## Facts

- Laurel Race Course, Inc. hired an engineering firm, Watkins and Associates, Inc., to design and supervise reconstruction of Laurel’s racetrack and drainage system.
- Laurel and Regal Construction Company, Inc. entered a written construction contract incorporating General Conditions.
- The General Conditions authorized Watkins to supervise performance, reject nonconforming work and materials, decide performance-related questions, and issue certificates required for progress and final payments.
- Final payment (including retainage) was expressly conditioned on Watkins issuing a final certificate.
- Watkins refused to issue a final certificate and recommended withholding payment due to asserted deficiencies in Regal’s work; Laurel withheld part of the contract balance.
- Regal sued Laurel for the unpaid balance under the written contract and for additional compensation for extra work allegedly performed under a separate oral agreement.
- Evidence supported that Regal proposed doing additional work; Laurel did not expressly accept or reject, but knew the work was underway and accepted its benefits.

## Issues

1. Whether the contract made the engineer’s final certificate a condition precedent to Laurel’s obligation to make final payment under the written contract absent fraud, bad faith, waiver, or estoppel.
2. Whether the engineer’s determinations rejecting work and withholding certification were contractually final and therefore not judicially reviewable except for fraud or bad faith.
3. Whether Laurel’s silence, with knowledge and acceptance of benefits, constituted acceptance of Regal’s offer to perform extra work, forming an enforceable oral contract.
4. Whether prejudgment interest was properly awarded within the pleadings and the ad damnum.

## Decision

- The judgment for Regal was modified.
- The engineer’s final certificate requirement was enforced as a condition precedent to Laurel’s liability for final payment under the written contract, absent fraud, bad faith, waiver, or estoppel.
- Because the contract made the engineer’s decisions controlling, disputes over the engineer’s rejection of work were not subject to judicial review except on fraud or bad faith grounds.
- The finding of an enforceable oral contract for extra work was upheld based on Laurel’s knowing acceptance of the services and their benefits without rejection.
- The award of interest was upheld as properly adjusted at trial and not exceeding the ad damnum.

## Legal Principles

- When a construction contract provides that payment is due only upon an architect’s or engineer’s certificate, production of the certificate is a condition precedent to the owner’s contractual liability absent fraud, bad faith, waiver, or estoppel.
- Contract language may make the architect/engineer a final decision-maker on performance and execution; if so, courts generally will not reexamine those determinations absent fraud or bad faith.
- An offeree who has a reasonable opportunity to reject offered services, knows they are being rendered with an expectation of compensation, and accepts the benefits by silence and conduct may be bound by an enforceable contract.
- Prejudgment interest may be awarded where appropriate and where the claim is properly framed and adjusted so it does not exceed the ad damnum.

## Conclusion

The court enforced the contract’s certification mechanism by treating the engineer’s final certificate as a condition precedent to final payment and by limiting judicial review of the engineer’s performance determinations to fraud or bad faith, while separately holding the owner liable for extra work based on acceptance by silence and permitting interest as properly adjusted within the pleadings.


Laurel Race Course, Inc. v. Regal Constr. Co., 274 Md. 142, 333 A.2d 319 (Md. 1975)