2007 – Page 10 – Construction Law

Upon Owner’s Termination-for-Convenience, Contractor Must Cease All Work and Cancel All Orders

Jan 01 2007

Quality Asphalt Paving, Inc. v. Dept. of Transp. & Public Facilities, 71 P.3d 865 (Alaska 2003)

In this case, a state agency accepted bids on a contract to widen a state highway. Shortly after the state awarded the contract to a contractor, the state terminated it under a termination-for-convenience clause in the contract. The contractor sued for costs and damages. A hearing officer awarded damages to the contractor, but did not award prejudgment interest. The trial court affirmed, and the parties appealed.

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.

Surety Liable for Attorneys Fees and Statutory Penalties Awarded Against Principal

Jan 01 2007

Nat’l Tech. Sys. v. Superior Court, 97 Cal. App. 4th 415 (2002)

In this case, subcontractor National Technical Systems sought to enforce a stop notice release bond against surety United Pacific Insurance Company. In a prior trial in which UPIC was not joined as a party, NTS had obtained a judgment against a general contractor, including attorneys fees and statutory penalties. In a subsequent claim against UPIC, NTS had sought to introduce evidence of the judgment and attendant attorneys fees and penalties. UPIC filed two motions in limine to exclude the evidence. The first motion sought to exclude evidence of the judgment on the grounds that UPIC was not a party to the prior action and thus not bound by the judgment. The second motion sought to exclude evidence of the attorneys fees and statutory penalties on the grounds that these awards were not recoverable under the stop notice release bond and that UPIC could only be liable for labor, service and materials furnished on the project. The trial court granted UPIC’s motions, and NTS sought a writ of mandate directing the court to vacate the order granting the motions.
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Contractor Cannot Recover Damages for Abandonment or Quantum Meruit from Public Entity

Jan 01 2007

Amelco Elec. v. City of Thousand Oaks, 27 Cal. 4th 228 (2002)

Amelco Electric was granted a prime contract for electric work related to the construction of a civic arts plaza for the City of Thousand Oaks. During construction, the City issued over a thousand sketches to clarify or change the original contract drawings, of which 248 sketches affected electrical work. Amelco requested 221 change orders, and the City and Amelco agreed upon 32 change orders. As a result of the change orders, Amelco received $1 million over the contract price of $6.2 million. Amelco later submitted additional change orders which were not accepted. Upon completion of the project, Amelco submitted a $1.7 million claim for costs resulting from the noncaptured costs of the change orders. By the time of trial, Amelco’s claim had increased to $2.2 million. The City rejected the claim and Amelco sued for abandonment and breach of contract. At trial, the jury determined that the City had both breached and abandoned the project and awarded Amelco $2.1 million. The court of appeals affirmed the award and concluded that, as a matter of law, a public works contract can be abandoned.
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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.

Reasonable Methods for Computing Damages are Actual Total Method and Jury Verdict Method

Jan 01 2007

Power Constructors, Inc. v. Taylor & Hintze, 960 P.2d 20 (Alaska 1998)

In this case, a contractor brought a legal malpractice action against its former law firm and several attorneys. The contractor’s case was a “trial-within-a-trial” approach, which required the contractor to demonstrate the merits of its underlying case (concerning a deficient powerline construction project) as part of its malpractice case. At trial, the jury returned a verdict for the contractor, and both parties appealed the damages award in the jury’s verdict.

Disfavored Total Cost Method of Calculating Damages May Be Used Only in Limited Circumstances

Jan 01 2007

Geolar, Inc. v. Gilbert/Commw. Inc. of Mich., 874 P.2d 937 (Alaska 1994)

In this case, a contractor sued an electric company for breach of contract against the company’s agent for tortious interference with contract. The contractor also sued the electric company for breach of contract, and calculated its damages based on direct costs, lost of efficiency costs, and delay costs. The trial court dismissed the contractor’s claim for intentional interference with contract, but the breach of contract claim went to trial, where a jury based an award of damages to the contractor on the contractor’s calculation.

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.

Economic Loss Rule Bars Recovery for Construction Defects that do not Cause Property Damage

Jan 01 2007

Aas v. Superior Court, 24 Cal. 4th 627 (2000)

In this case, a condominium homeowners association and condominium owner sued the developer, general contractor and subcontractors who participated in the construction of the condominiums. The plaintiffs alleged a variety of construction defects related to nearly all components and aspects of the construction, and sought repair costs and damages for diminution in value of their residences. The defendants sought a motion in limine to exclude evidence relating to alleged construction defects that did not cause property damage. The trial court granted the defendants’ motions as to the plaintiffs’ tort claims, and the court of appeal denied the plaintiffs’ subsequent petition for a writ of mandate.
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