Appellate Court Declines To Dismiss Claims Based On Parties’ Course Of Conduct Despite Writing Requirement In Contract

One of the more ubiquitous provisions in a construction contract is the provision that the contract cannot be modified except in writing. This issue usually (but not always) arises in the context of a fight about open change orders that were not signed off by the owner or upstream contractor before the work was performed, or a provision requiring that all change orders or other modifications be in writing. When this fight arises, all of the “just get it done and we will do paperwork later”, and similar conversations, are conveniently forgotten, and all of a sudden contractual formalities become paramount to the party resisting the change order. However, an appellate court, in the recent case of Tekton Builders, LLC v 1232 Southern Boulevard LLC, reminds us that even in the presence of such a modified-only-in-writing provision, the parties’ course of conduct, how they deal with each other during the project, can amount to a waiver of a contract’s requirements, including requirements relating to writings.

Background

In March of 2015, 1232 Southern Boulevard LLC, the entity which owns the property housing the Children’s Aid College Prep School, entered into an agreement with Tekton Builders for Tekton to serve as the construction manager for Children’s Aid’s project to build a charter school. The project was to have been completed in time for the 2016-17 school year, but the project was beset with various delays from the start. These delays were thoroughly discussed between all relevant parties in jobsite meetings, in email correspondence, and in other similar notes. Ultimately, in January of 2017, Tekton was terminated, and it sued to foreclose a mechanic’s lien and recover its costs, including its extended general conditions and the work it performed after the original completion date.

After discovery, Children’s Aid moved for summary judgment dismissing Tekton’s delay and change order claims, arguing that the contractual notice requirements were not followed and, therefore, Tekton waived its right to recoup these costs. (Children’s Aid also moved for summary judgment discharging Tekton’s mechanic’s lien, arguing that it was exaggerated.) In opposition, Tekton argued that Children’s Aid was kept fully apprised of the nature and extent of the delays in meetings, through email correspondence, through proposed change orders requesting extensions of time (and associated costs), and through stop work orders issued by the City. Accordingly, Tekton argued that Children’s Aid could not credibly claim any prejudice as a result of the failure to reduce this common knowledge to a contractually required written form. In that regard, to the extent that the contract required such formalized written notice, Tekton argued that such was waived by Children’s Aid’s own failure to comply with the contract in failing to promptly respond to change order requests, and in directing extra work notwithstanding such failures. 

Decision

The motion court denied that branch of Children’s Aid’s motion which was for summary judgment on its failure to comply with the condition precedent (written notice) defense, holding that there were issues of fact as to whether Children’s Aid waived the protection of the contractual provision by its course of conduct, and that such issue would have to be reserved for trial. (The motion court did, however, grant Children’s Aid summary judgment discharging Tekton’s mechanic’s lien, finding that it was willfully exaggerated, and that the amount of damages sustained by Children’s Aid as a result would be determined at the trial.)

   Children’s Aid appealed the denial of summary judgment on its written notice affirmative defense, but fared no better before the appellate court. In affirming the order, the appellate court held that “even when a contract contains a nonwaiver clause and a provision stating that it cannot be modified except by a writing, it can still be effectively modified by actual performance and by the parties’ course of conduct”, and that there were issues of fact as to whether the parties waived this provision by their conduct which precluded an award of summary judgment to Children’s Aid. (On Tekton’s cross-appeal, the appellate court also affirmed the discharge of the exaggerated mechanic’s lien, holding that Tekton’s explanation of “inadvertent inclusions” in the lien, without an attempt at explanation, was not sufficient to rebut the showing that the lien was otherwise willfully exaggerated.)

Comment

While a written notice provision is designed to protect the parties by ensuring that there is an adequate paper trail for any dispute, parties are always free to chart their own course of action outside of the contractual provisions. However, when a dispute arises, if the parties ignored the specifics of the contract at the time, they cannot realistically expect a court to belatedly enforce the specifics of the contract simply because it would be more expedient for one of the parties. 

If you find this decision to be encouraging, take note of the fact that both of the contracting parties here were private entities.  A very different result may have been reached if the owner was a public entity. Public owners benefit from statutory requirements of strict compliance, and courts are generally more reluctant to stray from contractual adherence because there is no equitable estoppel doctrine applicable against municipalities. After all, the public policy rationale in that context is to protect the taxpayers’ pocketbook!

In order for a contractor to best protect its rights under its contract (and preserve its right to rely upon, or set aside its provisions in connection with any dispute), it would be well advised to consult with experienced construction counsel. (And, on another note, exaggerating a mechanic’s lien is still a very bad idea.)

About the authors: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the CIC and the BCA, and is the Founder of, and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP, with offices located throughout the Tri-State Region. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100