contract law Archives - Attorney Scott S. Orenstein

Most Construction Disputes Do Not Involve Unfair Trade Practices

Generally speaking, the legal profession is not currently held in high esteem. In my opinion, there are a couple of reasons for this situation. First, I believe that the general public does not fully understand the adversarial process used in our legal system or the reasons why lawyers are allowed to “argue in the alternative,” which, in normal parlance, would negatively be referred to as talking out of both sides of your mouth. Second, the negative public opinion is (unfortunately) deserved by virtue of how some attorneys approach their cases.

Attorneys that draft complaints that go beyond any reasonable interpretation of the facts hurt themselves and the legal profession as a whole. I once received a complaint that was far beyond the pale because, in a case where a subcontractor asserted a claim for nonpayment, the attorney not only alleged breach of contract, but also asserted a human rights violation against my client because the subcontractor was a Minority Business Enterprise (“MBE”) and my client was allegedly a racist. Of course, my African American client and I had a good laugh when I called to let her know that she was being accused of being a racist. (Practice tip to new attorneys: If you are going to make a claim based upon race,

A RECENT APPELLATE DECISION THAT PURPORTS TO EXPLAIN THE MEANING OF “CARDINAL CHANGE” ACTUALLY ONCE AGAIN DEMONSTRATES THE IMPORTANCE OF NEGOTIATING A FAIR CONTRACT

Change order provisions, which appear in most constructon contracts and contemplate changes being made to the work, contradict a fundamental premise of contract law. Specifically, in order for there to be a legally enforceable agreement, “there must be mutual assent or a meeting of the minds.” C.A.D.S., LLC v. Sundance Realty, LLC, 2019 Conn. Super. LEXIS 29, *25 (July 2, 2018). A contract is supposed to be “based on an identical understanding of the parties.” Id. at *25-26. Yet, as anyone in construction is aware, the project owner may order changes during the performance of the work that the contractor is contractually bound to perform, subject to appropriate adjustments in monetary compensation and the time to complete the work.

Notwithstanding the foregoing, there are limits in an owner’s ability to order changes in the work, because the owner is not allowed to require a contractor to perform “cardinal changes.” “A ‘cardinal’ change is a change outside the general scope of the contract.” Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction Law § 4:13. The significance of a cardinal change is that it is not covered by a standard change order provision.

Are Contractors and Subcontractors Allowed to Rob Peter to Pay Paul When it Comes to Paying Subcontractors and Suppliers?

One of the main problems most contractors (and subcontractors) face is cashflow. When the economy is going well, most contractors still find their payments lagging 60 to 90 days behind the 30 days required by most construction contracts. When an owner fails to make timely payment, general contractors end up in arrears with their subcontractors, who end up in the arrears with their subcontractors (i.e. sub-subcontractors) and suppliers. Often well intended contractors (and subcontractors) may end up using monies received from one project to pay subcontractors (and/or sub-subcontractors) on another. The reasons for paying subcontractors from one project with funds received from another may be because the subcontractors on the second job have gone longer without payment and/or are more in need. The question is whether that is legal.

In Connecticut, it has recently become riskier for contractors to pay their subcontractors (and for their subcontractors to pay their sub-subcontractors and suppliers) with funds received from another project. Connecticut has long had prompt payment statutes which require contractors to pay subcontractors “not later than twenty-five days after the date the contractor receives payment from the owner” on private projects and “within thirty days after payment to the contractor by the state or a municipality” on public projects.

HERE’S AN UPDATE ON THE EFFECT OF PRIOR RULINGS ON SUBSEQUENT LITIGATION

In a prior post, this blog explained how the Supreme Court held that an owner’s claims against subcontractors were barred because they were either brought or could have been brought in the owner’s prior arbitration against the general contractor. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). The court ultimately determined that the contractual relationship between a general contractor and its subcontractors was sufficient to determine that they were “sharing the same legal right.” Therefore, “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it,” applied in this case even though the subcontractors did not participate in the arbitration. Id. at 75.

Girolametti involved a situation where the dispute between the owner and general contractor included claims that the work performed by subcontractors was defective. Although the subcontractors were not parties to the arbitration, they were no doubt happy with the result and more than willing to have that decision applied to the owner’s subsequent lawsuit against them.

In my prior post,

Scott Orenstein
04.26.2020
Construction Attorney, Construction Contract Damages, Construction Law, Contract Law, mechanic's lien
0 Comment

A RECENT SUPREME COURT DECISION DRAMATICALLY AFFECTS SUBCONTRACTORS’ RIGHTS

In Girolametti v. Michael Horton Assocs., Inc., the Supreme Court determined when a subcontractor’s rights will be affected by an arbitration in which the subcontractor did not participate. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). This decision was based upon “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it.” Id. at 75. In order for claim preclusion to apply, the following requirements must be met:
(1) The prior judgment must have been rendered on the merits by a court of competent jurisdiction;
(2) The parties to the prior and subsequent actions must be the same or in privity;
(3) There must have been an adequate opportunity to litigate the matter fully; and
(4) The same underlying claim must be at issue.
Id. After applying these requirements in Girolametti, the Supreme Court held that the owner’s claims against the subcontractors were barred because they were either brought or could have been brought in the owner’s arbitration against the general contractor.

