The 60-Second Construction Law Journal June 2020 MS Construction Industry Team Important contractual rights and remedies can be lost, hard-won statutory protections waived, and serious liabilities incurred—all through ignorance of the law. This newsletter is designed to give you, in 60 seconds, some more insight into legal problems faced by contractors, subcontractors and suppliers in the construction industry, so that you do not repeat their mistakes and have a successful completion of the job. You Be the Judge Working with Your FACTS: A Drywall Subcontractor breached contract by failing Bonding Company to complete the job. The General Contractor (GC) had a Joint Obtaining a surety bond requires Check Agreement providing for payments to the Subcontractor’s making representations to the drywall materials supplier, but only if the GC actually owed bonding company. Knowing failure to money to the Subcontractor on the Project. The GC had to hire fully and accurately disclose material another subcontractor to complete the original Subcontractor’s facts when getting a bond is a crime. work. The GC ended up paying more than the original It can lead to personal liability of a Subcontractor’s contract, such that it did not actually owe contractor’s owners, and even jail. money to the Subcontractor. The Supplier continued supplying Best practices are to (1) maintain an materials to the project. The Supplier then sued the GC alleging open relationship with your bonding an implied contract to pay for the materials because the GC company, especially in difficult times; would be “unjustly enriched” if not obligated to pay. and (2) involve lawyers experienced ISSUE: Can a subcontractor’s supplier recover money from with bonding relationships and the GC based on an implied contract with the GC where the disclosures to help avoid going GC owed the subcontractor nothing because the subcontractor sideways with your surety. failed to perform? United States v. Lindsey, Criminal RULING: Yes. The GC formed an implied contract with the Case No. 3:20-CR-22 (E.D. Va. Mar. 2, Supplier requiring the GC to pay the Supplier for materials 2020). provided to the job. The Virginia Supreme Court held that the GC knew the Subcontractor was having financial problems and the GC had “repeated direct dealings” with the Supplier assuring the Supplier it would be paid, prompting the Supplier Have a lawyer review your to continue shipping supplies to the project. The Court rejected construction contracts before the GC’s argument that it was not unjustly enriched when the you sign them. Know that you are GC hired a new subcontractor and incurred costs in excess of protected before starting the work. the original Subcontractor’s contract. (Answer continued on next page.) BALTIMORE, MD EASTON, MD FREDERICK, MD RICHMOND, VA ROCKVILLE, MD TYSONS CORNER, VA WASHINGTON, DC This handout is for general information purposes and is not intended to be and should not be taken as legal advice on any particular matter. Because legal advice must vary with individual circumstances, do not act or refrain from acting on the basis of the material without consulting professional legal counsel. mslaw.com You Be the Judge RULING: The Court found that the GC did not pay anyone for the LESSON: In light of this supplies delivered to the project, used the supplies, and absent decision, it is important to those supplies would have had to obtain them elsewhere and pay include language in any such for them. Finally, the Court found that the Joint Check Agreement Joint Check Agreement that did not prevent an implied contract between the GC and Supplier will prevent the joint payee because the Joint Check Agreement stated its “sole purpose” was (supplier) from suing the payor to assist the Subcontractor in making payment to the Supplier (GC). Proper drafting of a and did not purport to create an express contract between the Joint Check Agreement can GC and the Supplier obligating the GC to pay the Subcontractor’s avoid the unfortunate outcome supplier even if no money was owed to the Subcontractor. Typically, of a GC having to pay its the legal rights of a supplier providing materials to a project have subcontractor’s debts. been only a claim against the subcontractor or a mechanic’s lien (requiring the supplier to comply with the statute and overcome numerous defenses). This new case appears to significantly expand a supplier’s legal rights. James G. Davis Construction Corporation v. FTJ, Inc., F/K/A Ciesco, Inc., Sup. Ct. Va., Record No. 190345 (May 14, 2020). Construction Industry Team Miles & Stockbridge’s Construction Industry Team represents general contractors, subcontractors, suppliers and sureties in all aspects of construction law, including contract drafting and negotiation, mechanics liens, bid protests, and the preparation, litigation, arbitration and mediation of construction claims. Key Construction Lawyer Profiles TOM WOLF is a co-leader of the JACK ROBB is a Principal Construction Industry Team at Miles and former in-house general & Stockbridge and is recognized counsel with a focus on by Best Lawyers in America® for depositions, experts and trial. pre-eminence in Construction He also regularly advises clients Law, Construction Litigation and entering into contracts. Commercial Litigation. He has been 804.905.6916 Adjunct Professor, Construction [email protected] Law at the University of Richmond School of Law since 1986 and GRETCHEN BYRD is a Principal lectures frequently on construction and former Supreme Court of law issues for the Virginia State Bar, Virginia Clerk with a focus on 804.905.6910 the Associated General Contractors litigation and eDiscovery. [email protected] of Virginia and various construction [email protected] industry groups. KEN STOUT is an Associate and former federal fellowship law clerk, with a focus on motions practice, research and written discovery. [email protected] https://www.mslaw.com/construction/publications.