February 27, 2008

Change orders failing written requirement are awarded equitably; Contractor who agreed to authorities' "specifications" was subject to all of them

M. R. STOKES COMPANY, INC. v. MICHAEL L. SHULAR, ET AL. (Tenn.Ct.App. February 27, 2008).

This is a construction case. In a contract prepared by the plaintiff, contractor agreed to install sewer lines, water lines, roads and to perform certain site preparation work for a section of a subdivision development owned by the defendant-owner. The total contract price is $925,000, which includes the material and labor to complete the project. The trial court entered judgment for contractor. Owner appeals and contractor cross-appeals. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

Cases available at the Tennessee Bar Association website:

"It is well-settled in Tennessee that contract provisions can be waived, especially in construction projects because of the nature of construction which often require decisions to be made quickly to keep the project progressing. Moore Constr. Co. v. Clarksville Dep’t of Elect., 707 S.W.2d 1, 13 (Tenn. Ct. App. 1985). It is common for courts to find that “an owner has waived a written notice requirement in cases where extra work has been ordered verbally by the owner or the extra work has been performed with the owner's knowledge and without its objection.” Id. (citations omitted). The course of dealing between the parties can also amount to a waiver where the conduct of the parties makes it clear that they did not intend to rely strictly upon a contract's written notice requirement. Realty Shop, Inc. v. RR Westminster Holding, Inc., 7 S.W.3d 581, 601 (Tenn. Ct. App. 1999)." Id.

"We find that the parties “have not expressly or implicitly agreed upon a reasonable price nor have they agreed upon a practicable method of determination of price.” Accordingly, we hold that any agreement to “settle up” based upon “time and materials” at the end of the Project is unenforceable. Although we find that no enforceable contract exists, it would be inequitable for Owner to receive a windfall for the improvements Contractor made on Owner’s behalf. For that, we turn to equitable remedies. It is well settled that the theories of unjust enrichment, quasi contract, contracts implied in law, and quantum meruit are essentially the same. Paschall's, Inc. v. Dozier, 407 S.W.2d 150, 154 (Tenn. 1966). Unjust enrichment is a quasi-contractual theory or is a contract implied-inlaw in which a court may impose a contractual obligation where one does not exist. Whitehaven Community Baptist Church v. Holloway, 973 S.W.2d 592, 596 (Tenn. 1998) (citing Paschall's, 407 S.W.2d at 154-55). Such contracts are not based upon the intention of the parties but are obligations created by law and are “founded on the principle that a party receiving a benefit desired by him, under the circumstances rendering it inequitable to retain it without making compensation, must do so.” Paschall's, 407 S.W.2d at 154." Id.

"The Contract does not say “Contractor agrees to comply with the Standards and Specifications manual” or “agrees to pass all WHUD objective tests,” but rather that Contractor agrees to meet all White House Utility specifications. ... A plain language reading of the Contract indicates that Contractor agrees to comply with what White House Utility District specifies, whether written or not, subjective or objective. The term “specifications” is, by its nature, a broad term. Had Contractor intended to be bound to a more narrow definition, it should have drafted the Contract language accordingly. Contractor had worked with WHUD before and was aware of WHUD’s strict guidelines when drafting the Contract. The purpose of the Contract between Contractor and Owner was for Contractor, in part, to install the sewer lines for Owner so that Owner could develop an operating subdivision with plumbing that is acceptable to WHUD. Contractor did not fulfill its obligations under the Contract, and we reverse the trial court’s decision holding that Contractor did not breach its Contract with Owner." Id.

"Owner refused to pay the Contractor its final pay application, which was the retainage amount of $43,678.00. ... Our review of the record reveals that when the final pay application was submitted, Contractor had not completed its obligations under the Contract. The sewer lines had not been accepted by WHUD and a portion of the lines needed repairs. The retainage was not due until 30 days after completion. Having found that Contractor breached its Contract with Owner and did not complete its obligations under the Contract, we find that the retainage is not due to Contractor." Id.