When the Breach of a Construction Contract is not a Breach

The doctrine of substantial performance holds that a contractor’s breach of a construction contract does not entitle the owner to damages because the contractor’s performance was close enough to that which the contract required. “Technical violations are excused not because compliance [is] impossible, but because actual performance is so similar to the required performance that any breach that may have been committed is immaterial. Substantial performance occurs when, although the conditions of the contract have been deviated from in trifling particulars not materially detracting from the benefit the other party would derive from a literal performance, [the other party] has received substantially the benefit [it] expected, and is, therefore, bound to perform.” United Concrete Prod., Inc. v. NJR Constr., LLC, No. CV176011932S, 2018 WL 5733720, at *4 (Conn. Super. Ct. Oct. 17, 2018). The classic example of this doctrine is a situation where the contract specifies a product manufactured by Company A but the contractor provides the same product manufactured by Company B. Because the contract expressly stated that the product shall be manufactured by Company A, the installation of the same product manufactured by a different company is a breach of the contract. However, because the products are identical other than the name of the manufacturer,

WHAT TO DO WHEN YOU ARE NOT BEING PAID

The most common issue I confront as a construction attorney is what to do when my client is not being paid. The standard approaches include sending a demand letter, making a demand for disputed funds to be placed in escrow in accordance with the prompt payment statute, and, of course, filing mechanic’s liens and/or bond claims. The larger issue becomes what to do when my client can no longer to perform its work without payment.

As a general rule, a contractor is better off completing its work, and then fighting about the monies due, as opposed to walking off the job. While it is true that there are Connecticut cases which hold that a contractor is excused from finishing its work if progress payments are not made when due, but reliance on such cases is fraught with potential problems.

If you ever forced to litigate, you want to be viewed as the one wearing the white hat. You want to be the injured party that is as pure as the driven snow. If at all possible, you do not want to give the other side any arguments to raise. Thus, if you walk off the job for nonpayment,

A Recent Superior Court Decision May Affect Subcontractor/Supplier Mechanic’s Liens

In a recent decision, the Superior Court discharged the mechanic’s liens of several subcontractors, because the general contractor had already filed a lien for the unpaid contract balance. Wegrzyniak v. Hanley Constr., LLC, WL 5706192 (Conn. Super. Ct. Oct. 30, 2017). Insofar as any substantial construction project will involve a general contractor, subcontractors, sub-subcontractors, and suppliers, there are obviously many potential lien claimants. Nonetheless, the court said that “[f]or good reasons, the mechanic’s lien statutes don’t permit multiple liens,” and with regard to the subcontractor whose lien included a claim for extra work, the court said that “[w]ithout an agreement to support the additional work…, [the subcontractor’s] lien must be discharge.” Id. In light of the foregoing, Wegrzyniak may stand for the proposition that subcontractors, sub-subcontractors, and/or suppliers are precluded from filing mechanic’s liens when the general contractor files a mechanic’s lien covering the entire project, but, in my opinion, subcontractors, sub-subcontractors, and suppliers should continue filing their own mechanic’s liens.

To summarize the reasoning of the Wegrzyniak decision in plain English, because the court understood that the property owner should not be held liable for more than the amount it agreed to pay the general contractor,

Slander of Title is Almost Always an Inappropriate Response to a Mechanic’s Lien

On rare occasions, I have had to contend with a claim of “slander of title” being filed in response to a mechanic’s lien. A slander of title claim requires:

The making of a false statement pertaining to the owner’s title;

The making of the false statement must have been made “with malice”; and

The false statement must result in actual damages.

Neri Corp. v. McDermott Rd., LLC, 2016 Conn. Super. LEXIS 2067, *18 (Conn. Super., July 26, 2016). The requirement for the statement to have been made “with malice” means that the lienor either had acknowledged that the statements in its mechanic’s lien were false or that the lienor acted with “a reckless disregard of the truth.” Id. Both are very unlikely in the context of a mechanic’s lien.

As stated previously in this blog, the purpose of a mechanic’s lien is to provide security for an alleged debt arising out of work performed. Notwithstanding the foregoing, the “[f]iling of a mechanic’s lien like that of any other lien can be the basis of a slander of title action as long as all of the elements of the tort are met.” Id.

Recent Decision Demonstrates the Importance of Complying with Contract Notice Provisions

A common provision in construction contracts requires a contractor to give notice to the owner within a certain number of days of an event giving rise to a claim. Such provisions have a reasonable basis insofar as they ensure an owner will have a reasonable opportunity to investigate the conditions for which a claim for additional compensation is being made. Traditionally, such notice provisions were not strictly enforced. The general approach seemed to be that — provided the owner was not prejudiced by any delay in giving notice of claim — a claim that was not submitted within the specified time limit would not be barred. The more recent trend, however, has been to more strictly construe such provisions.

In J. Wm. Foley, Inc. v. United Illuminating, the Appellate Court held that the contractor’s failure to submit its delay claim within the ten-day time limit specified by the contract was a bar to the claim. This decision is potentially troublesome for a couple of reasons: First, there is no reference to the owner suffering any prejudice as a result of the delay. Second, the decision indicated that the submission of the delay claim required a critical path analysis of the delay.

Categories

Recent Posts