You receive a check for less than the amount owed from a company. The company has stated that they owe you less than you contend is owed. Should you cash the check?
Virginia Law: In the 2002 case of Gelles & Sons General Contracting, Inc. v. Jeffrey Stack Inc., the Virginia Supreme Court for the first time interpreted Virginia Code §8.3A-311 which is a 1992 statute enacted to address the issue of cashing such checks. According to the Supreme Court opinion, the test is whether "a reasonable person" would consider the check to be a tender in full satisfaction of the claim.
Facts of Case: A general contractor ("general") and its subcontractor ("sub") dispute the amount owed by the general to the sub. The general wrote two letters to the sub setting out its position and included a check with the second letter which stated that it represented "final payment". The sub cashed the check but sued for the balance it claimed was due. The trial court found (and the Virginia Supreme Court agreed) that the letter and check was a "drop-dead letter" offer of final payment. By cashing the check, the sub could not sue for any additional sums.
Advice: If there is a question about whether a check is tendered as final payment, look at the correspondence and notations on the check to determine the intent of the maker. Cashing checks may be risky if there is some evidence for an accord and satisfaction.
The above article is not meant to replace legal counsel. If you'd like to speak to one of the attorneys at Gross & Romanick, call (703) 273-1400 or fill out their online Information Request form.
Showing posts with label construction law va. Show all posts
Showing posts with label construction law va. Show all posts
Wednesday, September 23, 2009
Wednesday, March 18, 2009
Construction Law: Payment Bonds
If your company is a subcontractor or supplier to a government project, you need to understand payment bonds. Some private jobs also utilize payment bonds. The federal statute generally applicable to payment bonds on federal projects is the Miller Act, with state and local statutes termed Little Miller Acts.
Payment Bonds Defined
Payment bonds are required on almost all federal, state and local construction projects. Federal and state laws require these bonds on public projects for the protection of the subcontractors, materialmen and suppliers against insolvent or defaulting contractors and subcontractors. Although no legal requirement exists regarding privately owned construction projects, payment bonds are frequently required by owners and lenders.
The bonding relationship is as follows: The "principal" is the general contractor or the subcontractor whose work is being bonded. The "surety" is usually an insurance company that is standing behind the principal. If the general contractor is the principal, the "obligee" is the owner of the project. If the subcontractor is the principal, the "obligee" is the general contractor. The "claimant" is the subcontractor, materialman or supplier seeking payment from the bond.
Who is Covered, and What is Covered
Payments bonds posted by a general contractor will always cover the subcontractors, materialmen and suppliers who have a direct relationship with that general contractor. On public projects, a general contractor may be required to have its subcontractors post payment bonds; in such a case, sub-subcontractors, materialmen and suppliers to those subcontracts will then be covered by the bonds of those subcontracts. In addition, on both public and private projects, the terms of a payment bond itself might extend coverage to include suppliers and materialmen who would not generally be covered.
The terms of a payment bond along with any applicable statutes define the extent of the bond's coverage. The typical payment bond coverage is for labor and materials furnished for use on contract projects. Numerous factors are considered by the courts in determining coverage, including the relationship of the parties, the nature of the product or labor provided and the cost of the work or materials relative to the overall project. Such an analysis is complex.
Notice Requirements
Notice of a bond claim to the principal and surety needs to be done within prescribed time limitations in order to pursue a claim. The terms of the payment bonds on both public and private projects typically contain strict time requirements for giving notice, as well as time limitations on when suit must be filed. Furthermore, federal, state and municipal statutes will set strict time deadlines.
For state projects in Virginia, the applicable statute is Virginia Code Section 11-60B. This section bars suits or actions under certain circumstances on a payment bond unless the claimant had given written notice to the principal and surety within 180 days after it performed the last of the work or labor or furnished the last of the materials for which the claim was made.
Summary
Before you begin a job, get a copy of the bond that covers the project in order to determine whether you are covered and how to enforce your rights. Notices of your claim must exactly track the bond and applicable statutes. Legal enforcement is never simple, since the principals and sureties typically assert every available defense.
This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick directly if you need information about your specific situation.
