Construction Law

Legal issues, news, and regulations concerning the construction industry

1
Excessive Changes to Contract Can Justify Abandonment Claim Even if Contract is Completed; Abandonment Damages May Be Calculated According to Total Cost
2
Installation of Air Conditioning Unit Not an “Improvement” within the Context of Statute of Limitations
3
Liquidated Damages Clause in Prime Contract is Incorporated in Subcontract when Subcontract Contains Conduit Clause
4
Increased Costs Due to Inaccuracy of Contract Drawings Are Recoverable
5
Owner Who Accepts and Takes Possession of Incomplete or Obviously Defective Building Waives Patent and Obvious Defects, but Does Not Waive Latent Defects
6
Court Grants Contractors Damages for Delays Caused by State, Denies Liquidated Damages where State Unable to Establish Extent of Fault of Contractors
7
Court Recognizes Implied Warranty of Habitability / Workmanlike Construction in Certain Residential Construction
8
“Completed and Accepted” Rule Does Not Excuse Architect, General Contractor and Heating Contractor from Liability
9
Lack of Written Document Does Not Preclude Contractor from Recovering in Quantum Meruit for Changes to Initial Plans
10
Factor May be Liable for Diversion of Lien Law Trust Funds

Excessive Changes to Contract Can Justify Abandonment Claim Even if Contract is Completed; Abandonment Damages May Be Calculated According to Total Cost

C. Norman Peterson Co. v. Container Corp. of Am., 172 Cal. App. 3d 628 (1985)

In this case, Container Corporation of America appealed from a trial court judgment in favor of contractor C. Norman Peterson Company (“CNP”).  CCA had hired CNP to perform work to modernize a paper mill.  During the performance of the contract, numerous errors and changes to plan resulted in significant delays and extra costs.  CNP sued for the extra costs associated with the project, claiming the extra costs were caused by CCA’s excessive changes to the plan.  CCA argued that both parties were aware at the time the contract was formed that the plan would require significant revisions.  The trial court found for CNP, holding that CCA’s excessive changes after the project was commenced constituted breach of contract and abandonment.  CNP was allowed to recover its total costs expended and lost profit. CCA appealed.
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Installation of Air Conditioning Unit Not an “Improvement” within the Context of Statute of Limitations

Rolnick v. Gilson & Sons, Inc., 617 A.2d 288, 260 N.J. Super. 564 (N.J. Super. Ct. App. Div. 1992)

This case concerned a property that was severely damaged by a fire allegedly caused by a defective fan component in the air conditioning system.  The trial court applied the statute of limitations that bars claims over ten years after improvement, finding that the installation of an air conditioning system was an "improvement" within the meaning of the statute.  The appellate court reversed, finding that a mass produced and marketed attic ventilation fan was not an “improvement” within the meaning of the statute and thus the action was not barred.
 

Liquidated Damages Clause in Prime Contract is Incorporated in Subcontract when Subcontract Contains Conduit Clause

Indus. Indem. Co. v. Wick Constr. Co., 680 P.2d 1100 (Alaska 1984)

In this case, the Alaska State Housing Authority (ASHA) awarded a contract for the construction of a courthouse and office building to a general contractor.  The prime contract featured a liquidated damages clause limiting the contractor’s liability to $400 per day of delay.  The subcontract between the general contractor and subcontractor included a so-called “flow down” or “conduit clause” incorporating the liquidated damages clause from the prime contract.  When the general contractor sued the subcontractor for delays, the trial court awarded the general contractor $765,654.00 in total damages.  The subcontractor appealed, arguing that the liquidated damages clause applied.

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Increased Costs Due to Inaccuracy of Contract Drawings Are Recoverable

Golomore Assoc. v. N.J. State Highway Auth., 413 A.2d 361, 173 N.J. Super. 55 (N.J. Super. Ct. App. Div. 1980)

In this case, the court evaluated a claim by a contractor and subcontractor against the State for additional costs of construction. Plaintiffs claimed that the increased costs were due to faulty evaluations of ground elevation provided by the State prior to bidding. The bid submitted to the State was calculated using those faulty measurements and therefore did not adequately predict actual expenses. The court ruled in favor of the plaintiffs, finding that the elevations provided by the State constituted positive averments. Therefore, when the elevation data was shown to be incorrect, contractors were entitled to recover for additional costs.
 

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

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

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

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.

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

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

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

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.

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