A recent court decision confirms that despite contract clauses precluding unwritten changes, a site visit between a contractor, property owner, and subcontractor could have resulted in a new, second contract between the parties, entitling the subcontractor to payment for additional work. This is a great case that highlights the impact a common site meeting can have on the payment rights of everyone involved.
In Nature’s Lawn Care, Inc. v. Rhythm & Hues, LLC, a property owner entered into a contract with a general contractor to build a children’s activity center. The general contractor then subcontracted with a landscaping company to provide $11,309.00 in landscaping and installation to the activity center. In addition to the $11,309.00 in work, the landscape contractor also performed an additional $7,110.00 worth of work at the property owner’s request. This extra work was outside the scope of the contract between the property owner and the general contractor and the general contractor and the landscape contractor.
During trial the property owner testified that she was not satisfied with the landscaping proposed by the general contractor and the landscape contractor and arranged a site meeting to discuss it with them. The property owner walked the property with both contractors and provided a hand-drawn diagram showing her changes to the original landscaping proposal. The property owner ultimately testified that during this meeting, she was told that what she was changing was being replaced with items of equal value and that she had expected to see samples in advance of installation and anticipated any changes would be handled as a typical change order would have been.
Several weeks after this meeting, the property owner noticed that the landscaping was being installed, and the property owner halted the installation because she had not agreed to the final changes. Ultimately, the property owner allowed the installation to continue after speaking with the general contractor. Later, the landscape contractor billed a total of $18,428.00 for its work. After receiving payment for the $11,309.00 stated in the original contract, the landscape contractor filed a lien and sued the property owner. The trial court ultimately granted summary judgment in favor of the property owner due to the lack of a written change order for the landscape contractor’s work.
The landscape contractor appealed the ruling, arguing that an implied agreement existed between the landscape contractor and the property owner. In reaching a decision favorable to the landscape contractor, the appellate court factored in the following items.
First, the court determined that no express, written contract governed the additional work performed by the landscape contractor. This was because both the contract between the owner and general contractor and the contract between the general contractor and landscape contractor indicated that all changes to the contract had to be in writing. Because it was not in writing, the additional work was a separate contract.
Second, the court examined whether the site meeting between the parties resulting in the formation of a new contract regarding the additional work.
As an initial matter, the court determined that the meeting between the parties could not have resulted in a quasi-contract because such a contract requires the affected subcontractor to first exhaust all remedies against the general contractor and not be paid for the work by the property owner. Here, because the landscape contractor did not exhaust all remedies against the general contractor (i.e. seeking payment for the change from the general contractor), the court could not find a quasi contract.
Notwithstanding this, the court found that the meeting between the parties could have formed an implied-in-fact contract, which required resolution by a formal trial, rather than a summary proceeding. The meeting resulting in certain product selections and a drawing of where they should go, but no price or other terms were discussed between the parties. Based on this, the court found that any implied-in-fact contract between the parties was ambiguous, at best, and thus summary judgment was improper.
The key takeaway from this case is that both general contractors and subcontractors should recognize that despite contract terms to the contrary, even informal discussions that result in work can be enforceable at the end of the job. Further, in drafting contracts, general contractors and subcontractors should recognize that just because a contract requires changes to be in writing, that doesn’t preclude oral agreements between the parties. Based on this case, such oral agreements could still arise. So you may need tighten up contract language to preclude such oral or implied agreements from coming back after that fact.