by James R. Keller
This article appeared in St. Louis Construction News & Review, p. 16, July-August, 2001.
In the past few months, several appellate decisions in Missouri send a clear message to the construction industry about the importance of having a properly worded written contract. Judges in the Show-Me State still ask: "where's the written contract?" and "what does it say?"
More and more, construction contracts now contain written provisions requiring dispute resolution through arbitration instead of court. The wording of an agreement to arbitrate can make all the difference, as Metro Demolition discovered in Metro Demolition & B Excavating Company v. H.B.D. Contracting, Inc. and E.M. Harris Construction, ED 76988 (ED Mo. 2001).
Metro, a subcontractor, and HBD, the general contractor, entered into three written subcontracts for excavation and earthwork at the Murphy Park Public housing project in the City of St. Louis. The subcontracts incorporated provisions from the contract between the owner and the general contractor, including the standard AIA provision in Article 4.5.1 of A201 that all claims must be settled by arbitration with the American Arbitration Association.
The problem was in the timing of the subcontracts, for one of them was dated before the owner and general had signed their own contract.
Missouri law allows contracting parties to incorporate by reference into their written agreement provisions from other contracts. This is a common practice in subcontracts. The appeals court in Metro determined, however, that arbitration was not proper in the one subcontract because the subcontract referenced an owner-general contractor contract that did not yet legally exist.
This case points out the importance of subcontractors verifying the contracts they incorporate by reference. Otherwise, the incorporation may not be valid. In this case Metro had to split its case by having a traditional trial on one of its subcontracts and arbitration on the other two.
Another common practice is executing a release for payment received. Many contractors and subcontractors sign such releases thinking that they are merely acknowledging payment.
That is what Baker-Smith Sheet Metal, Inc. unsuccessfully argued inBaker-Smith Sheet Metal, Inc. v. Building Erection Services Company, WD 58946 (WD Mo. 2001). Baker-Smith furnished BESCO, per a written contract, insulated metal panels for the control tower at the Kansas City airport.
Baker-Smith made the panels per the shop drawings, but the panels were too short. Baker-Smith quoted a price of $10,555 to make another set of panels that BESCO then ordered. BESCO paid Baker-Smith the full original contract price (but not the additional $10,550).
Baker-Smith signed a release acknowledging payment in full for all work through a certain date, which included the cost of the additional panels. Baker-Smith sued to recover the additional money and a jury awarded it $10,555 for this work.
The appeals court reversed, holding that the trial judge should have overturned the jury's verdict based on the release. In fact, the court found the release to be so clear that the trial judge erred by even allowing evidence of what Baker-Smith intended when it signed the release.
In Bogdon Hiblovic v. Cinco-T.C., Inc., ED77401 (ED Mo. 2001), the homeowner sued for breach of contract, alleging that the contractor should have fixed a faulty foundation wall. Cinco-T.C. countered that it had repaired the wall and had built a separate retaining wall at no charge as part of a new oral agreement to resolve their dispute.
The contractor claimed that the judge erred by not allowing the jury to consider this work to be an accord and satisfaction, a defense to paying additional money. An accord is an agreement to settle a claim by doing something different from the initial contract. Satisfaction is the performance of this new agreement.
The court of appeals agreed with the contractor. Since none of this new agreement was in writing, there must be a new trial over whether the parties had a new deal, and if so, what it was. Ultimately, the jury would have to decide this one.
Doug White, a contractor, recently learned the hard way the importance of a written contract. He assisted Wanda Pruiett, a homeowner, in pursuing an insurance claim for water damage. He attended several meetings with the insurance company to evaluate damage and discussed additional damage that he considered to merit repair.
Pruiett identified White to the insurance representatives as her contractor to do the repair work. Ultimately, the insurance company upped its initial offer almost four fold and agreed to pay the homeowner about $58,500.
After getting the money, the homeowner decided to repair the home herself. An unhappy White sued for breach of contract, alleging that he had an agreement with her to be the contractor. The appellate court decided otherwise. The case is Doug White v. Wanda Pruiett, WD 58509 (WD Mo. 2001).
Despite his hard work and input, Pruiett was not legally bound to do anything with him. Her representations that he would be the contractor were made to the insurance company, not to him. Most importantly, she refused to execute a written contract that he sent and she did not sign his bid. In other words, he had nothing in writing.
James R. Keller is a partner at HERZOG, CREBS & McGHEE, LLP, St. Louis, Missouri, where he concentrates on construction law, real estate and business litigation. He is also a panelist with the American Arbitration Association.