Construction Risk Report, Jun 1999 – Vol. 1, No. 3

In this Issue:

Change Order Bars Owner’s Claim Against A/E

The owners of a home under construction were sued by an architect whose copyrighted plans were used without permission in the design and construction of their new house.   This architect (Mr. Page) sued the owners (Mr. and Ms. Gunthrop) for copyright infringement.  A court granted a temporary injunction preventing the owners from completing the construction.  In order to resolve the matter and continue with the construction, the Gunthrops paid $55,000 to the architect for infringing upon his drawings. They also agreed to change some features of the design.

The Gunthrops then entered into a change order with their builder authorizing changes to the design pursuant to their settlement agreement with the architect.  Included in the change order language was a release, typed in all capital letters, reading as follows: “The homeowners authorize the above changes to be incorporated in their structure and accept all responsibility for errors resulting from the 9/13/94 plan. The homeowners also recognize that these changes are made as an accommodation to the homeowners and agree that C.E. Russell & Associates, Ltd., its agents and subcontractors, are hereby released and held harmless from all liability arising from said changes and any claim arising out of the facts and circumstances which gave rise to, and resulted in such changes.”

Although the owners signed the release, they apparently later became unsatisfied with having paid damages to the original architect without having recovered any portion of those damages from others.   They attempted to recover their damages by suing the architect that provided the infringing design services to their builder, C.E. Russell. They sued the subcontractor instead of the builder/general contractor.  Their apparent theory for suing the subcontractor instead of the contractor, was based on a fine, technical interpretation of the change order language.  Specifically, they argued that the release applied only the builder and not to the architect.  In support of their argument, they asserted that the release language was contained in change order that had been issued under the “Construction Contract.”  Only the owner and builder were parties to that contract.  And the architect did not provide any subcontract services to the builder under that contract.

All services of the architect were provided to the builder pursuant to a subcontract that was under a separate contract entitled “Architectural Agreement” which had been executed between the owner and builder.  The essence of the owner’s argument was that although the architect was a subcontractor to the builder, he was not one of the builders “agent and subcontractors” under the Construction Contract.  That being the case, the owners argued that the release under the Construction Contract could not apply to the architect.

In rejecting the owner’s argument and granting judgment in favor of the architect, the court stated that it made no difference whether the architect was a subcontractor under the Construction Contract or the Architectural Agreement.   So long as he was a subcontractor under either contract, he was indisputably a subcontractor to the builder.    Having unambiguously stated in the language of the release that liability was released as to  the general contractor and all his subcontractors, the court found that this meant  all subcontractors – regardless of which contract applied.

John Gunthrop v. Mark Golan, et. al., 184 Ill. 2d 432; 704 N.E.2d 370 (1998).

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No A/E duty to Subcontractor to Assure Payment Bond Procured or That General Contractor Paid Him Prior to Progress Payment Being Approved

A subcontractor worked on a project for five months without being paid and then sued the A/E for negligence, claiming that the A/E owed it a duty, as a third party beneficiary, to assure that the contractor maintained a payment bond or paid the subcontractor before being given his progress payments. Plaintiff, subcontractor, argued that the A/E had a professional responsibility to review the contract documents and assure compliance of the contractor with their requirements, including the procuring of a payment bond . He further argued that the A/E was negligent in not certifying pay requests before obtaining documentation to show that the subcontractor had been paid.

An AIA contract, form B 141 (1987 edition) was used as the agreement between the architect and owner. It expressly stated that there was no duty owed by the architect to subcontractors. Nevertheless, the plaintiff argued that the architect’s contract gave the architect control over the contractor’s work, and required him to verify payment bonds and to obtain lien waivers from subcontractors before approving the contractor’s payment requests.

The trial court granted summary judgment in favor of the architect. The appellate court affirmed the decision. In the court’s opinion, the subcontractor had not relied upon the architect’s actions. Instead, the subcontractor was counting on the contractor, with whom it had an ongoing relationship, to make payment. It appeared to the court that the subcontractor had attempted to preserve its relationship with the contractor “at the expense of sound business practices.”

Plaintiff worked on the project for five months with no written contract and without being paid, and then when it finally signed a contract, he did not require proof that a payment bond had been procured. Any interested party was free to ask for a copy of the bond but the plaintiff made no such request. It was not until it became obvious that he was not going to be paid that the subcontractor finally asked for a copy of the bond. Moreover, no one had been requesting lien waivers from the subcontractor (which were required pursuant to the contract), and this should have put him on notice that his interests might not be protected.

In addition to lack of reliance on the architect, the court found that the complaints by the subcontractor to the owner about the failure of being paid did not give rise to a duty of care by the architect.

The plaintiff also sued the surety that issued the bid bond on the project, arguing that it had a duty to issue a payment bond. This aspect of the case went to trial with the court finding in favor of the surety. In affirming the judgment for the surety, the appellate court found that terms of the bid bond required that the contractor obtain a payment bond, and did not create any obligation of the surety to independently obtain such a bond for the project. The surety’s obligation under the bid bond became void when the contractor failed to request a payment bond. Cullum Mechanical Construction, Inc. v. South Carolina Baptist Hospital, No. 2985, 1999 S.C. App. Lexis 71 (S.C. App. May 3, 1999).

Article Copyright  ã 1999,, LLC – Virginia


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Copyright ã 1999,, LLC – Virginia

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