Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Ryan Stinnett
1. Enforceability of an Oral Construction Contract, K&L Landscape & Constr. Inc. v. Dakota Contractors, Inc., 2004 WL 2296504 (Iowa Ct. App. 2004).
* What the Court Considered: A general contractor hired by a school district to construct new athletic fields exchanged numerous versions of a draft subcontract with a potential subcontractor. However, no subcontract was ever executed because the parties could not reach an agreement on the scope of work. During contract negotiations, the subcontractor performed work on the fields according to its previous bid estimates. After the subcontractor had completed most of the work, the general contractor and the school district found certain work to be unacceptable. The contractor refused to pay for that work and the subcontractor sued for breach of contract.
* What the Court Said: Because an implied contract had been formed between the parties, the subcontractor could recover the reasonable value of its services.
* What the Opinion Means: To recover for breach of an implied contract under Iowa law, a party must demonstrate that it performed services beneficial to the recipient, which the recipient understood were being performed for it and were not being rendered gratuitously. Here, the subcontractor conferred a benefit on the contractor and the work “continued without dissent from either [the contractor] or the school district, and in fact occurred with their cooperation.”
2. Inclusion of Duty to Indemnify With Duty to Defend, Advanced Ground Sys. Eng’g, Inc. v. RTW Indus., Inc., 388 F.3d 1036 (7th Cir. 2004).
* What the Court Considered: When a construction work platform at an airport authority collapsed due to faulty welds, the airport authority sued the contractor. The contractor tendered defense of the claim to its welding subcontractor, but the subcontractor refused to defend the contractor. The welder’s subcontract included an indemnification provision, obligating it to indemnify the contractor for damages suffered as a result of the subcontractor’s malfeasance, but it did not expressly obligate the subcontractor to defend the contractor.
* What the Court Said: Because a contractual obligation to indemnify includes an obligation to defend, the subcontractor was required to defend the contractor.
* What the Opinion Means: Section 2778 of the California Civil Code provides that an indemnifying party “is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity.” Thus, in the absence of an express contractual exclusion of the duty, an obligation to indemnify includes a duty to defend.
3. Doctrine of Accord and Satisfaction Applied to Cumulative Impact, Jackson Constr. Co. v. U.S., 62 Fed. Cl. 84 (Fed. Cl. 2004).
* What the Court Considered: The Army Corps of Engineers hired a contractor to build a technical information analysis center. The project was completed on time, and the contractor was paid the contract price plus additional compensation for agreed upon changes. Nevertheless, the contractor sued the government for delay and impact damages arising from a 120-day delay at the start of the project allegedly related to the relocation of a waterline.
* What the Court Said: Because the contractor failed to reserve expressly its right to assert an additional delay or impact claim, the right was waived.
* What the Opinion Means: “An ‘accord’ is a contract under which both parties agree that one party will render additional or alternative performance in order to settle an existing claim made by the other party, and ‘satisfaction’ is the actual performance of the accord.” An executed bilateral modification with a release provision, as executed between the parties in this case, constitutes an accord and satisfaction unless the release is ambiguous or limited in scope. Here, the release was unambiguous and the contractor failed to expressly preserve its right to assert a later delay or impact claim. Therefore, the delay and impact claims were barred by the doctrine of accord and satisfaction.
4. Applicability of Alabama Statute of Limitations for Actions Against “Builders,” Burkes Mech., Inc. v. Ft. James-Pennington, Inc., 2004 WL 3017016 (Ala. 2004).
* What the Court Considered: A contractor was hired to install hardwood screening at a pulp and paper mill. An employee of the contractor that was injured on the project sued the owner, and the owner demanded defense and indemnification from the contractor. The contractor refused, and the owner subsequently sued the contractor for breach of contract. The contractor alleged the suit was barred by the applicable statute of limitations.
* What the Court Said: Because there was no evidence that the contractor was a licensed builder, it was not protected by the statute of limitations for builders.
* What the Opinion Means: The Alabama Code establishes a two year statute of limitations for actions against “builders who constructed, or performed or managed the construction of, an improvement on or to real property.” A “builder” is defined as a general contractor licensed by the State of Alabama. Here, because the contractor was unlicensed, it was not protected by the statute of limitations.
5. Effect of Washington Statute on Delay Disclaimer, Scoccolo Constr., Inc. v. City of Renton, 103 P.3d 1249 (Wash. Ct. App. 2005).
* What the Court Considered: A contractor was hired to complete a street-widening project for a city. The project required the removal and relocation of utility poles and lines by a utility company. The city had previously entered into a franchise agreement with the utility company, which gave the city the authority to compel the utility to relocate its equipment. The street-widening contract included a provision stating that the contractor would not be entitled to any damages for delays caused by the actions of the utility company. Nevertheless, the contractor sued for delay damages, alleging the contract provision was voided by a Washington statute.
