Inside this Issue

A1 - Handwritten Change to the Lien Release was Effective at Preserving Contractor’s Right to Later Make a Claim for More Funds
A2 - Subcontractor Breached Contract by Refusing to Perform Extra Work as Directed by Contractor unless it First Received Change Order
A3 - Court Applies Statute of Repose to Dismiss Counts of Complaint for Negligence, Breach of Contract and Indemnification – because Negligence was at Issue in each Count

Article 1

Handwritten Change to the Lien Release was Effective at Preserving Contractor’s Right to Later Make a Claim for More Funds

A lien waiver form titled “Waiver of Lien to Date” was revised by the subcontractor in handwriting by striking out the words “to date” and writing in their place “Partial.” The contractor then paid the subcontractor $33,448 per the release but refused to pay an additional $222,238 that the subcontractor later demanded. The trial judge agreed with the contractor that the change in the title to the lien release did not alter the effectiveness of the release constituting a total waiver. This was reversed on appeal, with the appellate court holding that a lien release is subject to the normal rules of contract interpretation, and that when a type written contract has been altered in handwriting, the courts must reconcile the differences in the wording and the handwritten change will control. As revised through the handwritten change, the lien was only a partial release and did not bar the claim for the larger dollar amount. Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc., 402 Wis.2d 311 (2022).

Construction liens can be waived under Wis. Stat. § 779.05(1). That statute provides in relevant part:

Any waiver document shall be deemed to waive all lien rights of the signer for all labor, services, materials, plans, or specifications performed, furnished, or procured, or to be performed, furnished, or procured, by the claimant at any time for the improvement to which the waiver relates, except to the extent that the document specifically and expressly limits the waiver to apply to a particular portion of such labor, services, materials, plans, or specifications.

The statute further directs that “[a]ny ambiguity in such document shall be construed against the person signing it.

[Contractor] asserts this handwritten modification creates an ambiguity because the printed body of the waiver document otherwise constitutes a full waiver under which [Subcontractor] “waive[s] and release[s] any and all lien or claim of, or right to, lien, ... on account of labor, services, material, fixtures, apparatus or machinery furnished to this date,” and as of that date, all of the work had been completed. Under § 779.05(1), [Contractor] argues the resulting ambiguity must be “construed against the person signing it.” Great Lakes disagrees, arguing the waiver is unambiguously a partial waiver because there is no competing interpretation of the document. We agree with [Subcontractor] that the waiver document is not ambiguous and satisfies § 779.05(1) as a partial waiver of the lien with respect to only the $33,448 paid. The handwritten term “Partial,” in conjunction with the specific amount of consideration, indicates the lien was waived only to the extent of that portion of the total amount owed.

The court found that the handwritten addition of “Partial” in the document title, replacing the printed words “to Date,” conflicts with the preprinted language in the body of the document indicating Great Lakes “does hereby waive and release any and all lien ... on account of labor, services, material, fixtures, apparatus or machinery furnished to this date” with respect to the property. Applying contract interpretation principles to this lien release the court explained,

“The lien waiver in this case cannot be construed as a full waiver because the handwritten word “Partial” must be given effect. Because the word “Partial” is handwritten, it governs over the preprinted language waiving all lien rights to date.” “This principle that handwritten terms control over preprinted provisions “is based on the inference that the language inserted by handwriting ... is a more recent and more reliable expression of [the parties’] intentions than is the language of a printed form.” “Consistent with the principle that handwritten terms control over the form's printed provisions, the term “Partial” prevails over the language in the printed body of the document waiving all lien rights to date. Resolving this conflict leaves no ambiguity as to whether the document is a full or partial waiver. Because it can be only one or the other, there is no reasonable alternative construction of the document other than as a partial waiver.”

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 25, No. 1 (January 2023).

Article 2

Subcontractor Breached Contract by Refusing to Perform Extra Work as Directed by Contractor unless it First Received Change Order

See similar articles: Change Order | directive

A concrete sub-subcontractor breached its contract by refusing for perform extra work as directed by its contractor unless the contractor agreed upon the compensation amount to be paid and executed a change order. The court held that the language of the subcontract required the subcontractor to perform when directed by the contractor even if the amount to be paid might be disputed, and that the contractor was not required to execute a change order before the subcontractor would start performing the required work. McCarthy Concrete, Inc., v. Banton Construction, 203 A.D.3d 1496 (New York 2022).

