Construction contracts, like other contracts, are meant to define the relationship between the parties to the contract. With the exception of certain provisions which have been held to violate public policy (pay-if-paid, pre-emptive lien waivers, indemnification of a party for its own negligence, etc.), contracts will generally be enforced as written. The principle was once again underscored by an appellate court in the recent case of Redwing Construction Co., Inc. v Sexton, with regards to a notice of claim provision.
In July of 2012, Martin Sexton retained Redwing Construction Co. to build a house on Upper Saranac Lake. The contract contained a provision requiring the service of a notice of claim of “any controversy or claim arising out of or related to the contract” as a precondition to the commencement of a lawsuit.
The house was finished a year later, and a payment dispute arose. In order to secure its payment, in August of 2013, Redwing filed a mechanic’s lien. Redwing then commenced a lawsuit asserting claims for breach of contract, unjust enrichment, and to foreclose its mechanic’s lien. Shortly thereafter, the house was destroyed by fire. Accordingly, when Sexton answered the complaint, he asserted a counterclaim against Redwing for negligence, alleging that Redwing’s negligent design and/or construction of the chimney caused the fire.
Once the parties served their respective answers, they each moved for summary judgment on their claims. Among the issues raised by the parties was the failure by Redwing and by the owner to comply with the contractual notice of claim requirement. The trial court granted both motions and dismissed both the contractor’s claim and the owner’s counterclaim, citing the parties’ failure to serve the notices of claim required by the contract prior to their assertion. Redwing appealed, but the owner did not.
On appeal, Redwing argued that because final payment had not been made, its obligation to serve a notice of claim never arose. The appellate court dismissed that argument, citing the contractual provision requiring the punchlist to be complete before the owner’s obligation to make that payment arose. As Redwing had communicated to the owner in a job closeout memorandum that it would perform no punchlist work until it received that payment1, it was unable to rely on the lack of a final payment to relieve it of its obligation to have filed a notice of claim before having filed the lawsuit. The court also rejected Redwing’s argument that its job closeout memorandum served the “functional equivalent” of the contractual notice of claim because the closeout memorandum did not contain all of the information required by the contract, did not specifically state that it was a pre-suit notice of claim, as required, and was not served in the manner specified.
Redwing is a reminder that in most circumstances, contractual conditions precedent will be strictly enforced. Clearly, one of the parties was the primary author of the contract that contained the notice of claim provision, and yet both parties lost their claims based on the failure to comply with that condition. Instead of a shield against a surprise claim, the provision here was literally a sword—a double-edged one, at that—which doomed both claims. While there have been certain circumstances where slight variances from contractual notice of claim provisions are tolerated, one cannot count on those type of circumstances to salvage a clear failure to comply with such a requirement. Accordingly, contractors would be well advised to follow such contractual conditions precedent to the letter so that you are not in the position of having to later argue, like Redwing, that they don’t apply.
1 Read your contract carefully before submitting any such memorandum. Better still, have your attorney read the contract and draft the closeout memorandum for you.