Construction Contract Ambiguity: Court Considers Expert Testimony To Clarify Contract Terms

imageA construction site injury provides the setting for the First District’s recent application of Illinois contract interpretation rules to the question of when and how contracting parties’ prior course of dealing can inform the court’s analysis of an ambiguous written agreement.

In Gomez v. Bovis Lend Lease, 2013 IL App (1st) 130568, the plaintiff plumbing subcontractor was injured when he fell through a floor gap known in the trade as an “infill” while working on the construction of the 102-story Trump Tower in Chicago.  He sued the project manager and general contractor who in turn, filed a third-party complaint against the concrete forms subcontractor for breach of a written concrete flooring contract.

The flooring contract required the subcontractor to provide “designs, drawings and technical support” for the concrete forming systems. The parties (the general contractor and the concrete subcontractor) had worked together several times in the past.  In these prior projects, the subcontractor never provided any infill design services or technical support to the general contractor.  The trial court granted the subcontractor’s motion for summary judgment on the basis that the subcontractor wasn’t obligated to provide support for the infill areas.

Held: Affirmed

In siding with the subcontractor, the First District applied several key contract interpretation and enforceability principles:

–  The court must give effect to the parties’ intentions when interpreting a contract;

– The best indication of the parties’ intent is the plain meaning of the contract’s language which must be interpreted in light of the contract as a whole;

 – A contract is ambiguous where it’s subject to more than one reasonable interpretation;

 – If a contract’s ambiguous, extrinsic evidence may be used to interpret it;

 – If the contract is unambiguous, extrinsic evidence may not be used to interpret it;

–  Mere disagreement over contract terms doesn’t equate to ambiguity;

– If a contract contains an integration clause, a court may not use extrinsic evidence to interpret the contract;

– But if the contract’s ambiguous, the integration clause will not preclude consideration of extrinsic evidence;

Gomez, ¶¶ 13-14, 25-26.

The Court found the subject contract ambiguous.  While the contract was detailed in its delineation of the subcontractor’s design, drawing, calculation and technical support requirements, it was silent on what if any obligations the subcontractor had for an infill area, which was the location of the plaintiff’s injury.  The court considered extrinsic evidence including expert affidavit testimony on the parties’ previous projects to determine the scope of the subcontractor’s obligations.

The subcontractor’s summary judgment evidence showed that in the parties’ prior 20 or so projects, neither the general contractor nor the project manager ever asked the subcontractor to provide design or support for infill areas.  Because of this, the Court held that the parties’ past dealings and their course of performance on the Trump Tower project conclusively showed that the concrete subcontractor had no contractual responsibility for the infills.  The Court affirmed summary judgment for the subcontractor on the general contractor’s contribution claim.  Gomez, ¶¶18-19, 30.

Take-away: Gomez presents a good summary of some fundamental and prevalent Illinois contract interpretation principles.  The case specifies that where a contract is ambiguous, a court will consider evidence – namely, expert testimony – of the contracting parties’ prior dealings as well as their course of performance on the same project in order to give content to an unclear contract term.

Fee Shifting – Is ‘Prevailing Party’ Language Required?

I see this often: plaintiff sues a defendant for breach of contract.  The defendant has more financial resources than the plaintiff and the contract doesn’t have an attorneys’ fees provision.  Meaning, each side is responsible for its own fees. 

After several months, the plaintiff gets financially (and mentally) worn down by the richer defendant – who by now has filed numerous counterclaims and scheduled a flurry of witness depositions. 

The plaintiff says “uncle” and the parties enter the dreaded Mutual Walk-Away.  The plaintiff gets nothing, is annoyed at her lawyer (whom she has been paying hourly) and loses confidence in the litigation system. 

Once again, the deeper-pocketed defendant gets its way and the plaintiff, whose claim had merit, never gets her day in court.

One way to protect against this  common occurrence is to insert an attorneys’ fees or “fee-shifting” provision in the contract. 

Fee language can at least make a defendant think twice about trying to break a plaintiff’s will through protracted litigation.  It also encourages the plaintiff to not give up so easily when there is a potential fees and costs recovery at the end of the lawsuit. 

In Bank of America v. Oberman, Tivoli & Pickert, Inc., 2014 WL 293662,  an accounting firm sued a commercial lender for breach of a commercial loan agreement.  The agreement contained fee-shifting language applicable to the “collection, enforcement, administration, or protection” of the loan agreement. 

