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Elec-Trol Inc. v. C. J. Kern Contractors Inc.

Filed: November 17, 1981.

ELEC-TROL, INC., PLAINTIFF
v.
C. J. KERN CONTRACTORS, INC., DEFENDANT AND THIRD-PARTY PLAINTIFF V. NORTH CAROLINA BAPTIST HOSPITALS, INC., THIRD-PARTY DEFENDANT



Appeal by plaintiff from Collier, Judge. Judgment entered 17 December 1980 in Superior Court, Forsyth County. Heard in the Court of Appeals 23 October 1981.

Martin (Robert M.), Judge. Judges Webb and Wells concur.

Martin

Plaintiff assigns as error the entry of summary judgment for the defendant and the third-party defendant. It argues that where the parties have not agreed that the architect's decisions are final, the subcontractor may bring an action for payment of certain accepted change order work when changes were ordered by the contractor and the architect either failed to rule on the change order requests or ruled erroneously.

In support of this argument the plaintiff relies on three theories, the first of which is that the contract and subcontract do not provide that the architect's determinations shall be final. We disagree.

The terms of the contract between the defendant and the third-party defendant, which terms were incorporated by reference into the contract between plaintiff and defendant, contained provisions governing the procedures by which claims for additional costs were to be determined. Section 12.2.1 of the General and Supplementary Conditions provided that "[i]f the Owner and the Contractor cannot agree on the amount of the adjustment in the contract sum, it shall be determined by the Architect."

The North Carolina courts have recognized that a provision in a contract, providing for the architect's approval before the contractor can recover compensation on his contract, is binding on the parties. When the contract so provides, the architect's certificate is a condition precedent to the contractor's recovery, absent a showing of bad faith or failure to exercise honest judgment. J.R. Graham and Son, Inc. v. Board of Education, 25 N.C. App. 163, 212 S.E.2d 542, cert. denied, 287 N.C. 465, 215 S.E.2d 623 (1975). In Heating Co. v. Board of Education, 268 N.C. 85, 89-90, 150 S.E.2d 65, 68 (1966) the Court stated as follows:

"In building and construction contracts the parties frequently provide that the completion, sufficiency, classification, or amount of the work done by the contractor shall be determined by a third person, usually an architect or engineer. Such stipulations which, in their origin, were designed to avoid harassing litigation over questions that can be determined honestly only by those possessed of scientific

knowledge, have generally been held valid. This is true even though the architect or engineer is employed by the owner unless unknown to the contractor, he has guaranteed to keep the cost of the work below a certain sum."

"Although plain language in the contract is required in order to make the decision or certificate of an architect or engineer acting thereunder final and conclusive, it may be stated generally that the decision of the architect or engineer is conclusive as to any matter connected with the contract if the parties, by any stipulation, constitute the architect or engineer the final arbiter of such matter as between the parties. Accordingly, where the contract provides that the work shall be done to the satisfaction, approval, or acceptance of an architect or engineer, such architect or engineer is thereby constituted sole arbitrator between the parties, and the parties are bound by his decision, in the absence of fraud or gross mistake. The same rule applies where it is provided that payments shall be made only upon the certificate of the architect.

"It is also clear that where the parties stipulate expressly or in necessary effect, that the determination of the architect or engineer shall be final and conclusive, both parties are bound by his determination of those matters which he is authorized to determine, except in case of fraud or such gross mistake as would necessarily imply bad faith or a failure to exercise an honest judgment. The reason underlying this rule is that under such circumstances the contract makes the architect or engineer the arbitrator, and his determination can be attacked only in the same manner as that of any other arbitrator. On the other hand, where the stipulations are such that the meaning to be gathered therefrom is that the architect's or engineer's certificate shall not be final, the parties are not bound by the certificate." [Citations omitted.]

In the present case the contract provided that the architect would determine the amount of claims for additional cost if the owner and contractor could not agree. This provision is clear and binding on the parties. Thus it constitutes a final determination of the ...


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