Terms of Subcontract Signed After a Project is Complete Can Be Applied Retroactively

Dec 28, 2017

Conditions precedent must be proven.  

An article in Florida Construction Update by Sanjo S. Shatley contains a detailed account of Fifth District Court of Appeal’s decision in Don Facciobene, Inc. v. Hough Roofing , Inc., Case Nos. 5DI5-1527, July 21, 2107, in which the court “addressed the issue of retroactive application of a construction subcontract on the basis of a merger clause…”

Don Facciobene, Inc. (DFI), a general contractor, hired Hough Roofing, Inc. (HRI) to perform the roofing required for the renovation of a building in Melbourne, Fla. Mr. Shatley explains in detail the contractual and working relationship between the two companies that led to the case before the Florida Court of Appeal.

To summarize briefly—“DFI’s project manager signed HRI’s proposal” before HRI began its work. “According to the proposal…payment was due on completion. HRI began work on the roof on April 15, 2011, without a signed subcontract. However, DFI and HRI ultimately executed a subcontract on June 8, 2011, even though HRI had mostly finished its work by the end of May.” The payment terms for the subcontract were significantly different from those in the proposal.

A dispute arose and DFI refused to pay HRI. DFI claimed it owed HRI nothing because the roofer breached the terms of the post-completion subcontract agreement. DFI claimed the subcontract was invalid because it had substantially completed its work before the agreement was executed.

The trial court ruled in favor of HRI but agreed with DFI that the amount they owed HRI should be reduced because the roofer had not complied with several “unspecified conditions precedent.”

The Court of Appeal reversed the lower court’s ruling “holding that the trial court’s decision not to apply the subcontract retroactively was error in light of the merger clause contained in the subcontract. The Fifth District reasoned that the merger clause required retroactive application because it acted to replace the original contract with the new one.”

However, the court also found that retroactive application of the subcontract did not bar “HRI from receiving any payment at all due to HRI’s failure to comply with the conditions precedent.”

Although the Court of Appeal ruled in favor of DFI based upon the application of legal precedent, it, in essence, granted HRI equitable relief because DFI failed to provide sufficient evidence of HRI’s failure to comply with the conditions precedent.

Source—

Retroactive Application of a Construction Subcontract Containing a Merger Clause? Florida’s Fifth District Court of Alleal Answers in the Affirmative, Sanjo S. Shatley, Florida Construction Update, Aug. 25, 2017.