A federal judge here has rejected a Canadian development corporation's claim that the Prudential Insurance Co. violated an agreement involving one of the city's largest office buildings, located at 1300 New York Ave. NW, and should be required to pay $14.9 million in damages.

At the same time, U.S. District Judge Gerhard A. Gesell dismissed a countersuit by Prudential charging the Canadian firm, the Daon Corp., with fraudulent misrepresentation. The judge ruled, however, that Prudential could keep $3.2 million in damages it collected from a letter of credit when Daon defaulted on its construction loan.

Daon, developer of the 1.2 million-square-foot building, filed the suit in August 1984, charging that Prudential acted illegally when it refused to go through with an agreement to provide up to $142,000 toward payment of the construction loan after the structure was completed, according to a memorandum issued by Gesell with his decision dismissing the Daon and Prudential suits.

The Inter-American Development Bank, a multinational lender that funds development projects in the Western Hemisphere, has leased the entire building and expects to move in with its 1,400 Washington employes over a four-month period starting in March or April.

Daon, struggling under a load of debt due in part to high interest rates, the 1981-82 recession and a glut of office space in Washington, signed the agreement with Prudential in April 1982. Under terms of the accord, the insurance giant was to become a new partner in the building's ownership when it made the $142,000 payment to Daon.

Because Prudential "was aware that Daon was experiencing financial problems . . . the insurance company was careful to negotiate special clauses . . . to protect itself from future financial deterioration by Daon or its affiliates," Gesell said.

Daon was in default on its construction loan from the Bank of Nova Scotia on Sept. 21, 1983 when it filed a petition in the Supreme Court of British Columbia for reorganization of its Canadian and U.S. debts, Gesell noted. The Canadian firm did not notify Prudential of the default until Jan. 6, 1984, although the agreement between the two companies gave Prudential the right to back out "if certain conditions had not been met and notice of termination timely given," the judge wrote.

Contending "that there was no default or it had already been cured," Daon demanded that Prudential go through with its agreement in March, Gesell said. Instead, the insurance company told Daon on March 5 that it was canceling the agreement. Prudential executives and attorneys, meeting with Daon and Bank of Nova Scotia officials and lawyers in February 1984, had emphasized their "distrust" and made clear they no longer "wanted Daon as a partner," the judge said.

Gesell found that Daon's dealings with Prudential regarding the loan default were "incorrect, incomplete and knowingly misleading." In addition, "Daon in other clandestine ways . . . breached its obligations to Prudential" under the agreement, he said.

Gesell found that Daon's dealings with Prudential regarding the loan default were "incorrect, incomplete and knowingly misleading." In addition, "Daon in other clandestine ways . . . breached its obligations to Prudential" under the agreement, he said.

The judge dismissed Prudential's request for punitive damages, however, saying Daon did not intentionally deceive the insurance company, as Prudential claimed.

Although the 1300 New York Avenue building is an impressive structure in an area of the city that is becoming more attractive to commercial tenants, Prudential's investment would have been made with pension trust funds. As a result, the insurance company "had a fiduciary obligation to act carefully with that investment," said John S. Kingdon, a Washington attorney who represented Prudential. The insurance company "was investing other people's money," and the judge's decision "vindicated the propriety" of Prudential's cancellation of the agreement.

"Obviously, we were very disappointed by Gesell's decision," said Daon attorney Henry A. Hubschman of Washington. An appeal "is very much under consideration," he said.

In December 1984, the Inter-American Development Bank signed a 20-year lease, which contains an option to buy the building for an undisclosed amount during the first five years. Work to finish the interior of the structure has been under way since then.

The bank will occupy all but about 45,000 of the 750,000 square feet of office space in the building, and is in the "early stages" of negotiating with prospective tenants, according to an official of JBG Associates, which is performing the interior finishing work for the bank. In addition, about 10,000 square feet of space on the ground floor has been reserved for retail shops, although no tenants have been signed up yet, he said.

Rents being asked for the office space are in the "low $30s" range, he said.