The Appellate Court has issued an opinion that arises out of a very common situation on a construction project – the late delivery of materials. The decision is insightful with regard to understanding a general contractor’s obligations when such a situation arises. In addition, the decision describes how a single instance of improper conduct can lead to an unfair trade practice. Finally, the decision provides a reminder that, if you go to trial, no specific outcome is guaranteed no matter how straightforward you may believe the law to be.
In United Concrete Products, Inc. v. NJR Construction, LLC, the defendant general contractor, NJR Construction, LLC (“NJR”) had entered into a contract with the Department of Transportation, whereby NJR had agreed to replace a bridge over the Hockanum River (the “Prime Contract”). United Concrete Prods. v. NJR Constr., LLC , 207 Conn. App. 551, 555-58 (2021). The Prime Contract allowed NJR an 8-week window to perform the bridge replacement work during which time the road would be closed to through traffic. Id. The Prime Contract further provided a bonus for the project’s early completion and liquidated damages for the project’s late completion. Id.
In furtherance of its duties and obligations under the Prime Contract, NJR entered into an agreement with United Concrete Products, Inc. (“United”), whereby United agreed to provide, among other things, the required pre-stressed concrete beams (the “Subcontract”). Id. NJR scheduled its work, including the delivery of the concrete beams, in order to maximize the bonus it would receive for the project’s early completion. Id. The Subcontract expressly provided a date by which United would deliver the beams (June 7, 2016), but NJR scheduled the actual delivery for a later date (June 29, 2016). Id. Unfortunately, United did not deliver the beams until July 26, 2016. As a result of the late delivery, NJR completed the project 23 days late instead of 20 days early. Id. NJR then computed the damages for which it believed United was liable and deducted that amount from the monies United was otherwise due. United then commenced a lawsuit in which it sought payment of the amounts due under the Subcontract in addition to bringing a payment bond claim under the Little Miller Act. Id. In response to United’s complaint, NJR asserted special defenses and counterclaims based upon United’s alleged breach of the Subcontract and unfair trade practices. Id.
The important considerations from United Concrete Products, Inc. v. NJR Construction, LLC are as follows:
NJR was required to make payment to United despite United’s breach of contract
A general principle of contract law is that a material breach of a contract by one party excuses the other party’s further performance. One example of that principle, which is more fully explained in this blog’s other posts, is that an owner’s failure to make progress payments when due is a substantial breach of the contract that excuses the general contractor from completing the work. Here, one would expect that principle to allow NJR to withhold payment from United to the extent United’s breach of the Subcontract caused NJR to suffer damages, but that was not the case due to the Uniform Commercial Code (“UCC”).
The UCC governs a merchant’s sales of goods. Any contract analyzed under the UCC may have a different result than a contract that requires the performance of work. Here, United was a merchant providing goods, i.e. the prestressed concrete beams. According to the UCC, because NJR accepted the beams despite the late delivery, the trial court found NJR liable for the Subcontract balance in addition to United’s costs for its count sounding in breach of contract. Id. at 560.
NJR was in a no-win situation with regard to United’s late delivery. According to Conn. Gen. Stat. § 42a-2-607, a “buyer must pay at the contract rate for any goods accepted.” Of course, NJR had no choice but to accept the materials at the time they were delivered. As noted above, NJR had a completion date to meet and a Prime Contract that had a liquidated damages provision. If NJR had rejected the late delivery, it would have taken NJR much longer to complete the project because it would have had to find another supplier, who would have then had to start from the beginning with the submission of shop drawings. Therefore, NJR was arguably required to accept the late delivery in order to mitigate its damages.
Notwithstanding the foregoing, the fact that the trial court found NJR liable for the Subcontract balance might be considered putting form over substance because, the trial court also found United liable to NJR for the damages NJR suffered as a result of the late delivery. Thus, NJR still was able to recover its damages from United. The point to remember is that NJR was not entitled to withhold payment from United for the goods it accepted. Instead, NJR was required to make payment to United and then bring a lawsuit against United. NJR’s withholding payment and forcing United to be the one to bring the lawsuit was improper. As a result, NJR was held liable for United’s costs of litigation, which it would not have been held liable for if it did not wrongfully withhold payment. In addition, NJR could have faced a worse result, because it could have also been held liable for United’s attorneys’ fees, but the trial court rejected that claim.
