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Construction Law Today

Construction Contract Requires Written Invoice Before Owner Must Pay Contractor: Kasinecz v. Duffy

Posted in Completion, Illinois, Mechanics Liens, States, Uncategorized

Chute removing demolition debris from high window out to dumpsterA panel of Illinois Appellate Court justices recently reminded contractors: if you want to get paid, comply with your contract. That reminder—along with some other interesting things to remember—comes in this decision: Kasinecz v. Duffy (PDF).

Kasinecz v. Duffy Backstory

Kasinecz v. Duffy starts as an owner and prime contractor contract to renovate a building. Their contract says that interim—monthly—payments are due from owner to contractor “upon invoicing.”

As often happens, as the renovation work progresses, things start to go badly, fostering suspicion, polarizing owner from contractor, and vice-versa. A principal polarizing force: the owner’s response to contractor payment requests—the owner stops paying. The owner contends that the contractor hasn’t submitted invoices as the contract requires, and so the owner isn’t obliged to to pay. Payments stop. The contractor gathers-up tools, equipment, and material, then abandons the work still in progress.

Contractor Claims

Departed and still unpaid, the Contractor sues the owner:

  • For breaching their contract

  • For quantum meruit (a contract substitute imposed by judicial equity)

  • To foreclose a mechanics lien securing the debts represented by the the breach of contract and quantum meruit claims

At a bench trial, Judge Bonnie Wheaton hears evidence and decides for the owner. She finds the contractor breached the contract first, by insisting on payment but not submitting the contractually mandated invoices. The contractor appeals.

Breach of Contract Claim

On the breach of contract claim, the justices hold that the owner was not obliged to pay the contractor until after the contractor submitted a written invoice requesting payment. By insisting on payment without first delivering invoices—and then abandoning the work when payment didn’t arrive—the contractor breached the contract first, and the contractor’s breach excused later breach by the owner (if the owner breached at all).

At trial, the contractor testified that he submitted “verbal” invoices. But he couldn’t identify what composed those invoices. Judge Wheaton held that the the contract language requiring—“invoicing”—before payment was due, requires written invoices. On appeal, the justices affirm Judge Wheaton’s holding. Invoices means written invoices.

The contractor counters that responding to earlier interim payment requests before things went bad, the owner never asked for a written invoice, yet still paid. So, the contractor urged, a written invoice isn’t necessary to trigger the owner’s duty to pay. But the justices reject this argument. They explain:

  • Whether the owner requested a written invoice is irrelevant. The contract requires a written invoice before payment and no payment is due without one. The contractor abandoned the work because the owner refused to pay. But the owner was justified because the contractor hadn’t delivered a written invoice

  • The contractor confuses two separate things:

    • The publicly imposed duty to submit a “sworn statement” under § 5 of the Mechanics Lien Act. A duty triggered only after an owner requests a sworn statement. The owner here must ask for a sworn statement before the contractor is obliged to submit one

    • The privately assumed duty to submit written invoices that the contractor assumes in the contract. The owner separately request invoices after entering into the contract. The requirement in the contract that owner and contractor sign is request enough

  • Responding to earlier payment requests, the owner did pay without getting a written invoice. This suggests that, perhaps, the owner waived the contract’s written invoice requirement. A potent counter. But because the contractor didn’t raise it on appeal, the justices didn’t consider it

Quantum Meruit Claim

The justices observe that quantum meruit is an equitable contract substitute. Under select circumstances, it allows a provider of goods or services to recover for the value they provided when they have no contract with the recipient of their goods, services or both. Here, this contractor has a contract. It’s with this owner. And it’s for this work. At trial, existence of that contract stops Judge Wheaton from granting quantum meruit relief to the contractor. The justices affirm.

No Mechanics Lien

The justices hold that because the contractor didn’t complete the renovation work, the contractor isn’t entitled to a mechanics lien securing the owner’s debt to pay for labor, material, equipment, etc. that went into the pre-abandonment renovation work.

The justices explain that to secure that debt with a mechanics lien, substantial performance of the contract—that is, substantially completing the renovation work—is the price of admission. Full performance isn’t necessary; substantial is enough. But the justices catalog how the contractor didn’t come close on this project. They recount trial evidence showing that when the contractor abandoned the work:

  • Only framing and sheathing of walls is complete

  • Although roof installation is “largely complete,” the roof still has openings to the elements

  • Doors and windows are missing

  • No mechanical equipment is installed

  • Interior finish work hasn’t started

On that evidence, Judge Wheaton held that the contractor hadn’t substantially performed under the contract (nor substantially completed the work that contract required). And on appeal, the justices affirm.

Other Issues

The justices also rebuke the contractor’s lawyer (and the contractor) for accusing Judge Wheaton of prejudice against them. Despite accusations of prejudice, the contractor never moved to substitute another judge for Judge Wheaton and never identified particular facts supporting their prejudice accusations (other than judicial rulings against the contractor). The justices remind the contractor’s lawyer—and everyone else—that judicial rulings alone nearly never qualify as judicial bias for, or prejudice against, admonish him against similar accusations in the future.

Conclusions, Observations, and Lessons

  • If you want something written—e.g., invoices, certifications, approvals—it’s usually best to have your contract say that. The owner came out OK without that here. But usually contractual language at the start works better than judicial ruling near the end

  • If your contract says you’re supposed to do something, do it. If you don’t want to do it, or can’t do it, you’re usually better off approaching your counterparty and asking them waive it, or amend the contract to remove it, instead of just not doing it unilaterally

  • If your contract requires your counterparty to do something, they don’t do it, and you don’t insist on it, you may have waived. You may regret that waiver one day. Here the owner got lucky, dodging a potent defense because the contractor didn’t raise it. That doesn’t happen often. And if you’ve let a requirement go unfulfilled and want to reinstate it, consider the better practice: give your counterparty formal notice under your contract that although you’ve let it go in the past, in the future, you require strict compliance

  • If you provided labor, materials, equipment, etc., haven’t been paid, and want that debt secured by a mechanics lien, at least in Illinois you’ll have a lot less trouble if you substantially complete your work

  • Eschew unsupported accusations of judicial prejudice and bias. If there are particular and reasonable facts—besides ruling not going your way—that suggest your judge is prejudiced against you, or biased to favor your opponent, moving to substitute with as much detail as you can muster is the way to go. And if you can’t muster much detail, maybe you should reconsider whether it’s the judge, or you