Breach of Oral Contract & Bond Payment Claim

By September 28, 2012 Commercial Litigation

COURT UPHOLDS LANDSCAPER’S  ORAL CONTRACT WITH
SUBCONTRACTORS IN PUBLIC WORKS PROJECT


Highlights

  • Based on his expertise in construction law, Jim Wakefield successfully represented the owner of a landscaping business when he received only partial payment for work performed on a public works job.
  • Cummins & White successfully established the existence and terms of an oral contract between the landscaper and main subcontractor, and argued that bond payment should have been made despite an inaccurate preliminary notice, resulting in an award of more than $110,000.
  • The case shows the inherent risks in working without a written contract and in executing preliminary notices in-house, as preliminary notices are technical and mistakes can easily be made.

Attorneys

Case Study

James Wakefield of Cummins & White, LLP, successfully represented a landscaper who received only partial payment for work provided at a Southern California high school.  The case was complicated by the facts that the job was agreed to verbally, the lead subcontractor had filed for bankruptcy, and the subsequent landscaper’s preliminary notice was inaccurate.  At trial, Mr. Wakefield established that an oral contract did exist and that the landscaper had fulfilled his contractual responsibilities.  He also established that despite the defective preliminary notice, the general contractor was responsible for the outstanding balance because the company had not sufficiently monitored the job and had paid the main subcontractor prematurely.  The court agreed, awarding the landscaper more than $40,000 plus costs and attorney’s fees, pushing the final judgment to more than $110,000.

Background

A landscaping company specializing in public works projects accepted a job at a Southern California high school.  Hired by the lead landscaping subcontractor, the company was asked to complete maintenance work valued at $12,500.  The owners of both businesses verbally agreed to the terms of the job, and no written contract was signed.  Based on this estimate, the landscaper served a preliminary notice on the general contractor and school district.

After completing the maintenance work, the landscaper was asked to provide  additional labor and materials worth nearly $108,000.  The additional work was completed, but the landscaper received only partial payment from the main subcontractor who had filed for bankruptcy (the lead subcontractor had been paid in full for the work).

To collect the debt, the landscaper served a stop notice on the school district and filed a $50,000 claim on the payment bond.  However, the landscaper was not compensated when the general contractor asserted that the landscaper’s preliminary notice was inaccurate.  The landscaper subsequently sued the lead subcontractor for breach of oral contract, and the general contractor, school district, and issuer of the surety bond.  Damages sought totaled more than $50,000, plus interest and attorneys’ fees.

Legal Strategy

Jim Wakefield of Cummins & White, LLP represented the landscaping company and executed a litigation plan designed to:

  • Establish the existence and terms of an oral contract that the lead subcontractor denied was in place.  Through skilled cross-examination, Mr. Wakefield proved that the landscaper and lead subcontractor had agreed to an oral contract and that the landscaper had performed all of the work, thereby fulfilling his contractual responsibilities.
  • Establish that while the preliminary notice was defective on the price estimate, the general contractor could not claim prejudice because the general contractor failed in its duty to the school district by not paying attention to the progress of the landscaping job and prematurely paying for unfinished work.  Mr. Wakefield argued that even though the general contractor had paid the lead subcontractor for the bulk of the work, the general contractor was still responsible for the project, and that the Plaintiff was entitled to recover the balance owed to him through the surety bond.
  • Establish that the landscaper’s stop notice claim against the school district, lead subcontractor, and general contractor was valid.

By clearly substantiating these facts, Mr. Wakefield proved that the Plaintiff was entitled to recover the value of the work performed.

Results/Implications

The judge found in favor of the landscaper, stating that the general contractor had an obligation to take care of the owner, the school district, and should not have paid a subcontractor that did perform the work.  The landscaper was awarded more than $40,000 plus costs and attorney’s fees, pushing the final judgment to more than $110,000.

According to Mr. Wakefield, the ruling was significant because the Plaintiff overcame two important issues—an oral contract, which causes significant litigation in construction, and a defective preliminary notice.

“The moral of the story is that none of this would have occurred if there was a written contract and an accurate preliminary notice,” he said.  “While we were victorious, a great deal of money was spent on attorneys’ fees, which could have been avoided.  Subcontractors should always require a written contract and make sure they understand it.  If they don’t, they should consult with an attorney with an expertise in construction law.  Also, preliminary notices protect subcontractors’ lien rights.  Not only must preliminary notices be timely, they must be correct.  It is definitely worthwhile for general contractors and subcontractors to use a professional service to handle their preliminary notice work.”