When was the last time you read your contract? Or the last time you sidestepped a contractual provision because it was “too formal” or “impractical?” A general contractor recently learned the hard way that if you want to enforce your contract or impose a lien on a project, you must first comply with the terms of the agreement.
In Kasinecz v. Duffy, the contract between the owner and contractor provided that monthly payments were due from owner to contractor “upon invoicing.” Written invoices were never submitted — there were only verbal requests — and, at first, the owner paid without objecting. Later, however, when issues arose, he stopped paying. The owner insisted that he was not obligated to pay until the contractor submitted written invoices. The contractor disagreed and soon thereafter the work also stopped on the project. Litigation ensued.
The owner prevailed at both the trial court and the appellate court. Both courts agreed that the owner was not obligated to pay until the contractor submitted written invoices. Additionally, the courts held that the contractor wasn’t entitled to a mechanics lien because he had not substantially completed the work (e.g., the roof still had openings, doors and windows were missing, no mechanical work had been installed, and the interior work hadn’t even begun).
In Kasinecz v. Duffy, the contractor learned several valuable and expensive lessons that we can derive for free. These include the following:
Make Sure Your Contract Is Clear
Here, the term “upon invoicing” could be considered ambiguous. The owner insisted it meant written invoices and the contractor claimed that verbal invoices were sufficient. In that instance, best practice would have been to clarify this at the start of the project. If the owner wanted written invoices, the contract could have said so. The owner ultimately prevailed, but not without a cost. It would have been less expensive to use an unequivocal contract term.
Follow Your Contract (or Get a Waiver)
Bottom line: if your contract requires that you do something, then do it. If the contractor had submitted written invoices here, it may not have prevented a payment dispute. However, it would have had a much better argument to support both its breach of contract and mechanics lien claims (i.e., the owner breached the contract by failing to pay).
Normally, an owner’s failure to pay is a material breach of contract. Here, the contractor failed to demand payment substantially in conformance with the contract terms; thus, the contractor was the party in breach of the contract by walking off the job.
On the other hand, a contractual provision may be too impractical or difficult. In such a case, consider asking your counterparty to waive it or amend the contract to remove it. Unilaterally ignoring a contractual provision is usually unwise.
Don’t Waive a Provision You May Want to Enforce
Here, the owner made several payments without first requiring written invoices. The owner later sought to enforce the very same provision that he had previously ignored. By doing so, the owner potentially waived this provision of the contract. The contractor, however, didn’t raise this persuasive argument and, accordingly, the courts didn’t address it.
Practically speaking, a party to a contract should avoid waiving a clause in an agreement that is favorable to it. So even if you don’t comply with all the contractual formalities, consider making it clear that you’re not waiving those clauses. It is often advisable to provide a notice under the contract that even though you didn’t demand strict compliance in the past, you’re not waiving strict compliance in the future.
Complete Your Work (Substantially) In Order to Lien
A mechanics lien can be a powerful tool for unpaid contractors. It provides security for their debts. Keep in mind that what will often give you the least trouble enforcing that lien is to substantially complete your work. Easier said than done when you are not getting paid. Still, realize that incomplete work may prevent enforcement of your lien.
Often the best thing to do is to include a suspension or termination clause in your contract that allows you to walk off the job if payments haven’t been made. Such a clause could preserve your lien rights.