WHAT COULD I HAVE DONE TO AVOID THIS LITIGATION?

Construction Finance Managers Association – New Jersey Chapter

Panel Discussion, “Killer Contract Clauses”: April 11, 2012

I. My Customer is Using Me as a Bank

a. My company entered into a paving contract with a developer to lay tennis court surfaces and a bike path. We did our job on time and properly. My customer has the resources to pay our $25,000 invoice and never complained about our work. They never responded to our calls for payment. After we sued them, they filed a 2 page counterclaim alleging poor workmanship without any details, and alleging delay damages and loss of use damages of $50,000 without any back-up. Their Answers to Interrogatories were just as flimsy. They tell me I can accept $10,000 payment from them as a settlement, or else pay my lawyer to defend us, and wait in line to get paid. I’ll have to spend thousands of dollars in legal fees. Also, I am only get 1.5% pre-judgment interest as per court rule. The debtor is using me as cheap financing. The longer this takes, the better off they are. What could I have done to avoid this situation?

b. I have a judgment against a customer for $25,000. He has taken care to hide his assets, but I’m convinced he has them. Unfortunately, we are only earning 1.5% (as per court rule) on our judgment, and our cost of money is 7%. The debtor is using our judgment as cheap financing. Also, I’ll have to spend $5000 in deposition fees, subpoenas, etc. to locate and seize his assets, and may not succeed in finding them at all. What could I have done to avoid this situation?

II. My Customer is Avoiding Payment by Making up Verbal Terms to our Contract, and Pulling Out a Side Letter from Them with Terms that were Later Re-Negotiated

a. Our contract to provide ½” gravel doesn’t specify a source where the granite must be purchased. Our customer sent us a letter on the contract date asking us to purchase it from his affiliate stone vendor. We called and said we couldn’t do that. He signed the contract anyway. Now he refuses to pay us, and says that we agreed to purchase the gravel from his affiliate, and that his letter was part of the contract documents. There is no “Merger Clause” or Integration Clause in the contract. What could I have done to avoid this situation?

b. Our contract to provide ½” gravel specifies granite, but does not specify a particular degree of hardness, which is usually specified. There were various letters going back and forth with different proposals, but the issue was never fully addressed in the contract. The contract does contain a Merger Clause, but our customer says we agreed to a harder grade than my last letter says we would provide. The Court has said that there is a genuine issue of fact, which means that summary judgment has been denied and now we’ll have to pay for a full-scale trial. We may have to settle for a fraction of what we are owed. What could I have done to avoid this situation?

c. After the contract was signed, my customer discussed with me his request that we finish work by May 1. I said I’d look at our schedules and let him know if it was possible, but I couldn’t promise. A week later I get a letter from him saying it confirmed our agreement to finish by May 1. I called him and said I couldn’t do it until May 10, but didn’t write back to him. Though we have an integration clause, our contract doesn’t address the question of how it can be amended (i.e., only in a writing signed by all parties to the contract). Now he says he’s entitled to a credit for delay damages. Can he cause me trouble? What could I have done to avoid this situation?

III. I Have a Dispute About Settlement of a Claim Against Which I Have Provided an Indemnity

a. As a subcontractor I provided an Indemnity in our contract to the general, providing that I would be responsible to the general for any claims made against the general contractor arising from the scope of work I performed for him. A claim was made, and the general wants to settle it for $50,000, whereas I believe that the amount is excessive. Although I have to pay the settlement, the general says that my consent to settle is not required. What could I have done to avoid this situation?

b. As a subcontractor I provided an Indemnity in our contract to the general, providing that I would be responsible to the general for any claims made against the general contractor arising from the scope of work I performed for him. I agreed to pay his attorneys fees. A claim was made, and the claimant is willing to settle for $15,000. I think this is an inexpensive way out of this mess, especially in view of the attorney’s fees I would have to pay. The general does not want to concede that there was anything wrong with the projects and refuses to settle. The general says I cannot force him to settle, even though I am paying. What could I have done to avoid this situation?