* What the Court Said: The contractual waiver of delay damages was valid because the statute at issue was not applicable.
* What the Opinion Means:
6. Recalcitrant Worker Defense Under New York Law, Cahill v. Triborough Bridge & Tunnel Auth., 4 N.Y.3d 35 (N.Y. 2004).
* What the Court Considered: An employee working on a bridge repair project was required to climb up and down wall-like structures called “forms.” When a mechanical “man lift” device was unavailable for this purpose, the employee was instructed to use a safety line. The employee previously had been caught climbing a form without using a safety line and was reminded by his supervisor of the requirement that he use a safety line when climbing. Thereafter, the employee fell from a height of about fifteen feet when climbing a form without the use of a safety line. He sued the bridge owner under New York Labor Law section 240 .
* What the Court Said: Because the employee’s injury was caused solely by his violation of safety instructions, the owner was not liable under Labor Law section 240.
* What the Opinion Means: Typically, an employee’s own negligence does not provide a defense to an owner under New York Labor Law section 240. However, under the “recalcitrant worker” defense, where an employee’s own actions are “the sole and proximate cause of the accident, there can be no liability” for the owner.
7. Appropriate Statute of Limitations for Negligence Claims Against Architects, Ostroth v. Warren Regency, 263 Mich. App. 1 (Mich. Ct. App. 2004).
* What the Court Considered: Plaintiffs sued an architect for severe
pulmonary and neurological injuries arising out of a renovation to their
workplace. The architect argued that the plaintiffs’ claims were barred
by the two-year limitations period applicable to professional negligence claims
* What the Court Said: A six-year limitations period for professional negligence claims against architects, rather than a general two-year limitations period, applied to the plaintiffs’ claims in this case.
* What the Opinion Means:
8. Duty of Care of a Subcontractor’s Design Engineer, Weseloh Family v. K.L. Wessel Constr. Co., 22 Cal. Rptr. 3d 660 (Cal. Ct. App. 2004).
* What the Court Considered: A subcontractor hired an engineer to design retaining walls for an automobile dealership construction project. When the retaining walls failed, the owner and the general contractor sued the design engineer. The engineer argued that it could not be liable to the owner or general contractor because it owed them no duty of care.
* What the Court Said: Because the engineer owed the owner and contractor no duty of care in designing the retaining walls, it could not be held liable.
* What the Opinion Means: Under California law, “[t]he threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion.” Here, the engineer contracted with the subcontractor and had no contract with either the owner or the general contractor. Also, the engineer played no role in the construction of the retaining wall. Considering all these factors together, the court decided that the designer owed no duty of care to the owner or general contractor.
9. Effect of Contract Dissolution on Lien Waiver Provision, Shaw Constructors, Inc. v. ICF Kaiser Engr., Inc., 395 F.3d 533 (5th Cir. 2004).
* What the Court Considered: A subcontractor’s contract for work on a nitric acid facility contained a lien waiver provision in which the subcontractor agreed to waive its right to file claims or liens against the owner’s property. Nevertheless, when the general contractor refused to pay the subcontractor the $5.3 million balance on the subcontract, the subcontractor filed a lien on the owner’s property. The owner argued that the lien waiver provision prohibited the subcontractor from placing a lien on the property.
* What the Court Said: The subcontractor was no longer bound by the lien waiver provision because the contractor had materially breached the contract.
* What the Opinion Means: The subcontract was a commutative contract, meaning that either party could refuse to perform its obligations upon the other party’s non-performance. Therefore, when the general contractor refused to pay the balance of the subcontract price, the subcontractor could consider the contract dissolved, thereby restoring the parties to their pre-contract positions. Here, the dissolution of the contract ended the subcontractor’s obligation not to file a lien against the owner’s property.
10. Scope of a Contractor’s Payment Bond, Gals, Inc. v. Gemma Constr. Co., 11 A.D.3d 411 (N.Y. App. Div. 2004).
* What the Court Considered: While a stop work order was in effect on a public improvement project, a subcontractor was required to remain on “standby,” furnishing materials, equipment, and manpower to the site. Around the time the stop work order was lifted, the prime contractor deleted a major portion of the subcontractor’s work. The subcontractor then sued the prime contractor and its surety for overhead and lost profits. The prime contractor’s surety sought summary judgment, arguing that the subcontractor’s claims were precluded by the prime contractor’s payment bond.
* What the Court Said: The subcontractor’s claims against the surety were precluded under the payment bond.
* What the Opinion Means: According to the court, the language of the payment bond disclosed a clear intent that only labor actually “performed” at the site and materials actually “used” at the site were to be covered by the bond. By contrast, labor, materials, and supplies merely “furnished” to the site were not to be covered.
Ira Genberg is a Senior Partner at the Smith, Gambrell & Russell, LLP law firm in Atlanta, Georgia, and also General Counsel for Associated Owners & Developers (AOD), McLean, Virginia. Ryan Stinnett is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.