The Americas – Page 30 – Construction Law

Contractors Must Follow Contractual Notice Procedures

Jan 01 2007

Absher Constr. Co. v. Kent Sch. Dist., 77 Wash. App. 137, 890 P.2d 1071 (1995)

In this case, a contractor and subcontractors brought action against a school district for breach of public contract for the construction of an elementary school. Subcontractor Emerald was hired to work on the school’s HVAC system for Chapman, to whom Absher had subcontracted mechanical work on the project. Absher’s contract with the school district required all claims to be filed in writing with the district within 14 days of events giving rise to these claims. Absher did not provide notice of Emerald’s claims until months after Emerald had completed all of its work. The Superior Court, King County, entered summary judgment for the school district. The contractor and subcontractors appealed. Read More

No-Damages-for-Delay Clauses Enforceable Despite Public Entity’s Error of Judgment, Lack of Effort or Lack of Complete Diligence

Jan 01 2007

Capital Safety, Inc. v. State, 848 A.2d 863, 369 N.J. Super. 295 (N.J. Super. App. Div. 2004)

In this case, an asbestos removal contractor brought suit against the state for delay damages due to delays cause by the state’s inability to relocate workers to permit asbestos removal. The court, in this matter, enforced the contract’s no-damages-for-delay clause, finding that such clauses are enforceable even if the delay is the result of the public entity’s “error of judgment, lack of effort, or lack of complete diligence.”

Subcontractors and Suppliers Must Apply Funds to Specific Project Accounts, Not General Contractor Accounts

Jan 01 2007

Craft v. Stevenson Lumber Yard, Inc., 843 A.2d 1076, 179 N.J. 56 (2004)

In this matter, a project owner filed a complaint demanding the dismissal of a construction lien claim filed by a supplier (Stevenson) after the contractor, who was responsible for paying Stevenson, walked off the job. The contractor owed Stevenson for multiple past unrelated projects. Therefore, when the contractor provided payments to Stevenson from the plaintiff’s payments, without specifying the project, Stevenson automatically credited the payments to the oldest outstanding invoices, not to those associated with the plaintiff’s project. The supplier subsequently filed a construction lien claim against the real property.

The court found that the supplier could not arbitrarily assign the payments to different accounts, but rather must apply the contractor’s payments to the individual project account from which payments were derived. Therefore, the supplier was precluded from filing the lien claim due to its failure to allocate the contractor’s payments to the proper accounts.

Subcontract Pay-If-Paid Provisions Violate New York Public Policy

Jan 01 2007

West-Fair Elec. Contractors v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148 (1995)

In West-Fair, the New York Court of Appeals decided that pay-when-paid provisions in a subcontract, which transfer the risk of an owner’s default from a general contractor to a subcontractor, violate New York public policy as set forth in the Lien Law. New York’s Lien Law provides that any contractual provision that waives the right to enforce any mechanic’s lien shall be void as against public policy. The court reasoned that if a subcontractor’s right to be paid could be indefinitely postponed by an owner’s failure to pay the general contractor under a pay-when-paid provision, the subcontractor’s right to enforce its mechanic’s lien would be similarly frustrated and constitute an illegal waiver of lien rights.

Statute of Repose Bars Government Enforcement Action

Jan 01 2007

Cyktor v. Aspen Manor Condo. Ass’n, 820 A.2d 129, 359 N.J. Super. 459 (N.J. Super. Ct. App. Div. 2003)

In this case, a condominium developer negotiated an agreement releasing it and its principals from all liability connected with the construction of the development at issue. The agreement was reached in 1986, several years after construction was completed, and transferred control of the development to the condominium association. Eleven years later, in 1997, the Department of Community Affairs (DCA) cited the development for certain violations regarding the structure of the facility. In defense of the citation and the condominium association’s attempts to place liability with the developer, the defendants argued that the action was barred by the statute of repose. The DCA argued that the statute of repose applied only to claims for damages and did not bar enforcement actions. The court disagreed with the DCA and held that the statute of repose applies broadly to governmental action.

