January 1, 2007 – Page 6 – Construction Law

Owner Who Accepts and Takes Possession of Incomplete or Obviously Defective Building Waives Patent and Obvious Defects, but Does Not Waive Latent Defects

Jan 01 2007

Steltz v. Armory, 15 Idaho 551, 99 P. 98 (1908)

Steltz contracted with Armory for the construction of a building in the city of Genesee. The building was erected and Armory moved in and continued to use it for six weeks, until a windstorm blew down the front of the building. Armory then refused to pay Steltz arguing that the building was not constructed in a workmanlike manner and Steltz filed this action to recover payment due under the contract. During trial, evidence was presented that showed the front wall blew down because it had not been properly tied into the rest of the building. The court held that the defect of not tying the front wall into the building was not an obvious or patent defect, but was a latent defect. The Court reasoned that if the defect were obvious or patent, then Armory would have accepted the defect by taking possession without conditionally doing so. The court affirmed the lower court’s decision to offset the cost to repair the defect from the amount still owed under the contract.

Court Grants Contractors Damages for Delays Caused by State, Denies Liquidated Damages where State Unable to Establish Extent of Fault of Contractors

Jan 01 2007

Buckley & Co. v. State, 356 A.2d 56, 140 N.J. Super. 289 (N.J. Super. Ct. Law Div. 1975)

In this case, the court adjudicated a claim by two construction companies against the State regarding the construction of Route 78. The project, namely the creation of a section of the road that involved various bridge constructions as well as electrical, drainage and related work, was finished 87 days later than was provided in the contract and various change orders and 564 days later than the original completion date. Consequently, the contractors filed suit for delay damages which included various overhead expenses and wages for employees. The contractors also sought the return of monies withheld by the Department of Transportation as “liquidated damages” for the delay. The State contended that the delays were the contractors’ fault, that the reasons for the delays given by the contractors did not occur, and that claims for costs were barred by no-damages clauses included in the contract. The court, concluding that some of plaintiff’s losses were the result of breach by the State, allowed recovery for those losses accordingly. The court declined to allow the State to withhold liquidated damages where the delay could be attributed actions and inaction by both parties as well as circumstances beyond either party’s control. The court also held that the construction company had standing to assert claims on behalf of subcontractors.

Court Recognizes Implied Warranty of Habitability / Workmanlike Construction in Certain Residential Construction

Jan 01 2007

Hartley v. Ballou, 286 N.C. 51, 209 S.E.2d 776 (1974)

The plaintiff purchased a house from the defendants which one of the defendants had built. Shortly after the purchase, the plaintiff experienced flooding in the basement of the house. The plaintiff sued the defendants for breach of express and implied warranties. Following trial, the trial court entered a judgment in favor of the plaintiff against the builder defendant. On appeal, the North Carolina Supreme Court recognized an implied warranty of habitability and workmanlike construction by the builder-vendor of a residence to the initial vendee. The Supreme Court ultimately reduced the damages awarded since it found that they exceeded the builder’s liability under the implied warranty.

“Completed and Accepted” Rule Does Not Excuse Architect, General Contractor and Heating Contractor from Liability

Jan 01 2007

Totten v. Gruzen, 245 A.2d 1, 52 N.J. 202 (1968)

In this case, the Supreme Court of New Jersey held that the “completed and accepted” rule does not render defendants immune from liability for injuries sustained from a faulty heating system. A child resident of a multi-family housing project sustained serious burns from contact with exposed, hot piping that was part of the radiator heating system in the child’s bedroom. The court found that the lack of privity between the plaintiffs and the defendants was insufficient to excuse the defendants from liability.

Lack of Written Document Does Not Preclude Contractor from Recovering in Quantum Meruit for Changes to Initial Plans

Jan 01 2007

Home Owners Const. Co. v. Borough of Glen Rock, 169 A.2d 129, 34 N.J. 305 (1961)

In this case, the court looked at whether a contractor could recover in quantum meruit for services and materials actually provided, even though the work was not authorized in writing. During the course of construction, the Borough requested the contractor to perform certain extra services and provide additional materials. Upon the Borough’s refusal to pay these additional expenses, the contractor sought to recover in quantum meruit. The court found that the lack of writing authorizing these changes did not preclude the contractor from recovery.

Factor May be Liable for Diversion of Lien Law Trust Funds

Jan 01 2007

Caristo Constr. Corp. v. Diners Fin. Corp., 21 N.Y.2d 507 (1968)

In Caristo Constr. Corp., a general contractor paid a subcontractor who then turned the money over to a factoring corporation. The factor failed to file assignment of accounts or a “Notice of Lending” and failed to deposit the general contractor’s checks in depository in trust. In so doing, the factor participated in diversion of statutory trust funds, despite having returned to the subcontractor simultaneously with the payments “advances” equal to the payments. The general contractor, who was forced to make payment after the subcontractor became insolvent, prevailed in a suit as subrogee against the factor.

Waiver of Lien Rights Requires Clear, Certain and Unequivocal Evidence

Jan 01 2007

Boise Cascade Corp. v. Distinctive Homes, Inc., 67 Wash. 2d 289, 407 P.2d 452 (1965)

This case involves actions to foreclose on materialmen’s liens by Boise for materials supplied to Distinctive, a building company owned by the landowners, for the construction of two homes. Distinctive claimed that Boise agreed to waive its lien rights when it accepted two promissory notes. Boise, however, claimed that the two notes were merely taken as additional security when it agreed to withhold filing the liens if certain timely payments were made.

Proper Measure of Damages from Defaulting Contractor is Cost of Completion or Necessary Repairs

Jan 01 2007

525 Main St. Corp. v. Eagle Roofing Co., 168 A.2d 33, 34 N.J. 251 (1961)

In this case, the plaintiff property owner, contracted with the defendant for repairs to his roof and a five-year guarantee against leaks with a promise to repair. During the five years, the defendant disputed the scope of his responsibility and stopped performing repairs. The trial court found in favor of the plaintiff, concluding that the defendant had breached, but awarded nominal damages. The plaintiff appealed on the issue of damages.

The defendant argued that the damages should properly be calculated as the difference in value of the entire structure with the defective roof and the value of the building as if the contract had been fully performed. The court disagreed and found that in the construction context, the cost of repairs or the cost of replacement is the appropriate measure of damages and not a measurement made with reference to the value of the building as whole.

Archive:January 1, 2007