Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Cory Menees
1. Owner Held to Impliedly Warrant Sufficiency of Plans and Specs Provided to Contractor, Granite Re, Inc. v. City of La Crescent, 2009 U.S. Dist. LEXIS 83017 (D. Minn. 2009).
* What the Court Considered: A city hired an engineering firm to prepare plans and specifications for a water main to be installed under the Mississippi River. The plans and specs were thereafter incorporated by reference into the contract between the city and contractor hired to install the main. When the main, installed consistent with the plans and specs, floated to the top of the river, the city declared the contractor in default and terminated the contract. The city filed a claim against the contractor for breach of contract, and the contractor counterclaimed for both breach of contract and of an implied warranty of the sufficiency of the plans and specs.
* What the Court Said: “By providing the plans and specifications to [the contractor], the City warranted that the plans and specifications were adequate, fit, and suitable for their intended purpose.” Because the contractor suffered damages as a result of its reliance on inadequate plans, it was entitled to recover damages.
* What the Opinion Means: Under Minnesota law, a party furnishing plans and specs to a contractor impliedly warrants their sufficiency.
2. Dispute Arising under Oral Agreement Held Arbitrable Given Parties’ History of Incorporating Arbitration Clauses into Related Written Contracts, EFB Constr., Inc. v. Hannum Crossing Dev. Co., 2009 Ohio 5240 (Ohio Ct. App. 2009).
* What the Court Considered: A contractor entered into several written contracts with a developer for work on a multi-phase residential subdivision. The contractor submitted a bid for additional work, which was accepted. Before the parties entered into the bid-for contract, the contractor was given permission to begin work. When the developer grew dissatisfied with the contractor’s work under their oral agreement, the developer withheld payment. The contractor sued for payment, and the owner moved to stay the suit to allow opportunity for arbitration.
* What the Court Said: As it could not be said that the “allegations underlying the claims [the contractor] raised against [the developer] in this case were ones outside the scope of the existing agreements between the parties,” the contractor’s claims were ruled arbitrable despite the fact that the specific work giving rise to the claims was performed pursuant to an oral contract.
* What the Opinion Means: In Ohio, public policy strongly favoring arbitration may push claims out of court and into arbitration where the claims can be said to relate even remotely to an agreement between the litigants containing an arbitration clause.
3. Court Orders Payment of Final Bill Submitted Over Three Years after Project Completion, Vancil Constr., Inc. v. Robbins, No. 06-71254, 2009 Bankr. LEXIS 2617 (Bankr. C.D. Ill. 2009).
* What the Court Considered: A contractor submitted its final bill, for payment of $68,000, over three years after the completion of a $3 million project. The developer to whom the bill was submitted argued that by waiting so long, the contractor waived its right to payment and was estopped from collecting.
* What the Court Said: Finding first that pay applications submitted to the developer during construction showed a balance due to the contractor and, secondly, that the developer had not acted to its detriment in the belief that all amounts owed were paid, the court ordered payment of the final bill.
* What the Opinion Means: A right to payment is generally not waived absent evidence of some act indicating an intention to relinquish the right. Likewise, the defense of estoppel generally cannot be asserted successfully against claims for nonpayment where the defending party cannot show it was induced to act to its detriment by the party seeking payment.
4. Unlicensed Sub Permitted to Maintain Lien Against Property Following Unlicensed GC’s Failure to Pay, Voller Realty & Constr., Ltd. v. D.V. Holdings, Inc., 687 S.E.2d 318 (N.C. Ct. App. 2009).
* What the Court Considered: A North Carolina owner hired an unlicensed GC on a project, and the GC in turn hired an unlicensed sub to perform significant project work. The GC withheld payment from the sub because of incorrect work but denied the sub the opportunity to correct its work. The sub thereafter filed a lien against the project property and filed suit against the owner and GC for breach of contract. The owner and GC defended, claiming that an unlicensed sub could not maintain suit or enforce its lien rights under North Carolina law.
* What the Court Said: “Because an unlicensed general contractor is not among the class of persons the Legislature intended to protect by the licensing requirements of [the North Carolina code], and the enforcement of the subcontract will not result in any injury to the public, plaintiff, an unlicensed subcontractor, was not barred from bringing an action against defendants.” The court further permitted the sub to maintain its lien rights, as both owner and GC acknowledged the sub’s compliance with the statutory procedure for filing the lien.
* What the Opinion Means: In North Carolina, an owner will be stripped of statutory protections preventing the filing of liens by unlicensed subs where the GC responsible for hiring the sub is itself unlicensed.
5. Owner Waives Right to Insist on Timely Performance Through Conduct, Madden Phillips Constr. v. GGAT Dev. Corp., No. W2008-02350-COA-R3-CV (Tenn. Ct. App. 2009).
* What the Court Considered: A contractor hired to provide fill material and grading work to a subdivision suspended its work after a dispute arose with the owner over the scope of required work. After approximately 45 days, the parties resolved the dispute and the contractor returned to work. The contractor provided labor and services to the project for another eight months before being terminated by the owner, purportedly in part for “untimely performance.” The contractor sued the owner for breach of contract, and the owner counterclaimed, contending that the contractor had not performed the contract work in a workmanlike and timely manner. The trial court ruled in favor of the contractor, and the owner appealed.
* What the Court Said: Noting that “Tennessee law recognizes that a party may waive its right to insist on strict performance of a contractual provision impliedly by conduct,” the appellate court upheld the trial court’s decision in favor of the contractor. The court found that the owner waived its right to insist on performance on a specific timeframe by allowing the contractor to work for eight months after its 45-day suspension of work.
* What the Opinion Means: In Tennessee, as in many jurisdictions, waiver of a contract right may be implied from a party’s conduct.
Ira Genberg is a Partner at Troutman Sanders LLP in Atlanta, Georgia, and is General Counsel for Associated Owners & Developers (AOD) in McLean, Virginia. Cory Menees is an Associate at Troutman Sanders LLP. For more information, or if you have any questions, contact us at firstname.lastname@example.org.