofit mortgagor and the general contractor must be on F.H.A. form contracts, 24 C.F.R. § 221.548: in this case F.H.A. Form No. 2442-A. By that form contract, dated December 11, 1964, Thompson-Starrett undertook to erect the project for the actual cost of construction plus a fee of $125,000, with a provision for sharing cost savings, below an estimated cost between the non-profit mortgagor and the contractor. The form contract requires that the work be done in accordance with a list of approved drawings and in accordance with the approved specifications, which include the "General Conditions of the Contract." These general conditions include Articles one to forty-four of the standard form, current edition, of the American Institute of Architects and the F.H.A. Supplementary General Conditions. The form contract provides:

"All requests for changes in the Drawings and Specifications must be in writing signed by the Owner and the Lender and shall be conditioned upon acceptance by the [F.H.A.] Commissioner, which acceptance may be subject to such conditions and qualifications as the Commissioner in his discretion may prescribe, it being understood that the Commissioner at all times has the right to require compliance with the original Drawings and Specifications."

Thompson-Starrett and Tropic Plumbing on February 5, 1965 entered into a subcontract by which Tropic Plumbing undertook for a fixed price of $133,250.00 to perform plumbing work called for in Division 29 and the underground piping called for in Division 32 of the specifications. The preamble of the February 5, 1965 subcontract refers to the general contract documents ". . . which are on file in the office of the Contractor and have been examined by the Subcontractor, and which the parties do hereby expressly make a part hereof with the same force and effect as if the same were physically incorporated herein. . . ." Article 3 of the subcontract provides for monthly progress payments equal to 90% of the value of the work completed from month to month ". . . provided, however, that the Owner shall theretofore have paid the Contract on account of such Work completed. . . ." The ten percent retainage ". . . shall be paid by Contractor to the Subcontractor within five (5) days after the Contractor receives the final payment from the Owner, except as to any sums which Owner may retain for a guarantee period, in which case a corresponding sum may be retained by Contractor against Subcontractor as to Work covered by any such guarantee, to be paid when such retention is released by the Owner and paid to Contractor . . ." The subcontract also provides:

"8. The Subcontractor shall be bound by the decision of those authorized by the General Contract as to the meaning of any terms and conditions of the General Contract Documents as the same may affect the Work hereby let to the Subcontractor. The Subcontractor shall comply with all the terms of the General Conditions made part of the General Contract Documents and of all the other terms and conditions of any of the other General Contract Documents insofar as applicable to the Work of the Subcontractor, and the Subcontractor hereby agrees that the Contractor shall have the same power as regards terminating this agreement that the Owner may exercise over the Contractor under any of the provisions of the General Contract Documents.

"9. The Subcontractor hereby assumes towards the Contractor all the obligations and responsibilities that the Contractor has assumed under the General Contract towards the Owner, and the Subcontractor hereby agrees that all the limitations and duties to which the Contractor is bound to the Owner by the terms of the General Contract shall be deemed the limitations and duties to which the Subcontractor in turn shall be bound to the Contractor. . . ."

"29. . . . The Subcontractor shall at no time question the determination of the Owner or its representatives authorized to act upon any dispute affecting any of the Work hereby sublet; it being the express intention of the parties that the Contractor shall be under no greater obligation to the Subcontractor than the Owner may have to the Contractor by reason of the subject matter of any such dispute as aforesaid. . . ."

During the course of construction Tropic Plumbing proposed and, insofar as the present record discloses, Thompson-Starrett approved, certain change orders which would, if binding on the parties, have the effect of increasing the Subcontract price by $15,475.36. At the final closing with F.H.A., however, when Thompson-Starrett presented these change orders for approval, the F.H.A., acting pursuant to the provision in the general construction contract quoted above, refused to approve disbursement of mortgage funds for their payment.

Tropic Plumbing, moving for summary judgment, contended that once an officer of Thompson-Starrett approved the change orders it became obligated to pay the approved amounts whether or not the F.H.A. approved them for disbursement of mortgage funds. The district court accepted this contention, holding that it need not look beyond the text of the February 5, 1965 subcontract to determine Thompson-Starrett's liability. Its opinion states:

"Each of the change orders in question complied with the requirements of paragraph 4 of the subcontract*fn1 . . . that all change orders be in writing and signed by an officer of Thompson-Starrett. Compliance with these specific terms of the contract must prevail over terms that defendants wish to read into the subcontract through the catch-all term providing for plaintiff's assumption of the general contract." (footnote added).

Thus despite the specific language of the subcontract which incorporated the terms of the general contract and the specifications by reference, and despite the reality that the F.H.A. as guarantor of a 100% mortgage was the party chiefly interested both in cost and in compliance with the plans and specifications, the district court, without a hearing and over Thompson-Starrett's objection granted summary judgment. In justifying this result it reasoned:

"If Thompson-Starrett intended that plaintiff should assume the risk of its failure to obtain prior FHA approval of change orders, this ...

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