{"id":896850,"date":"2019-12-17T10:48:10","date_gmt":"2019-12-17T17:48:10","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=896850"},"modified":"2019-12-17T10:48:55","modified_gmt":"2019-12-17T17:48:55","slug":"be-careful-with-good-faith-payments","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/be-careful-with-good-faith-payments\/","title":{"rendered":"Be Careful with Good Faith Payments"},"content":{"rendered":"\n<p>Christopher G. Hill | <a href=\"https:\/\/constructionlawva.com\/be-careful-with-good-faith-payments\/?utm_source=feedburner&amp;utm_medium=email&amp;utm_campaign=Feed%3A+ConstructionLawMusings-RichmondVa+%28Construction+Law+Musings-+Richmond%2C+VA%29\">Construction Law Musings<\/a>  | November 25, 2019<\/p>\n\n\n\n<p>Sometimes doing the expedient thing and what looks good at the time can come back to bite you.&nbsp; Just ask 3M Company.<\/p>\n\n\n\n<p>In\u00a0Faneuil, Inc. v. 3M Co., the Virginia Supreme Court considered a customer services subcontract between Faneuil and 3M relating to a toll collection contract 3M entered into with ERC.\u00a0 The subcontract had a <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/beneficiaries-pay-paid-clauses-construction-contracts\/\">\u201cpay if paid\u201d clause<\/a>\u00a0in it requiring payment to 3M from ERC before ERC was required to pay Faneuil, a written change order provision and a base monthly payment to Faneuil for the services that could be reduced in the event of less than expected toll collections.\u00a0 Further, the subcontract stated that if either party settled 3rd party claims, that settlement would not bind the other party to the subcontract absent consent or Court order.<\/p>\n\n\n\n<p>Faneuil was then alleged to have been required to provide \u201cSpecial Services\u201d relating to manual identification of license plates and other information necessary for toll billing due to 3M\u2019s alleged failure to provide adequate imaging services.&nbsp; Faneuil requested (without written change order) and 3M promised to pay extra for these services.&nbsp; When 3M was slow to pay for the special services, Faneuil did what you would expect and threatened to stop providing them.&nbsp; Instead of contesting the right to the work, 3m made sporadic \u201cgood faith\u201d payments to induce continued Special Services from Faneuil.&nbsp; Eventually 3M\u2019s issues caused ERC to stop payments and thus 3M stopped paying Faneuil.&nbsp; 3M then settled the payment claims with ERC and still failed to pay Faneuil.<\/p>\n\n\n\n<p>Faneuil did what any subcontractor in this position would do and sued for 5 categories of damages, including for base payments.&nbsp; After a bench trial, the Circuit Court dismissed all of the claims by all parties because Faneuil had not obtained a written change order for the Special Services (ignoring the other claims for damages) and that 3M had failed to follow the proper procedures for reducing the monthly payments.&nbsp; The Virginia Supreme Court reversed.&nbsp; It held that damages for the Special Services were off the table for a lack of written change order and that 3M\u2019s counterclaims were in fact barred by the subcontract.<\/p>\n\n\n\n<p>While those two holdings are interesting, the Court further went on to say that 1. the settlement between ERC and 3M satisfied the pay if paid requirement, and the reason for the title of this post, 2. 3M was not entitled to the benefit of its good faith payments to induce Faneuil to continue the special services.&nbsp; The Court held that under Virginia law, these types of non-legally required voluntary payments are not recoverable.&nbsp; The Court put the holding as follows:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>[w]here a person with full knowledge ofthe facts voluntarily pays a demand unjustly made upon him \u2026 it will not be considered as paid by compulsion, and the party thus paying is not entitled to recover back the money paid, though he may have protested against the unfounded claim at the time ofpayment made. Where money has been paid under a mistake ofthe facts, or under circumstances of fraud or extortion, or as a necessary means to obtain the possession of goods wrongfully withheld from the party paying the money, an action may be maintained for the money wrongfully exacted. But such action is not maintainable in the naked case of a party making a payment ofa demand rather than resort to litigation.&nbsp;<em>Williams v. Consolvo<\/em>, 237 Va. 608, 613 (1989)<\/p><\/blockquote>\n\n\n\n<p>Thus, despite doing what was seemingly the expedient and correct business action at the time to keep the contracted work moving, 3M was required to pay the full base compensation without credits for its prior good faith payments.<\/p>\n\n\n\n<p>Situations analogous to this occur on the construction site all the time.\u00a0 Deals are struck to keep the flow of work moving.\u00a0 Most of the time, these sorts of \u201con the fly\u201d deals are helpful.\u00a0 However, before taking such action, remember 3M and consult your local\u00a0Virginia construction attorney\u00a0before taking such steps.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Christopher G. Hill | Construction Law Musings | November 25, 2019 Sometimes doing the expedient thing and what looks good at the time can come back to bite you.&nbsp; Just ask 3M Company. In\u00a0Faneuil, Inc. v. 3M Co., the Virginia Supreme Court considered a customer services subcontract between Faneuil and 3M relating to a toll&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/be-careful-with-good-faith-payments\/\">Continue reading <span class=\"screen-reader-text\">Be Careful with Good Faith Payments<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[10915,10721],"tags":[9895,73,22,7568],"class_list":["post-896850","post","type-post","status-publish","format-standard","hentry","category-good-faith","category-insurance","tag-advise-consult","tag-good-faith","tag-insurance","tag-pay-if-paid-clause","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Be Careful with Good Faith Payments - Advise &amp; 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