This article highlights the importance of using proper terminology and clearly defining payment obligations in written construction agreements.
In Schmoldt & Daniels Masonry v. 723 S. Neil, LLC, 2014 IL App (4th) 140102-U, the court discusses the difference between a time-and-materials contract and a lump sum contract and examines what a contractor must show to recover “extras” from a property owner.
A masonry contractor plaintiff and the owner defendant signed a contract that required the plaintiff to complete masonry work on a time and material (T&M) basis “not to exceed $80,000.” Plaintiff sued after the owner failed to pay about $75,000 in extras.
After a bench trial, the court granted a money judgment to the masonry contractor for the full amount of the extras and the owner appealed.
Held: judgment affirmed.
The court agreed with the plaintiff’s testimony that the $80,000 cap was only an estimate and contingent on the owner performing preliminary masonry work.
In a lump-sum contract, the contractor assumes the risk that the job will go over budget. In a T&M contract, the parties share the risk. A T&M contract can be open-ended (no price limit) or capped (it can’t exceed a stated amount). Under basic Illinois contract law, where contract terms are clear and unambiguous, they will be enforced as written.
A contract is ambiguous where its terms are reasonably susceptible to more than one meaning. But just because parties disagree on the meaning of certain contract terms doesn’t make the contract ambiguous.
A contractor seeking to recover additional payment for extra work must establish
- that the work was outside the scope of the contract;
- the extra items were ordered by the owner;
- the owner agreed to pay for the extra work – either by words or conduct;
- the extras were not furnished by the contractor voluntarily; and
- the extras weren’t rendered necessary due to any fault of the contractor.
(¶¶ 23-24, 31).
The Court agreed that the contract was ambiguous. The “not to exceed $80,000” language could plausibly refer both to the specific Scope of Work items as well as to additional items stated in the architectural plans and owner-requested items.
Based on the ambiguity, the Court allowed the parties to testify concerning their intent in negotiating and consummating the $80,000 price term.
The Court found the plaintiff’s testimony that the $80,000 wasn’t a firm price cap more credible than the owner’s opposing testimony.
Affirming the extras damages award, the court found the plaintiff established all elements for recoverable extras: that plaintiff performed extra work at the owner’s request, the owner tacitly agreed to pay, and the extras weren’t performed gratuitously and due to any fault of the contractor. ¶¶ 32-34.
Where a writing has two or more equally plausible meanings, a court will find it ambiguous and allow the parties to testify as to the writing’s intended meaning.
The case also illustrates the importance of precision in drafting. If the contractual intent is to cap costs no matter what, the parties should so.
The case also states the simple five-part test for a contractor proving up its claim for extras.