After plaintiff’s Illinois suit was dismissed for the fourth time and the dismissal was affirmed on appeal, the lender filed a separate action to recover its defense fees.

The accounting firm moved to dismiss the lender’s claim on the basis that the loan documents  didn’t specify that the prevailing party could recover attorneys’ fees.  The Northern District denied the motion.

Reasoning:

The general rule in Illinois is that the lawsuit winner isn’t entitled to recover its attorneys’ fees unless there is a contractual provision that says so;

– Allowing a losing party to collect attorneys’ fees from the successful party violates Illinois public policy;

– A fee provision doesn’t have to contain the magic words “prevailing party” to be enforceable.

*4-5.

The Northern District found the fee-shifting language applied to the lender’s defense of the accounting firm’s various lawsuits.  The loan contract specifically said that fees incurred in the “protection” of the loan agreement were recoverable. 

The Court applied the Black’s Law Dictionary definition of protection (“to defend from danger or injury”) in ruling that defending a lawsuit equated to protecting the lender’s contract rights.  

Afterword:

To avoid the negative aftershocks of the above walk-away scenario, I always stress to clients that their contracts should contain attorneys’ fees language.  I also caution them that when signing another party’s contract, to be alert for attorneys’ fees language slanted in the other side’s favor. 

This case illustrates that while “prevailing party” terminology isn’t required to enforce a fee-shifting clause; the clearer and broader the clause, the better. 

 

 

Illinois Contract Law: Parol Evidence Rule, ‘No Damages for Delay’ Clauses

In Asset Recovery vs. Walsh Construction, 2012 IL App (1st) 101226, the First District affirmed  a bench trial judgment for a general contractor sued by a demolition subcontractor for breach of contract and quantum meruit.  The lawsuit stemmed from numerous delays over the course of a multi-million dollar demolition subcontract in connection with the redevelopment of the Palmolive Building, a high profile building on Michigan Avenue, Chicago.

In affirming the trial court, the First District held that all the delays sued upon by the plaintiff were within the contemplation of the parties and also enforced a “no damages for delay” clause contained in both the subcontract (between plaintiff and defendant) and the prime contract (between defendant and building owner).  In the lengthy opinion, the Asset Recovery Court – citing Illinois precedent – provides a good synopsis of several legal principles which commonly crop up in breach of contract litigation.

The key contract formation, interpretation and damages propositions cited in Asset Recovery include:

– Illinois applies the “four corners rule” and looks to the language of the contract to determine its meaning;

– Contractual ambiguity exists if the contract language is susceptible to more than one meaning; 

– If an ambiguity is present, parol evidence may be admitted to aid the court in resolving the ambiguity;

– If the contract is unambiguous, extrinsic evidence isn’t provisionally admitted to show an external ambiguity;

– Where a contract is signed after its effective date, it relates back to the effective date;

– A party can accept a contract by course of conduct, but it must be clear that the conduct relates to the specific contract in question;

– the parol evidence rule precludes (a) the admissibility of evidence to alter, vary or contradict a written agreement and (b) bars evidence of understandings not reflected in the contract reached before or at the time of execution that vary or modify the contract terms;

– the parol evidence rule does not preclude a contracting party from offering proof of terms (such as an oral agreement to change in schedule) that supplement rather than contradict the contract; 

– Contracting parties may waive delays in performance by words or conduct;

– In such a case, the court may extend the term of a contract for a “reasonable time”;

– “No damages for delay” clauses are enforceable but are construed strictly against the party seeking the provision’s benefit;

– Exceptions to “no damages for delay” clauses include (1) bad faith delay; (2) delay “not within the contemplation of the parties”; (3) delay of unreasonable duration; and (4) delay attributable to inexcusable ignorance or incompetence;

– Under waiver and estoppel rules, a party to a contract may not lull another party into false belief that strict compliance isn’t required and then sue for noncompliance. 

The Asset Recovery case contains detailed facts and an exhaustive chronology. The case illustrates the interplay between prime contracts and subcontracts – the latter of which often mirror the prime contract terms.  The opinion serves as an excellent resource for quick bullet-point research on contract formation, construction and enforceability issues; particularly in the construction law context.

PBP