Neal Navitsky bought a lot on Plum Run Road in New Oxford, PA, and started planning his new home. William A. Mcintyre & Sons, LLC, agreed to build a 4-bedroom, 2.5 bath, 2,843 SF home on the site for $290,521. Under the contract, signed change orders were required for any work not in the agreement. Navitsky and his bank set up a draw schedule for the job and work started.
During construction, Navitsky asked for three changes. Mcintyre quoted a price of $9,375 for the changes, wrote up change order forms and did the extra work. Navitsky accepted the written change orders but didn’t sign or return any of the forms. Why not? Because Navitsky had a complaint. He figured work done on the house so far was worth far less than the $159,786 McIntyre had already been paid. Navitsky wanted to negotiate change orders when the home was complete
To keep the project moving, Mcintyre did the extra work even before change orders were signed. Mcintyre figured getting signed change orders from Navitsky was only a formality. But when reminded about the un-signed orders, Navitsky refused to sign or pay for the extra work. Mcintyre demanded payment.
Navitsky knew how to handle that. He directed his lender to pay the $41,318 fourth draw to himself, Navitsky, rather than his contractor.
Owed over $50,000, with no prospect of getting paid, Mcintyre pulled off the job and filed suit.
Now What?
Any time a construction project runs
off the rails, the contract comes front and center.
- Is the contract legal in every respect?
- If so, what does the contract require?
- Was there a material breach of contract?
- If so, who was the first to commit that breach?
The court had no trouble finding a valid contract. But did the contract require that Navitsky sign change orders and pay when each change was complete? The court didn’t find anything in the contract on that. But every contract requires good faith and fair dealing. In the court’s opinion, “Navitsky’s conduct did not comport with this obligation.” Navitsky should have signed the change orders and paid for changes when done. But was that failure by itself a material breach of contract?
A material breach by one party to a contract entitles the non-breaching party to suspend performance. Who breached first is important. Breach by Mcintyre would void the agreement, leaving the contractor with no profit on the job.
Was failure to sign change orders a material breach of contract that gave Mcintyre a right to stop work? Or did McIntyre breach the contract by demanding payment for changes before doing more work?
In the court’s opinion, Mcintyre’s demand for payment on changes was not material breach of contract. Navitsky was told that work would resume when Mcintyre received payment for the changes. I agree with the court. Any contractor can delay work when payments are late.
But refusing to pay for changes and diverting the fourth draw to himself were material breach by Navitsky. The court awarded Mcintyre $50,693, a judgment affirmed last week by the Superior Court of Pennsylvania.
A Final Point
With the right contract, Mcintyre would
have saved two years of litigation. Good construction contracts require payment
for changes when each change is complete. It’s easy to draft nothing but good construction
contracts. Get Construction Contract Writer. The trial version is free.
