Written By Jean Meyer
It is not unusual that over the course of a construction project and an owner and contractor might, implicitly, or explicitly, agree to deviate from the plain language of a construction contract. However, doing so is not without its perils. For example, what happens when after a period of the parties ignoring the express language of the contract, an owner, or contractor, comes back and seeks to enforce a contractual provision previously ignored. The Montana Supreme Court’s decision in Lewistown Miller Constr. Co. v. Martin, 2011 MT 325 is noteworthy in its analysis of such a situation.
The Lewistown Miller decision arose out of the following fact pattern. A property owner, Gary Martin (“Owner”) solicited construction bids for a hunting cabin with an immediate start for construction. Lewiston Miller Construction Co., Inc. (“Contractor”) submitted a construction bid for $338,400 and Martin accepted the bid. As construction progressed at the request of the Owner, many changes were made to the scope of construction originally contemplated in the bid which increased the cost of construction. In response to the Owner’s request for the revised construction scope, the Contractor agreed to, and actually performed the revised scope. In doing so, however, neither the Owner nor the Contractor followed the Change Order process as contemplated in their relevant contract.
Without ever memorializing his revised perception of the mechanic’s of the construction payment scheme and scope, the Contractor came to the belief that the contract had been changed during the course of construction to a “time and materials’ contract, rather than a firm-price contract, because of the numerous changes the Owner requested.
When construction was completed the Contractor, submitted a final invoice which was $79,293.01 over the $338,400 contract price. The Owner in turn refused to pay the additional amounts, and the Contractor filed a construction lien on the subject property. In turn, the Contractor filed suit, seeking damages for breach of contract, unjust enrichment, and foreclosure of the lien The Owner counterclaimed for declaratory relief that the lien is invalid to quiet title, for slander of title, for breach of contract and several other claims for relief.
The District Court held a bench trial and granted foreclosure the Contractor’s construction lien and awarded $62,649.51. It also ruled in favor of the Owner on his counterclaim for the Contractor’s installation of a faulty roof and leaks windows and garage doors, awarding $10,260.2. Both the Owner and Contractor appealed the District Court’s decision.
In evaluating the above fact pattern, the Montana Supreme Court noted that with regard to construction contracts, “[w]aiver may be proved by express declarations or by a course of conduct so as to induce the belief that the intention and purpose was to waive.” In a basic sense, the concept of “waiver” as an excuse for nonperformance is an equitable doctrine, designed to prevent the waiving party from lulling another into a belief that strict compliance with a contractual duty will not be required, and then either suing for noncompliance or demanding compliance for the purpose of avoiding the transaction.
Considering this framework, the Owner cited earlier Montana legal authority for the proposition that “[a] contract in writing may be altered by a contract in writing or by an executed oral agreement, and not otherwise.” The Owner argued that the District Court erred by enforcing the changes as oral modifications to the contract because the modifications were not fully executed by both parties, in that the Owner did not pay for the requested changes. In support of this contention, the Owner cited additional authority for the proposition that “[a]n oral agreement altering a written agreement is not an executed oral agreement within the statute authorizing modification of written contracts by an executed oral agreement its terms have been fully performance, and performance on one side is not sufficient. . . . An executed contract is one where nothing remains to be done by either party.” In this vein, the Owner argued that because he did not pay for many of the changes, despite the Owner’s full performance, performance on both sides had not occurred, and therefore the modifications were executory than executed.
The Montana Supreme Court saw through the Owner’s arguments finding that the Owner’s proposition would allow the party requesting changes to avoid the obligation to pay by simply refusing to pay after the changes were provided. As applied to the facts of the Lewistown case, while the payment was executory, the modification was supported by consideration, was fully performed – the Contractor performed the construction. Thus, the Montana Supreme Court noted that one party should be deprived of a remedy when it performs in reliance on an oral promise of another. A building contractor that performs extra work at the oral direction of the owner or the architect in reliance on an oral promise of compensation should be granted a remedy even though the owner’s promise of compensation is still “executory.”
The lesson of the Lewistown decision is that oral modifications to a written contract are enforceable in Montana where there is adequate consideration for the medication and the party relying on the oral medication has fully performed.
For additional information concerning actions constituting waivers or about construction defect litigation in Montana, generally, you can reach Jean Meyer by telephone at (406) 219-8422 or by e-mail at meyer@meyerconstructionlaw.com.