Construction Company Mixes Balances Between Two Clients on Same Site |[OH CT APP]|

The owner of an industrial building leased part of its space to a tenant with a provision requiring that it construct certain improvements and alterations to the leased space. The lease included, however, a requirement for the owner to provide certain additional improvements to the space. A construction company (the “company”) contracted with both the owner and the tenant to complete various work on the leased space. Upon satisfactory completion, the company, based on the owner’s request, sent an invoice for work completed under both contracts to the owner with an amount of $147,772.20. The owner reduced the amount it believed to owe and sent an invoice to the tenant for the remainder. The tenant did not pay the company. The company brought suit for breach of contract, among other things, against the tenant and attached its invoice for job number 3273. Additionally, it placed a mechanic’s lien on the premises. The company also sued the owner because, as it assured the owner, it was a “formality” that would not cost the owner anything.

Prior to trial, all parties convened to settle the dispute over who owed what to the company. Entering mediation, the company asked the owner to pay $30,000 to leverage the tenant to pay more. The mediation resulted in a tentative agreement for the tenant to pay $110,000 and the owner $35,000. Afterwards, the owner and company agreed that the owner would pay $30,000 instead, and that the mechanic’s lien would be lifted. When the owner’s counsel delivered the $30,000 payment to the company’s counsel, he was handed a letter identifying an additional $54,000 that was due from the owner and required the owner’s counsel to write “confirm” on the letter. Days later, the owner informed the company that there was no agreement to pay an additional $54,000. The parties filed for motions to enforce the mediation settlement and entered into a Mutual Release of All Claims. The Release reiterated the terms of the mediation record, but excluded “any existing obligation of [the owner] to [the company]…as between those two parties.” The owner conceded that it still owed the company money, but there was disagreement over the amount. While the owner argued that its $30,000 payment went toward its balance with the company, the company claimed that that money went toward its tenant’s balance.

The case proceeded to trial where the court found the language within the Release to be ambiguous and permitted the owner to bring extrinsic evidence. The owner testified that it believed that any payment it made was toward its balance since the company assured it that the lawsuit would not cost the owner anything. Furthermore, the owner stated that the company’s request of the owner to agree to pay $30,000 at mediation to leverage the tenant was distinctly separate from the tenant’s obligations. The trial court concluded that the $30,000 was credited toward the owner’s balance with the company. The company appealed.

In SPG, INC. v. FIRST ST. DEV., L.L.C., 2016-Ohio-2824, 2016 WL 2346989 (Ohio Ct. App. Stark County May 2, 2016), the court of appeals affirmed the trial court’s decision. The company contended that the Release unambiguously demonstrated that the $30,000 payment was made in consideration for the dismissal of the case against the tenant, not the owner. To support its assertion, the company brought the appellate court’s attention to the different charges based on different job numbers. The company assigned job number 3273 to the tenant and 3269 to the owner. The appellate court, however, rejected considering the evidence because it was not brought up at trial. Thereafter, it found no definition or explanation of the meaning of “any existing obligation” in the Release and subsequently found it to be ambiguous.

The company also contended that the subsequent meeting between its counsel and the owner’s counsel constituted a post-mediation settlement agreement requiring the owner to pay an additional $54,000. It claimed that by writing “confirmed” on the letter identifying the $54,000 payment, the owner agreed to the new settlement term. In rebuttal, the owner’s counsel claimed that he was pressured into writing something for which he was not authorized. The appellate court found that the trial court did not abuse its discretion by finding that the meeting did not constitute a settlement.

Best Practices:

1. Contractors, beware of requests to send invoices to one owner when multiple clients are individually paying for your services on the same site – It is a safer practice to send invoices to each individual client paying for services on the same site. Depending upon one of them to disburse invoices creates additional points where relationships can breakdown.
2. Keep separate job numbers for separate owners and include all when seeking payment – The court might have been more willing to find the Release to be unambiguous had the company brought evidence of the separate job numbers at trial.
3. Specify included and/or excluded obligations, if any, in release agreements amongst parties – Although it might seem clear to you which obligations exist between others and yourself, your counterpart might not see it the same. Throughout contracts, it is beneficial to specify terms as a general practice. In release agreements, it is imperative that anything you wish to exclude from such a release is specified.
4. Construction lawyers, do not agree to terms for which you are not authorized – It is common knowledge amongst lawyers that one is bound by the authority granted by clients. However, pressures from either side can easily affect your common sense.

– Christian H. Robertson II

All materials have been prepared for general information purposes only to permit you to learn more about construction law. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.