Contract Scope Limits Tort Liability

Stan Martin | Commonsense Construction Law LLC | October 26, 2018

From the Massachusetts Appeals Court comes a reminder that a contract scope of services may serve to control or limit the scope of tort liability.

New homeowners sued the contractor and designer, hired by the former homeowner for a replacement septic system, when that system failed only a few years after installation. Turns out the contractor had placed “construction and other debris in the leaching fields” (apparently as “filler”), instead of using only sand.

The designer moved for summary judgment, on the basis that its contract required the designer to view the work when the hole for the new leaching field had been dug (but before placement of the sand and laterals), and again once the leaching field had been completed. It did so. But of course the designer was not present, and did not see, when the contractor used improper materials.

The trial court dismissed the homeowners’ claims against the designer, and the Appeals Court upheld the dismissal. If the designer was obligated to view the site on two occasions, and did so, the new homeowners could not establish that the designer had any other duty to inspect or observe the conditions. And thus they could not establish that the designer had failed to carry out its duty, in a tort sense. Per the court: “we would conclude, given both the scope and the limitations of the Design Team’s contractual responsibilities, that laymen could not reasonably infer without expert evidence that its failure to learn of the deficiencies constituted professional malpractice.”

This is a reminder – more for designers than contractors – that the scope of services being undertaken may serve not only as a restriction on contract obligations, but also on tort liability or exposure. An important lesson to keep in mind. The case is Van Sicklin v. Nantucket Surveyors, LLC, 2018 Mass. App. Unpub. LEXIS 777 (Oct. 23, 2018).

Contract Scope Limits Tort Liability

Stan Martin | Commonsense Construction Law LLC | October 26, 2018

From the Massachusetts Appeals Court comes a reminder that a contract scope of services may serve to control or limit the scope of tort liability.

New homeowners sued the contractor and designer, hired by the former homeowner for a replacement septic system, when that system failed only a few years after installation. Turns out the contractor had placed “construction and other debris in the leaching fields” (apparently as “filler”), instead of using only sand.

The designer moved for summary judgment, on the basis that its contract required the designer to view the work when the hole for the new leaching field had been dug (but before placement of the sand and laterals), and again once the leaching field had been completed. It did so. But of course the designer was not present, and did not see, when the contractor used improper materials.

The trial court dismissed the homeowners’ claims against the designer, and the Appeals Court upheld the dismissal. If the designer was obligated to view the site on two occasions, and did so, the new homeowners could not establish that the designer had any other duty to inspect or observe the conditions. And thus they could not establish that the designer had failed to carry out its duty, in a tort sense. Per the court: “we would conclude, given both the scope and the limitations of the Design Team’s contractual responsibilities, that laymen could not reasonably infer without expert evidence that its failure to learn of the deficiencies constituted professional malpractice.”

This is a reminder – more for designers than contractors – that the scope of services being undertaken may serve not only as a restriction on contract obligations, but also on tort liability or exposure. An important lesson to keep in mind. The case is Van Sicklin v. Nantucket Surveyors, LLC, 2018 Mass. App. Unpub. LEXIS 777 (Oct. 23, 2018).

Judge Salinger: Defendant’s Letter Disputing Existence of Contract Does Not Trigger Start of Statute of Limitations Period for Plaintiff

Matthew P. Ritchie and Natalie M. Cappellazzo | Nutter McClennen & Fish LLP | March 9, 2018

In Bay Colony, Judge Salinger denied the defendants’ motion to dismiss a contract claim as time barred even though one defendant (AMB) had sent a letter to the plaintiffs more than six years earlier disputing the existence of a binding agreement between the parties.

Judge Salinger found that the letter itself did not constitute a breach of contract because the plaintiffs did not allege that AMB had no right to terminate the contract. Nor was it an unequivocal repudiation of future obligations under the contract. Notably, AMB did not assert in the letter that it would not pay the plaintiffs for services rendered; instead, AMB merely disputed the existence of a binding agreement and stated that AMB would respond further in writing. AMB’s letter, wrote Judge Salinger, “is not a repudiation of the alleged contract because it is not ‘a definite and unequivocal manifestation of intention [not to render performance]’.” Because no claim for breach of contract or quantum meruit/unjust enrichment had arisen at the time of the letter, the limitations period did not start to run.

Judge Salinger noted that Massachusetts does not generally recognize a cause of action for anticipatory breach of contract. KGM Custom Homes, Inc. v. Prosky, 468 Mass. 247, 253 (2014). The most notable exception to this general rule is where an actual breach accompanies an anticipated breach—for example, if a defendant refuses to pay amounts currently owed while also clearly repudiating an obligation to make future payments. In those circumstances, the statute of limitations would begin to run on claims for both the past and future damages upon repudiation. Callendar v. Suffolk Cty., 57 Mass. App. Ct. 361, 364 (2003).