Payment Bonds Defined
Payment bonds are required on almost all federal, state and local construction projects. Federal and state laws require these bonds on public projects for the protection of the subcontractors, materialmen and suppliers against insolvent or defaulting contractors and subcontractors. Although no legal requirement exists regarding privately owned construction projects, payment bonds are frequently required by owners and lenders.
The bonding relationship is as follows: The "principal" is the general contractor or the subcontractor whose work is being bonded. The "surety" is usually an insurance company that is standing behind the principal. If the general contractor is the principal, the "obligee" is the owner of the project. If the subcontractor is the principal, the "obligee" is the general contractor. The "claimant" is the subcontractor, materialman or supplier seeking payment from the bond.
Who is Covered, and What is Covered
Payments bonds posted by a general contractor will always cover the subcontractors, materialmen and suppliers who have a direct relationship with that general contractor. On public projects, a general contractor may be required to have its subcontractors post payment bonds; in such a case, sub-subcontractors, materialmen and suppliers to those subcontracts will then be covered by the bonds of those subcontracts. In addition, on both public and private projects, the terms of a payment bond itself might extend coverage to include suppliers and materialmen who would not generally be covered.
The terms of a payment bond along with any applicable statutes define the extent of the bond's coverage. The typical payment bond coverage is for labor and materials furnished for use on contract projects. Numerous factors are considered by the courts in determining coverage, including the relationship of the parties, the nature of the product or labor provided and the cost of the work or materials relative to the overall project. Such an analysis is complex.
Notice Requirements
Notice of a bond claim to the principal and surety needs to be done within prescribed time limitations in order to pursue a claim. The terms of the payment bonds on both public and private projects typically contain strict time requirements for giving notice, as well as time limitations on when suit must be filed. Furthermore, federal, state and municipal statutes will set strict time deadlines.
For state projects in Virginia, the applicable statute is Virginia Code Section 11-60B. This section bars suits or actions under certain circumstances on a payment bond unless the claimant had given written notice to the principal and surety within 180 days after it performed the last of the work or labor or furnished the last of the materials for which the claim was made.
Summary
Before you begin a job, get a copy of the bond that covers the project in order to determine whether you are covered and how to enforce your rights. Notices of your claim must exactly track the bond and applicable statutes. Legal enforcement is never simple, since the principals and sureties typically assert every available defense.
This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick directly if you need information about your specific situation.
Monday, November 10, 2008
Construction Law: Performance Bonds
Companies in the construction industry should understand performance bonds. Performance bonds differ in many ways from payment bonds. While payment bonds are designed to assure compensation to subcontractors and suppliers, performance bonds seek to secure completion of the project or award of damages to the owner for default by the general contractor.
Performance Bonds Defined
The parties to a performance bond consist of the following: (1) the principal (usually the general contractor), (2) the obligee (the owner), and (3) the surety. In some cases, a performance bond is required of a subcontractor, in which case the principal is the subcontractor and the obligee is the general contractor. Performance bonds are primarily designed to afford significant protection to the owner, while subcontractors and suppliers typically have no rights under such bonds.
Claims are brought by the obligee, when the principal has defaulted on its contract with the obligee - the obligee declares the principal to be in default and notifies the surety. Only then is surety required to act, since premature actions by the surety can result in litigation with the principal.
Actions upon Default
In the event of default by the principal, the surety has several options. It can permit the owner to finish the project and compensate the owner for damages. Or, the surety can finish the project through a new contractor. Or, it can finance the general contractor so the defaulting obligee can complete the contract. The choice depends upon the situation and the players.
Statute of Limitations
While the federal Miller Act states no specific time period within which suit must be brought against a surety, there are federal, state and local time limitations applicable to performance bonds. Virginia Code Section 11-59 requires actions against sureties on performance bonds be filed within one year after completion of the contract, including the expiration of all warranties and guarantees. If the action is for a breach of warranty or defect, then all cases must be filed within one year of discovery of the defect or breach of warranty.
Conclusion
In conclusion, individuals in the construction industry should keep in mind that the rules and principles, which govern the operation of these bonds, are sometimes peculiar to the bonds themselves and the statutes under which they are provided. Therefore, it is important to have a good understanding of the terms of your bond, any applicable statutes, your contract and the facts.
This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick by filling out out online form, emailing us at law@gross.com, or calling (703) 273-1400 if you need information about your specific situation.