NJR was not required to work at an accelerated pace to mitigate damages
Another general principle of contract law is that a party claiming breach of contract had a duty to mitigate damages, which means that the injured party has to take reasonable steps to reduce the financial loss it claims was the result of the other party’s breach. In United Concrete Products, Inc. v. NJR Construction, LLC, NJR was working at an accelerated pace in order to maximize the Prime Contract’s early completion bonus, but, once it became aware that United would not be able to deliver the beams in time for it to achieve the project’s early completion, NJR no longer maintained the accelerated schedule. Here, because NJR’s damages were based upon the project being completed after the scheduled completion date, United claimed that the failure to maintain the accelerated pace was a failure to mitigate its damages, but the trial court and the Appellate Court rejected this claim. Id. at 567-569.
The duty to “mitigate damages” only requires that a party act reasonably. Id. Here, the court agreed with NJR’s position that, once it was not going to achieve the early completion, there was no point in continuing to accelerate, and, if it had, NJR could have added the acceleration cost to the damages for which United would be held liable. Id.
No one would ever credibly argue that a contractor’s duty to mitigate damages required it to accelerate its performance to make up for a supplier’s late delivery. In this case, however, the take-away is that a contractor already working on an accelerated schedule may return to a normal pace after a late delivery if that late delivery removed the contractor’s reason for initially working on an accelerated schedule.
The Trial Court should not have denied United’s payment bond claim
The trial court rejected United’s payment bond claim because it rejected United’s claim for interest and attorney’s fees under the prompt payment statute, but the Appellate Court stated that this decision by the trial court was in error. Id. at 578. While causes of action arising out of a payment bond and the prompt payment statute may both be brought in a single lawsuit, they are separate and independent causes of action. Id. A surety that provides a payment bond and the general contractor that posts the bond are jointly and severally liable to those that provide labor, materials and/or services to the project. Thus, the trial court’s decision to deny United’s claim against the payment bond was an error that was overturned on appeal.
The take-away from this decision is that you should always prioritize negotiating a settlement because you never know what will happen if you go to trial. Certainly, you can hope that obvious errors will be overturned on appeal, but, if you have to file an appeal to prevail, you will incur substantial additional fees and costs that you may never recover, and, in many cases, an appellate court’s review is often limited, and there may be cases where the appellate court cannot overturn a trial court’s error. Therefore, you are always better off controlling your own fate.
The Appellate Court arguably articulated a new standard for imposing liability under the Unfair Trade Practices Act
I have previously stated my opinion that claims based upon alleged unfair trade practices are overdone because they allow parties to potentially recover attorneys’ fees, which provides a substantial advantage in litigation. The reason for my previously stated opinion that such claims are overdone is that a simple breach of contract is not considered an unfair trade practice, but many times simple breach of contract actions are also presented as unfair trade practices.
Generally speaking, a finding of an unfair trade practice requires a “pattern of bad faith conducted in breaching [the] parties’ agreement, as well as aggravating circumstances …” Id. at 584. On its face, a single instance of not delivering materials on time would not appear to satisfy this standard, but the trial court found that United repeatedly misrepresented its status with regard to the production of the beams, and NJR had taken action in reliance upon United’s misrepresentations. Id. at 582-584. Thus, the Appellate Court upheld the trial court’s determination that United had engaged in an unfair trade practice.
The reasons for United’s repeated misrepresentations with regard to the production of the beams is not explained in the decision. It would suffice to say that, if you are a supplier and you incur a problem that is going to delay a delivery, you should immediately notify your customer regarding the problem instead of spending a month making knowingly false assurances that the delivery would take place as scheduled.
This decision is a lesson in ethics more than anything else. The bottom line is that, if you delay taking responsibility for a situation and, even worse, you make false representations in which you deny that any problems exist, then you may substantially increase your liability.
The facts of United Concrete Products, Inc. v. NJR Construction, LLC demonstrate that navigating problems on construction projects is a potential legal minefield. If you should ever have any questions on how to deal with any problems that develop in the course of a project, please give me a call.
Scott Orenstein
(203) 640-8825