For purposes of ease of reading, we are going to all the sub-subcontractor the “Plaintiff” or “Subcontractor”, and we The court explained the background as follows:

Plaintiff performed work on the project until the summer of 2015, when an “overall work suspension” by Amtrak caused Banton to demobilize plaintiff, estimating that the project would resume in the spring of 2016. After being unable to resolve …. Thereafter, Banton indicated that Amtrak desired to make changes to the concrete work including, as relevant here, using a concrete pumping method and installing tactile warning strips, and requested that plaintiff provide proposals for the costs of said modifications. Plaintiff sent proposals for some of the modifications, but they were not agreeable to Banton, and plaintiff was concerned about going forward without reaching an agreement as to compensation that accounted for plaintiff's increased labor and risk. On September 23, 2016, Banton directed plaintiff to return to the project site and proceed with the remaining work, despite having not yet reached an agreement as to compensation. Banton stated that it was “willing to fund the alleged added costs for concrete pumping and added reinforcing, under a reservation of rights.” Banton also stated that if plaintiff did not commence and continue work within three days, Banton would terminate plaintiff for default as well as seek costs. After plaintiff did not commence work, on September 27, 2016, Banton notified plaintiff that, because plaintiff breached the contract and did not proceed with the work, Banton was “forced to contract with another subcontractor to complete [plaintiff's] work.”

The issue to be decided by the court was whether the contract was breached by the contractor for refusing to issue a change order, or whether it was breached by the subcontractor for refusing to perform the additional work without first receiving a change order. The subcontract in question contained language typical of what is found in standard form contracts like those issued by the American Institute of Architects and others that require subcontractors to continue performing work so long as directed to do so by the contractor – even though no change order has been issued. The relevant language in this particular contract was quoted by the court as follows:

The subcontract between Banton and plaintiff provides that plaintiff “shall perform and provide all labor, materials, tools, equipment ... and any other item necessary to complete the [w]ork described below for the [p]roject” and provides a list of tasks that are “excluded from the subcontract,” including concrete pumping, winter conditions and tactile. With respect to changes and claims, the subcontract states that “[Banton] may, at any time, unilaterally or by agreement with [plaintiff], and without notice to the sureties, make changes in the [w]ork. Any unilateral order, or agreement under this [p]aragraph ... shall be in writing, unless an emergency requires [plaintiff] to proceed without a written order. [Plaintiff] shall immediately perform the work as changed without delay ” (emphasis added). The subcontract also provides that, “[f]or changes ordered by [Banton] independent of [Middlesex], [Amtrak] or the [c]ontract [d]ocuments, [plaintiff] shall be entitled to equitable adjustment of the [s]ubcontract [p]rice or [p]roject [s]chedule, or both to the extent that impact can be substantiated to [Banton's] satisfaction.... Pending resolution of any claim, dispute or other controversy, nothing shall excuse [plaintiff] from proceeding with prosecution of the [w]ork ” (emphasis added).

Although the court agrees with the subcontractor that the changes involved in the additional work were “material changes” the court stated that these changes did not constitute “cardinal” changes. A cardinal change is one that affects the essential identity or main purpose of the contract such that it constitutes a new undertaking. The main purpose of this contract was complete concrete work and the court concluded that the changes requested did not fundamentally change that purpose.

The court concluded its analysis as follows:

That said, we also do not agree with Supreme Court that plaintiff's performance under the subcontract was excused because there was no promise from Banton to compensate plaintiff for the changed work. Banton established that it had agreed not only to pay for the costs of the equipment needed to pump the concrete, but also agreed to pay some increased costs to plaintiff for the concrete pumping.³ Indeed, Banton's agreement to pay plaintiff for the changed work went above what Banton was required to do by way of the subcontract, wherein plaintiff agreed that “nothing shall excuse [plaintiff] from proceeding” with the work.⁴ The subcontract also specifically detailed the process to be followed by plaintiff to seek renumeration for increased costs due to changed work, and, if not satisfied, nothing would preclude plaintiff from commencing suit to seek damages. Further, it is clear from the subcontract that time was of the essence. Plaintiff's refusal to perform the changed work without an express agreement as to increased costs had the effect of holding Banton hostage in that the work,⁵ which was part of a much larger project, was stalled. Given that plaintiff had agreed, pursuant to the subcontract, to continue the work while pursing dispute resolution, its failure to perform the work amounted to a breach of the subcontract. Thus, we disagree with Supreme Court that Banton breached the contract based upon terminating the subcontract when plaintiff refused to perform absent an express agreement as to costs for the increased work. Accordingly, we reverse Supreme Court's determination that Banton breached the subcontract and wrongfully terminated plaintiff and vacate the judgment as to any damages and counsel fees awarded to plaintiff based upon that breach. Rather, we find that plaintiff breached the subcontract by refusing to perform the work as it was required to do under the subcontract and, as such, grant Banton's counterclaim for breach of contract.