Performance Bonds Defined
The parties to a performance bond consist of the following: (1) the principal (usually the general contractor), (2) the obligee (the owner), and (3) the surety. In some cases, a performance bond is required of a subcontractor, in which case the principal is the subcontractor and the obligee is the general contractor. Performance bonds are primarily designed to afford significant protection to the owner, while subcontractors and suppliers typically have no rights under such bonds.
Claims are brought by the obligee, when the principal has defaulted on its contract with the obligee - the obligee declares the principal to be in default and notifies the surety. Only then is surety required to act, since premature actions by the surety can result in litigation with the principal.
Actions upon Default
In the event of default by the principal, the surety has several options. It can permit the owner to finish the project and compensate the owner for damages. Or, the surety can finish the project through a new contractor. Or, it can finance the general contractor so the defaulting obligee can complete the contract. The choice depends upon the situation and the players.
Statute of Limitations
While the federal Miller Act states no specific time period within which suit must be brought against a surety, there are federal, state and local time limitations applicable to performance bonds. Virginia Code Section 11-59 requires actions against sureties on performance bonds be filed within one year after completion of the contract, including the expiration of all warranties and guarantees. If the action is for a breach of warranty or defect, then all cases must be filed within one year of discovery of the defect or breach of warranty.
Conclusion
In conclusion, individuals in the construction industry should keep in mind that the rules and principles, which govern the operation of these bonds, are sometimes peculiar to the bonds themselves and the statutes under which they are provided. Therefore, it is important to have a good understanding of the terms of your bond, any applicable statutes, your contract and the facts.
This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick by filling out out online form, emailing us at law@gross.com, or calling (703) 273-1400 if you need information about your specific situation.
Monday, October 20, 2008
Apparent Authority: Is It What It Seems?
Before your business ships materials to a construction site, you insist that the subcontractor execute an agreement that all payments from the general contractor to the subcontractor be in the form of a joint check with your company as joint payee. After the general contractor and the subcontractor execute this joint check agreement, you begin shipping materials. When the subcontractor disappears with an outstanding balance on the account, you notice for the first time that the few payments you received were from the subcontractor and not joint checks issued by the general contractor. A call to the general contractor reveals that they claim to have no knowledge of the joint check agreement; in addition, they insist that the person who signed the agreement had no authority to do so. Can you get past due money from the general contractor for its failure to comply with the joint check agreement?
Actual v. Apparent Authority
Our analysis of the validity of the joint check agreement begins with whether the employee of the general contractor had actual or apparent authority to sign the agreement.
Actual authority means that the general contractor has officially empowered the employee with the right to sign the agreement and bind the company.
Even if an employee does not have actual authority, an employer may be bound by the acts of its employee under the theory of apparent authority. According to the Virginia Supreme Court in the case Wright v. Shortridge, "An act is within the apparent scope of the employee's authority if, in the view of the character of his actual and known duties, an ordinarily prudent person, having a reasonable knowledge of the usage's of the business in which the agent is engaged, would be justified in believing that he is authorized to perform the act in question," In our case example, a common laborer does not have apparent authority while the job supervisor probably does.
Even when an employer has specifically limited the actual authority of an employee, the employer may still be bound under apparent authority if it has held out the employee as possessing authority or has permitted the employee to represent that the employee possesses such authority.
Estoppel Works Both Ways
The general contractor in our case may be estopped from denying that its employee lacked authority to sign the joint check agreement if it acted or allowed the employee to act as though the employee had ostensible authority. Thus, employers cannot claim that an employee lacks authority if it represented that the employee had such authority or if the employee is clothed with apparent authority to enter into the agreement.
On the other hand, if your company knew or should have known that the employee lacked authority, you will be estopped from arguing reliance upon the employee's apparent authority. Furthermore, if you accept checks without informing the employer of the breach of the joint check agreement, the employer may have a good argument that they were unfairly prejudiced by your failure to provide an opportunity for them to avoid breaching the agreement.
Avoid Problems
Employers who wish to limit and define the authority of their employees or other agents should place these limitations in writing and they should send potential contracting parties a copy of this document. To limit the appearance of authority, control and monitor activities of employees and avoid giving important titles to people with lesser duties. If you learn that an employee's act exceeds granted authority, immediately repudiate the act and disclose the lack of authority to third parties relying on the act. Otherwise, you may inadvertently ratify the act, or worse, unknowingly extend the authority to the employee to bind the company.