Bay Colony Prop. Dev. Co., et. al. v. Headlands Realty Corp., et al

A Promise to Pay Doesn’t Extend Lien Deadlines

Stan Martin | Commonsense Construction Law | January 24, 2018

Mechanic’s lien rights arise from the laws of each state; there is no common-law right to unilaterally lien someone else’s property. As such, compliance with statutory requirements and deadlines is paramount. Thus, when an owner promised to pay a sub, and the sub elected not to pursue lien rights based on that promise, the sub lost out on its lien when it missed the statutory deadlines.

This case is in Massachusetts, but it is likely the same outcome would result in all other states. Equitable theories that might apply in other circumstances (e.g., equitable tolling of statutes of limitation when one forebears based on promises from another) do not apply when the underlying right is based on compliance with lien law standards and deadlines.

The sub was owed $196,500. It took the first two steps (out of three) under the Massachusetts lien law, to secure a mechanic’s lien. The third step was to file a lawsuit, but the sub didn’t file based on what it claimed were promises of payment. In the meantime, the deadline to file a lawsuit (90 days after the second step) came and went. When no payment was made, the sub tried to resurrect its lien rights by taking steps 1 and 2 again, but by now the deadline for those steps had passed under the lien law.

The sub argued that the lien law deadlines should be equitably extended, but the trial court, and then the Appeals Court, disagreed. “A mechanic’s lien is not a common-law right but a creature of statute, which ‘compels strict compliance in order to obtain relief.’” The sub’s lien rights had lapsed when the deadlines passed, regardless of any promises of payment that may have been made.

The lesson? Ignore lien law deadlines at your peril. The case is D5 Iron Works v. Danvers Fish & Game Club, 2018 Mass. App. Unpub. LEXIS 60 (Jan. 22, 2018).

Bad Facts Make Bad Law – Condo Version

Stan Martin | Commonsense Construction Law LLC | January 20, 2018

Condo bylaws that restrict the ability of a condo board to sue the developer came in a for a beating by the Massachusetts Supreme Judicial Court. While refusing to prohibit all restrictive bylaws, the Massachusetts high court roundly criticized the bylaws in question. Deservedly so.

The condo bylaw restricted the ability of the condo board to sue the developer as follows:

neither the Trustees acting in their capacity as such Trustees or acting as representatives of the Unit Owners, nor any class of the Unit Owners shall bring any litigation whatsoever unless a copy of the proposed complaint in such litigation has been delivered to all of the Unit Owners, and not less than eighty (80%) of all Unit Owners consent in writing to the bringing of such litigation within sixty (60) days after a copy of such complaint had been delivered to the Unit Owners and specifying as part of the written consent a specific monetary limitation to be paid as legal fees and costs and expenses to be incurred in connection therewith, which amount shall be separately assessed as a special assessment effective forthwith at the time of said affirmative consent.

Thus – 80% of all unit owners had to sign on affirmatively, they had to be given a cap on the legal fees to be incurred, and they had to agree to an immediate assessment covering the entire legal budget at the outset.

The underlying facts included an engineering investigation of building envelope problems and an estimate of repair costs exceeding $2 million. And the original developer still holds more than 20% of the units, and could easily continue to thwart any attempt by the condo board to sue the developer. There is little wonder that the Massachusetts court held that this provision to be “void because it contravenes public policy.”

The court did refuse to ban any limitation in condo bylaws that might establish hurdles for pursuing litigation. It refused to adopt the argument of the condo association that any such restriction was per se in violation of the Massachusetts condo law. But the hurdles presented by the condo bylaws in question were simply too high and too onerous. This was not a good set of facts upon which to decide whether condo bylaws can be more restrictive than the condo laws.

Massachusetts courts have consistently upheld contract terms in commercial settings, even when those terms caused a severe hardship to one party. But in a consumer setting – which would include condo matters – the courts have normally sided with the consumer. And the developer’s attempts in this case to insulate itself from claims of deficiencies were too high-handed for the court to stomach. This is yet another example of bad underlying facts – overreaching by a business against consumers – giving the court an opportunity to cut down the developer’s efforts. The saving grace is that the court refused to prohibit any such limitations across the board.

The case is Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, et al., SJC-12327 (Jan. 19, 2018).

Why is this on a construction law blog site? The claims most likely to be affected by any such bylaw restrictions would concern design and construction of a condo project.