Case Summaries – Page 24 – Construction Law

New York Law Allows Subcontractors’ Assignees to Recover From Sureties

Jan 01 2007

Quantum Corporate Funding, Ltd. v. Westway Indus., Inc., 4 N.Y.3d 211 (2005)

In Quantum Corporate Funding, a subcontractor sold its accounts receivable to an assignee. When the general contractor failed to pay its debts, the assignee, or factor, brought suit against the surety for the State Finance Law § 137 payment bonds that the general contractor had been required to purchase. The surety refused payment and the factor brought suit. Though the statute is silent on who may sue on the bond, the Court of Appeals ruled that State Finance Law § 137 allows subcontractors’ assignees to recover payment from bond sureties.

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.”

Economic Loss Rule Does Not Bar Tort Recovery If Tort Claim is Based on Duty that Exists Independent of Parties’ Contract

Jan 01 2007

Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979 (2004)

In this case, helicopter manufacturer Robinson Helicopter Co., Inc. sued parts supplier Dana Corporation after Dana delivered nonconforming parts to Robinson. Dana had contracted to supply Robinson with clutches for Robinson’s helicopters. Dana provided the parts according to Robinson’s specifications for roughly twelve years, but then changed its manufacturing process without notifying Robinson. For the next sixteen months, Dana delivered nonconforming parts which failed at a much higher rate than the conforming parts. Robinson notified Dana of the higher failure rate and Dana subsequently switched to a conforming manufacturing process. Although there were no accidents that lead to physical injury or property damage, Robinson was required to recall and replace the defective parts.

Robinson sued Dana and the trial awarded Robinson $1.5 million in compensatory damages and $6 million in punitive damages, based on Dana’s knowing misrepresentation or concealment of material facts with the intent to defraud. Dana appealed. The court of appeals affirmed the award of compensatory damages but reversed the award of punitive damages, finding that Robinson could not recover in tort when it had only suffered economic loss.

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.

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