Double Take: Court Finds That Contractor Waived Owner’s Past (But Not Future) Payment Obligation Failures

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With six kids, not a week goes by that I don’t catch one of them running through the house. In fact, I was on a call this morning when out of the corner of my eye I saw a blur racing down the hall. I did a double take—not knowing which one it was—and whispered loudly, “Hey you! Please no running!” As a construction litigator, every so often you read a case that leaves you with the same feeling.

In Wickersham Construction and Engineering, Inc. v. The Town of Sudlersville, Maryland (Sept. 22, 2020) (PDF), the United States District Court for the District of Maryland held that a construction contractor had waived certain payment obligations by accepting late payments without, but that it did not waive the same payment obligations with respect to future payments. Stick with me … there’s more.

The contract. The parties’ agreement required the owner to make payment within 20 days of submission of an application for payment by the contractor. The agreement also contained a provision that any modification of the contract was required to be in writing.

The court’s decision. At trial, the contractor established that most, if not all, of its payment applications were paid late beyond the 20-day period. However, the court held that the contractor waived the contract requirements by accepting the front end late payments without objection:

The court finds, however, that [contractor] waived the payment deadlines as to the first eight payments because it accepted them late without sufficient objection. “Parties to a contract may waive the requirements of the contract by subsequent oral agreement or conduct, notwithstanding any provision in the contract that modifications must be in writing. If a provision in the contract requires modifications to be in writing, it must be shown, either by express agreement or by implication, that the parties understood that provision was to be waived.”

Notwithstanding the finding of a waiver as to the first eight payments, the court concluded that the contractor did not waive the payment terms as to subsequent payments: “… the fact that [contractor] initially accepted some late payments does not show a mutual consent to modify the payment provision as to all future payments.” Ultimately, the contractor suspended its work for nonpayment for approximately four months.

So what? You may have done your own “double take” as you consider why the court concluded that the contractor waived the time requirements for part of the payments while at the same time concluding that the overall payment provisions were not waived. Ultimately, it came down to the contractor’s decision to exercise its right to suspend work. Since it accepted the original payments without objection or claim for interest, the court felt that the contractor could not complain about the lateness of those payments. But eventually, the contractor suspended work for nonpayment and the court found such conduct to actually affirm (and not waive) the contract obligations. Lesson: Read your contracts, reserve your claims, and exercise your rights.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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