Article 3

Court Applies Statute of Repose to Dismiss Counts of Complaint for Negligence, Breach of Contract and Indemnification – because Negligence was at Issue in each Count

See similar articles: Statute of Repose | Timeliness

The University filed a complaint against a HVAC contractor based on faulty workmanship. Deciding that the complaint was barred by the state statute of repose, the trial court granted summary judgment to the contractor. This was affirmed on appeal – with the court applying the statute not only to the negligence count of the complaint, but also to the claims for breach of contract and indemnification. The university filed its complaint about 4 months after the six-year time limit expired. On appeal the court dealt with whether the breach of contract and indemnification claims were properly dismissed. Finding there were no express warranties in the contract, the court concluded that the defendants did not promise “specific results”. Contract provisions merely required that the ventilation system operate and “did not require it “operate so as to deliver a specific result.” All the contract provisions “required nothing more than compliance with the implied duty for reasonable care.” With regard to the indemnity count the court concluded that the plaintiff was seeking on first-party indemnity damages and that no damage to other property of either the university or others was alleged. Concluding that the entirety of the complaint was based on negligent performance, the court applied the statute of repose to all counts. Commonwealth of Massachusetts v. Adams Plumbing & Heating, Inc., (Mass. 22-P-426, Memorandum and Order)

This is an interesting case in which the plaintiff attempted to avoid the consequences of the statute of repose by asserting distinct causes of action for breach of contract and indemnification.

After the dining hall opened for use in September 2024, the University discovered that the kitchen’s duct work had collapsed and had other deficiencies such as seam leaks, joint separations, duct panel damage, and irregularities with the control systems. It was not until December 2020 (six (6) years and three (3) months later that the University filed suit for negligence, breach of contract and indemnification.

Massachusetts has a statute of repose that places an absolute six-year time limit on filing suit. The statute eliminates a cause of action after six years regardless of whether an injury has occurred or a cause of action has accrued as to that date. The court explained that although the statute applies specifically to actions of tort (such as negligence) “a plaintiff may not escape the consequences of the statute by recasting a negligence claim in the form of another claim” – such as breach of contract or indemnity.

To determine whether the statute of repose must be applied, the court looks to the nature or “gist” of the claim. In this case, the court stated that there was no dispute that the statute barred the late negligence claim. The only issue on appeal was whether the trial judge properly applied that statute to bar the breach of contract and indemnity claims.

Breach of Contract. The University argued that the defendants breach express warranties, and that such warranties are contractual in nature and survived the statute of repose period. Warranty claims are indeed outside the scope of the statute but here the University failed to identify any express warranties in the contract. The court reviewed the contract and found no instance of where the defendants “guaranteed a heightened level of workmanship by promising a specific result.” Nor did the defendants agree “to comply with technical specifications in a written contract.” “The plaintiff may not rely on general contract provisions that impose the implied duty of reasonable care, as such provisions do not guarantee a heightened level of workmanship.”

The University argues that the defendants agreed to comply with technical specifications in their written contracts. But the University failed to identify “with specificity any problems involving violations of technical specifications versus problems that amounted to shoddy work in violation of implied duty of reasonable care.” For this reason, the court focused on whether any of the defendants “promised specific results.” The court considered case precedent where the court previously considered situations in other matters where parties made “an explicit promise that the system would operate so as to deliver a specific result, and those promises imposed a heightened standard of care.”

In this particular case, the University’s contract provisions set forth the nature of the work to be completed and required nothing more than compliance with the implied duty of reasonable care. “The provisions required that the ventilation system operate – a basic contract expectation – and did not require that the ventilation system operate so as to deliver a specific result.” “The provisions also required that the ductwork be assembled and installed in accordance with recognized industry practices, which on its face required nothing more than compliance with the implied reasonable care” – meaning that it must not be negligently performed. This did not create a warranty and the breach of contract claims were, therefore, held to be properly dismissed as barred by the statute of repose.

Indemnification. The University argued that its indemnity claims were contractual in nature and, therefore, survived the statute of repose. Again, because the court found the gist of the claim sounded in negligence, it enforced the statute of reposed to bar the indemnity claim. The court discussed the difference in first party indemnity and third party indemnity but concluded that was not relevant to its decision making process here.

There as no injury separate and distinct from the shoddy work. The issue was simply whether the defendants were negligent. “That is precisely the sort of claim that the statute or repose bars….”

Risk Management Comments. The contract in question didn’t contain language creating any contractual obligations or warranties, but instead required only that the work be performed “in accordance with recognized industry standards.” The court called that a duty of “implied reasonable care.” When reviewing contracts it may be wise to clearly define the standard of care that will be required and to further disclaim warranties and guarantees. For example, we often insert the following clause into design professional contracts:

“Consultant shall perform its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (hereinafter the “Standard of Care”) and expressly disclaims all express or implied warranties and guarantees with respect to the quality of performance of professional services.”

Contractors and design professionals need to be aware of any contractual obligations committing them to detailed compliance with performance criteria. The court in this case explains that had this contract contained such performance criteria the University may very well have been able to sue the defendants for breach of contract beyond the time allowed by the statute of repose for negligence actions.

NOTE: This is a summary decision by the Massachusetts Appeals Court and such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. The decision may be cited for its persuasive value but not as binding precedent.

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