Norfolk Circuit Court: W.O. Grubb Steel Erection Inc. v. 515 Granby LLC
PrintContract - Construction Project - Financing
A Norfolk Circuit Court says the evidence indicates the owner terminated the contract for construction of Granby Tower because of inability to obtain financing, not for its convenience, and the court denies subcontractors' motions to overrule the owner's plea in bar.
The evidence at the hearing May 5-6 established to my satisfaction that the owner had made great efforts to secure financing for the project. Its efforts have been unsuccessful. The large hole in the ground at the corner of Granby Street and Brambleton Avenue and the evidence about the current conditions of the credit market convince me that financing will not be obtained and Granby Tower will not be built. The evidence also established that the owner has not terminated the contract for its convenience.
The subcontractors also allege the plea in bar ignores the legislative purposes of Va. Code § 43-7 because it is intended to protect an owner against having to pay twice and here the owner is trying to avoid paying once. The affirmative defense of § 43-7, on which the owner relies, states unambiguously that it shall be an affirmative defense to a suit to perfect a lien of a subcontractor that the owner is not indebted to the general contractor. Section 43-11 contains a similar provision. The subcontractors would have me add to those statutes provided the owner has paid the general contractor the contract price less credits and offsets. The General Assembly could have so provided.
It did not.
I deny the subs' motions to overrule the plea in bar.
Plaintiff Turner Construction claims that when the contract is considered as a whole the owner is obligated to pay. It also claims the owner has waived the defense of paragraph 1.1 of the contract or is estopped from relying on it.
I find the three paragraphs of the contract on which Turner relies can be harmonized with paragraph 1.1 to give effect to all. After the owner had received initial funding of the construction loan it would be obligated to pay Turner and to make progress payments. It is Turner's proposed interpretation of the contract, which would impose an unconditional obligation on the owner after it issued a notice to proceed, that would render a clause, that is, paragraph 1.1, of no effect. By its express terms, paragraph 1.1 applies to the Construction Phase.
Turner contends the owner impliedly waived its defense under paragraph 1.1. It bases its claim of waiver on the owner's issuance of the notice to proceed, its directions to continue the work and its approval of payment applications. I find as a matter of fact that the owner did not intend to relinquish its right by these actions. I find the owner issued the notice to proceed in the expectation its loan commitment would be funded, an expectation Turner shared. In the spring of 2007, neither the owner nor Turner saw the dark clouds over the financial horizon. Money was cheap, credit was easy and the good times would never end. Well, they did.
Further, the issuance of a notice to proceed cannot, under the terms of the contract, be a waiver.
I find the owner issued further directions to continue the work in the hope it would secure a loan. With respect to its execution of payment applications, each applicant conspicuously states "issuance, payment and acceptance of payment are without prejudice to any rights of the Owner or Contractor under this Contract. " Further, testimony that applications were approved so Turner could be paid quickly after the loan was funded, is completely credible.
The owner never represented its construction loan had been funded. The only representation of financial ability it made before issuing the notice to proceed was a commitment letter from which the amount of the loan and its term had been redacted. Given the size of the Granby Tower project, and the owner's limited prior development experience, both of which Turner knew, I find Turner did not act reasonably in relying on the commitment letter, especially given its rights under paragraph 3.1.2 of the contract. After issuance of the notice to proceed, the owner informed Turner of the delay in funding, its lender having reneged on the commitment, and its efforts to arrange funding from other sources.
I sustain the plea in bar.
W.O. Grubb Steel Erection Inc. v. 515 Granby LLC (Martin, J.) No. CL 08-3278, Aug. 14, 2009; Norfolk Cir.Ct.; Jeffrey H. Gray, Jeffrey M. Hummel, Jack Rephan for the parties. VLW 009-8-181, 6 pp.
