Contractor’s Claim Survives Attacks Based On Waiver and Failure to Provide Notice
In the recent case, Peter Scalamandre & Sons, Inc. v. FC 80 DeKalb Associates, 2013 N.Y. Slip Op. 50999(U)(Kings County, June 11, 2013), a property owner attempted to avoid liability for payment of extra work by relying upon release language that is often found in mechanics’ lien waivers as well as the contractor’s purported failure to give timely notice of claims. Fortunately for the contractor in that case, the court found that its claims had not been waived, but the ruling provides a cautionary tale.
The project at issue in this case was a large one. The contractor had agreed to perform the necessary work and provide materials for the concrete superstructure for the price of $27,100,000.00. Soon after commencement of the work a disagreement arose over the amount of steel that would be required for the concrete superstructure, with estimates ranging from 3,332,870 lbs of rebar to 4,489,122. The concrete contractor alleged that it was the upper range that was required and indeed which was purchased and used in the construction. A dispute over the cost of this extra work, among other things, resulted in the litigation.
The contractor filed a mechanics’ lien and commenced an action seeking $3,494,555 for extra work, together with $4,631,161 for alleged interruptions and delays caused by the owner. The owner in turn sought to defeat the claims for extra work by relying upon waiver language found in its lien waivers. The lien waivers, which are typical in the industry, provided: “In consideration of the amounts and sums previously received, and the payment of the Balance Due, the below named Contractor or Supplier hereby waives, releases and relinquishes any and all claims, rights or causes of action in equity or law whatsoever arising out of, through or under mentioned Contract and the performance of work pursuant thereto and including the date hereof.”
It is worth noting that the lien waiver relied upon by the owner in this case was for a payment of $38,600, which compared to the overall contract amount, is miniscule. Luckily for the contractor the court found that the “execution of the mechanics’ lien waiver, which contains language purporting to release the owner from making any further payments, cannot be considered to be a true waiver of its claims for additional compensation related to changes in work.” The court arrived at this conclusion due to the fact that the contractor had included within the pay package, of which the lien waiver was a part, a “list of pending change orders, which includes claims for ‘Winter Heat,’ ‘Rebar Quantity,’ ‘Site Safety Representative,’ ‘Concrete Loading Dock/Hoist Pad,’ ‘Install Dowels, Tower Crane Foundation’ and ‘Supply Blue Stone.” The court found that by including this list, the contractor was “actively seeking to be compensated for additional work and was not waiving any entitlement to further payment.”
It would seem that in the absence of this list of pending change orders, the $38,600 lien waiver may well have served to bar the contractor’s $3,494,555 claim. A careful review of any document that purports to waive claims is always recommended and it is good practice to state with specificity all claims that one wants to preserve.
Likewise, the owner’s attempt to dismiss the claim based on a purported failure to provide timely notice was defeated. The owner pointed to Article 8 in the contract entitled “Contractor’s Claims” which required that “the Contractor give written notice to the owner of any claim against the Owner or the Project arising out of this Agreement or otherwise in connection with the Project, including any claim for an increase in the Contract Price, an Extension in the Contractor’s time to perform, damages for breach of contract, or compensation for the value of construction or services outside the scope of this Agreement.” A failure to provide written notice would result in a total waiver of the claim. This article further required that “claims for additional compensation or an extension of time for work ordered pursuant to Article 4 shall be made as provided in Article 4.” Importantly, Article 4 was concerned with additional compensation or delays based on changes in the work. The court found that as the contractor’s claims were indeed for changes in the work, it was Article 4 that governed and not Article 8 with all of its strict notice requirements. In so finding, the court held that “The provisions regarding notice for which the waiver explicitly applies is for ‘other claims’ for additional compensation for construction or services claimed to be outside the scope of this Agreement. Therefore, even if there were no official change order directing the additional work, plaintiff is not precluded from asserting its claims by the waiver provisions in Article 8 since the additional compensation is sought for changes in work, not for ‘other claims’ outside the scope of the contract.”
While the contractor in this case did not have his claim dismissed and lived to continue fighting, success was not a sure thing. He was undoubtedly saved by an interpretation of the contract’s notice provisions that could have easily gone the other way. Other contractor’s should not assume that the same will happen to them and should instead be overly cautious and comply with a contract’s notice provisions that may even arguably relate to their claim. In most circumstances it can’t hurt to provide a written notice of a claim even if one is not ultimately required.
This article was authored by Nathan Shook, a member of the New York construction law firm of Giannasca & Shook, PLLC. This article is for general information only and should not be construed to contain all information necessary to address all matters related to lien waivers and contractual notice provisions. Please contact our office for any specific matters on which you may need professional legal advice.