Deductive Changes Should Affect Contract Price Equitably

Jan 01 2007

M.J. Paquet, Inc. v. N.J. Dep’t of Transportation, 794 A.2d 141, 171 N.J. 378 (2002)

In this case, a contractor submitted an unbalanced bid to the New Jersey Department of Transportation (“DOT”) for the rehabilitation of a bridge with the expense of painting over-estimated and other expenses underestimated. Following the award of the project, OSHA released new paint safety requirements that the contractor claimed significantly raised the price of the project. DOT decided that the increased price was too much and decided to excise the bridge painting from the contract. The contractor then filed suit claiming that DOT was not authorized to delete the painting from the contract and alternatively, that DOT could not subtract the entire amount attributed to painting in the initial unbalanced bid from the contract price. The Supreme Court concluded that while it was appropriate for the DOT to excise the painting component from the contract it was not proper to simply subtract the value of that item from the initial bid. Rather, the contractor must have an equitable adjustment to the contract price.

Functional Equivalent of Privity is Required in Negligent Misrepresentation Cases that Produce Only Economic Injury

Jan 01 2007

Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417 (1989)

In Ossining, the Court of Appeals expanded on the holding in Credit Alliance and ruled that a school district, which contracted with an architect, could sue engineers hired by the architect for damages suffered as a result of the engineers’ negligence and malpractice. The issue addressed by the court was whether privity of contract is required in a negligent misrepresentation case that produces only economic injury. The court held that a cause of action for negligent misrepresentation which produces only economic injury requires that the underlying relationship between the parties be one of contract or the bond between them so close as to be the “functional equivalent of contractual privity.” The court laid out a three-prong test following the guidance of Credit Alliance: (i) that the design professional be aware that its reports are to be used for a particular purpose; (ii) that a known person rely on the reports in furtherance of that purpose; and (iii) that there be some conduct by the design professional linking it to the reliant person and evidencing its understanding of the reliance.

Architect and Interior Designer Liable for Tortious Interference with Contract Where General Contractor was Terminated on Their Recommendation

Jan 01 2007

DiMaria Constr., Inc. v. Interarch, 799 A.2d 555, 351 N.J. Super 558 (N.J. Super. Ct. App. Div. 2001)

In this case, the general architect and interior designer on a construction project recommended that the owner terminate the general contractor. The owner, on this advice, terminated the contractor who subsequently filed suit against the architect and interior designer for tortious interference with contract. In analyzing the claims, the court looked at the four elements of the tort of interference with a business relation or contract: (1) a protected interest; (2) malice in the sense that the defendant interfered without justification; (3) a reasonable likelihood that the interference caused the loss of the prospective gain; and (4) resulting damages. The court found that the architect and interior designer were liable for tortious interference. The court also addressed whether they were acting as agents of the owner and therefore escaped liability. The court found that question to be a factual issue that was implicitly answered in the affirmative in the jury’s finding of liability.

Notwithstanding “No Damage for Delay” Clause, Delay Damages May be Recovered in Certain Circumstances

Jan 01 2007

Corinno Civetta Constr. Corp. v. City of New York, 67 N.Y.2d 297 (1986)

In Corinno Civetta, the Court of Appeals reaffirmed that generally, “no damage for delay” clauses, which bar a contractor from recovering damages for delay in the performance of a contract, are valid and enforceable. However, even with such a clause, damages may be recovered for: (i) delays caused by the contractee’s bad faith or willful, malicious, or grossly negligent conduct; (ii) uncontemplated delays; (iii) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee; and (iv) delays resulting from the contractee’s breach of a fundamental obligation of the contract.

Professionals Can Be Liable to Non-Contracting Parties if Their Relationship Approximates Privity

Jan 01 2007

Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (1985)

In Credit Alliance, the Court of Appeals held that accountants could be liable to noncontractual parties if the relationship of the parties approached that of privity. Specifically, the court held that an accountant could be liable, absent privity of contract, to a party who relies to his detriment on a negligently prepared financial report if (i) the accountant was aware that the financial reports were to be used for a particular purpose, (ii) in the furtherance of which a known party was intended to rely, and (iii) there must have been some conduct on the part of the accountant linking him to that party which evinces his understanding of that parties’ reliance.

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