Parties who enter into agreements with companies should beware. You may think you are dealing with an employee with authority to bind the company; however, this may not be the case. Even the President of a corporation may not have actual authority to bind the company; the president's power as an agent comes only as delegation of authority from the bylaws or the board of directors. (See Annotation Note to Virginia Code §13.1-673)
Protect Yourselves!
Insist on documentation of the authority of the person who is signing the agreement, such as a corporate seal or a corporate resolution. When in doubt, send a copy of the agreement to the company's headquarters, this will assist your estoppel, reliance and ratification arguments if the company does not protest the agreement. Had the supplier, in our example, sent a copy of the agreement to the general contractor and immediately contacted them when the checks were not issued jointly, then they might have prevailed in court even without actual authority. As the facts stand in the example, they will lose and fail to recover any money from the general contractor.
***
The article republished above is not meant to replace legal counsel. To seek representation or to ask further questions about Construction Law, please contact Gross & Romanick's Business Law division today by calling (703) 273-1400, e-mailing law@gross.com or filling out our online form.
Actual v. Apparent Authority
Our analysis of the validity of the joint check agreement begins with whether the employee of the general contractor had actual or apparent authority to sign the agreement.
Actual authority means that the general contractor has officially empowered the employee with the right to sign the agreement and bind the company.
Even if an employee does not have actual authority, an employer may be bound by the acts of its employee under the theory of apparent authority. According to the Virginia Supreme Court in the case Wright v. Shortridge, "An act is within the apparent scope of the employee's authority if, in the view of the character of his actual and known duties, an ordinarily prudent person, having a reasonable knowledge of the usage's of the business in which the agent is engaged, would be justified in believing that he is authorized to perform the act in question," In our case example, a common laborer does not have apparent authority while the job supervisor probably does.
Even when an employer has specifically limited the actual authority of an employee, the employer may still be bound under apparent authority if it has held out the employee as possessing authority or has permitted the employee to represent that the employee possesses such authority.
Estoppel Works Both Ways
The general contractor in our case may be estopped from denying that its employee lacked authority to sign the joint check agreement if it acted or allowed the employee to act as though the employee had ostensible authority. Thus, employers cannot claim that an employee lacks authority if it represented that the employee had such authority or if the employee is clothed with apparent authority to enter into the agreement.
On the other hand, if your company knew or should have known that the employee lacked authority, you will be estopped from arguing reliance upon the employee's apparent authority. Furthermore, if you accept checks without informing the employer of the breach of the joint check agreement, the employer may have a good argument that they were unfairly prejudiced by your failure to provide an opportunity for them to avoid breaching the agreement.
Avoid Problems
Employers who wish to limit and define the authority of their employees or other agents should place these limitations in writing and they should send potential contracting parties a copy of this document. To limit the appearance of authority, control and monitor activities of employees and avoid giving important titles to people with lesser duties. If you learn that an employee's act exceeds granted authority, immediately repudiate the act and disclose the lack of authority to third parties relying on the act. Otherwise, you may inadvertently ratify the act, or worse, unknowingly extend the authority to the employee to bind the company.
Parties who enter into agreements with companies should beware. You may think you are dealing with an employee with authority to bind the company; however, this may not be the case. Even the President of a corporation may not have actual authority to bind the company; the president's power as an agent comes only as delegation of authority from the bylaws or the board of directors. (See Annotation Note to Virginia Code §13.1-673)
Protect Yourselves!
Insist on documentation of the authority of the person who is signing the agreement, such as a corporate seal or a corporate resolution. When in doubt, send a copy of the agreement to the company's headquarters, this will assist your estoppel, reliance and ratification arguments if the company does not protest the agreement. Had the supplier, in our example, sent a copy of the agreement to the general contractor and immediately contacted them when the checks were not issued jointly, then they might have prevailed in court even without actual authority. As the facts stand in the example, they will lose and fail to recover any money from the general contractor.
***
The article republished above is not meant to replace legal counsel. To seek representation or to ask further questions about Construction Law, please contact Gross & Romanick's Business Law division today by calling (703) 273-1400, e-mailing law@gross.com or filling out our online form.
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