Monthly Archives: April 2014

Top Line: A Faint Heartbeat for “Implied Waiver”?

In an article I wrote in 2008 for the now-defunct Northwest Construction magazine, I called American Safety v. City of Olympia, a 2007 decision of the Washington Supreme Court, the “final nail in the coffin of implied waiver.” More than six years later, a new case might have me revise that pronouncement to the “next to last nail” instead.

Since 2003, construction lawyers and their contractor clients have had the Mike M. Johnson v. Spokane County decision of the Washington Supreme Court repeatedly beaten into their weary heads. We lawyers have come to believe it to be the next-to-the last word on the issue of a construction project’s owner’s ability to demand absolute adherence to a requirement that a contractor provide the owner with written notice of an intent to seek more money or time for any change that occurs on a construction project. When the court announced its decision in Mike M. Johnson, it appeared to many of us that a long line of authority that originally arose with decisions made before statehood by our Territorial Supreme Court was in grave danger. Those cases stood for the proposition that requirements for written notice in a construction contract were for “the convenience of the owner,” and could be waived in myriad ways, including by implication (course of conduct on the project, the owner ordering the work and clearly knowing the contractor was expecting more time and/or money, etc.). In Mike M. Johnson, a majority of our Supreme Court essentially said, “a deal’s a deal,” holding that requirements for written notice (and presumably requirements for written agreement on changes) in a construction contract were strictly enforceable absent some “unequivocal” indication that the owner had waived them.

The day that the Mike M. Johnson decision was announced was, by pure happenstance, the same day as the annual meeting of the Washington State Bar Association Construction Law Section. Members of our section who regularly represent public owners virtually danced into our meeting that day, while we who more regularly advise contractors were—to say the least—not happy with the decision. And since 2003, the Mike M. Johnson decision has been the subject of innumerable articles and Powerpoint slides produced by construction lawyers and experts. Several attempts to introduce anti-Mike M. Johnson legislation in Olympia have withered and died without passing out of committee. I believe many of us were convinced that it was authority here to stay, and we regularly told our clients, “whatever you do, get it in writing.”

In American Safety, the City of Olympia, having unilaterally closed a project after the contractor apparently went out of business, entered into post-contract discussions with the contractor’s surety, which asserted that it (standing it the shoes of its principal, the contractor) was entitled to extras under the contract. For a period of some months, the surety and the City exchanged information and negotiated about those changes. Then, citing to Mike M. Johnson, the City asserted that because neither the principal nor surety had given timely notice of the alleged additional costs, no right existed to request them. The surety sued, claiming that the City’s willingness to negotiate on a project it had closed was at least implied waiver of the notice requirements. But, the Washington Supreme Court disagreed, curiously holding that the City’s behavior in negotiating extras with the surety was “equivocal,” and therefore not “unequivocal,” leading to a Mike M. Johnson-like result. My take was that if opening a closed job and negotiating for a period of months was not “implied waiver” of the requirements for written notice, nothing ever would be, and therefore, I—somewhat boldly–announced that the nearly 150-year old concept of “implied waiver” was likely forever dead in Washington state.

But hold on there, Buckaroo. After Division I of the Washington Court of Appeals published its opinion in Top Line Builders v. U.S. Bank on March 10, it seems that “implied waiver” may actually have some life after all. Top Line involved a contractor’s attempt to foreclose a lien, which it had recorded for an amount including both the unpaid balance of its written contract, and an even larger amount of what it asserted to have been agreed-upon but unwritten change orders. U.S. Bank, the project’s lender, didn’t record its deed of trust (security for its loan) until after the contractor had begun its work, meaning that any proper lien recorded by the contractor would have priority in a foreclosure of the real property. The bank asserted that because the contract between the contractor and its customer required all changes to be in writing, the lien was only proper as to the unpaid amount of the written contract (the lien statute restricts liens to the “contract price”), and that the alleged change order amounts were not properly part of the lien (and therefore the amounts of those alleged changes were not superior to the bank’s priority), because the requirement for written change orders (and presumably the accompanying requirement for written notice) was not adhered to by the contractor. Essentially, the bank repeated the same rationale the City of Olympia had given the surety in American Safety.

I was surprised to see the Top Line Court cite a number of pre-Mike M. Johnson cases, holding that the requirements for written change orders could be “mutually waived” by the parties, including by a showing of “evidence that the owner authorized, permitted and/or directed” the extra work to be done. Ultimately, the court determined that the contractor and project owner had, in fact, waived the requirements for written change orders, and that the amounts for those changes were properly recoverable in quantum meruit. In holding that both the remaining contract balance and the quantum meruit change orders were properly part of the lien, the court interpreted the definition of “contract price” as set out in the lien statute, and specifically, the portion of that definition that says, “if no price is agreed upon, then [the contract price is] the reasonable and customary charge therefore.”

Needless to say, I was a little taken aback in reading the Top Line decision. Having written a number of articles touching on the Mike M. Johnson case over the years, Mr. Johnson and I have become occasional e-mail pen pals. After reading Top Line, I went back and reviewed the facts cited by the Washington Supreme Court in the decision that so dramatically impacted Mr. Johnson’s life (see the decision by Division III of the Washington Court of Appeals in Travelers v. Mike M. Johnson to learn about some of that impact). In his dissent in Mike M. Johnson, the late Justice Tom Chambers was concise: “…[Spokane County] directed the contractor to do additional work, was fully informed of all relevant information known by the contractor, and observed the contractor do the work.” Maybe I’m wrong, but I’d bet a dollar to a donut that had he known he could rely on the owner’s “direction” to do the added work as “evidence” of implied waiver by Spokane County (as the Top Line contractor did), Mr. Johnson would have been yelling “I was directed!” at the top of his voice in 2003.

But where does Top Line leave us we now? Are we back to a pre-Mike M. Johnson “implied wavier” possibility? My guess is, and my advice to my clients will be that we’re not. What’s not spelled out in the facts of Top Line is whether or not the contract specified that failure to comply with requirements for a writing waived any claim. That language not only appears in the WSDOT Standard Specifications, it is creeping into many private works contracts that are crossing contractors’ (and their lawyers’) desks today. Clearly, “better safe than sorry” remains the watchword today. I often tell my clients that in any aspect of their businesses, they take need to do all they can to give the other side with no reason not to pay. And, while many of us grew up on the handshake agreements that were regularly honored “back in the day,” in a post Mike M. Johnson world, getting it in writing still seems to be the surest way to get paid. In this century, anyway.