Another blog recently discussed five of their top Ohio construction cases of 2012. Rather than just rehash what’s already been written, we here at the Lien blog like to imagine how these cases would have been decided had they been about mechanics liens. Number three on the post discussed two cases. Both seemed to indicate that Ohio courts are now favoring extremely strict contract interpretation; or, ” what the parties agree to is what they get.” How would these cases have been decided had they revolved more around mechanics liens and no lien clauses in particular?
The Recent Cases
Although the facts in the two cases selected by the blog are very different the point is the same: In Ohio, contracts and contract wording will be interpreted very strictly.
In Ohio, contracts and contract wording will be interpreted very strictly.
The first case in which the court took an extremely strict view of contract interpretation is Ohio Farmers Insurance Company v. Ohio School Facilities Commission. In that case, a contractor’s assignee, a performance bond principal, sued the state school facilities agency for breach of contract and damages under breach of contract, quantum meruit, and unjust enrichment. (We’ve discussed what “quantum meruit” and “unjust enrichment” mean in another post.) In its claims, the plaintiff alleged that the Commission breached the contract by accelerating and then compressing the contract schedule and failing to release the entire contract balance and retainage amounts.
The actual issue before the court, however, was the defendant’s claim that the plaintiff could not bring any equitable claims (such as quantum meruit and unjust enrichment) because it failed to file these equitable claims with the architect and construction manager as specified in the dispute resolution procedure outlined in the contract. The defendant alleged that although the plaintiffs complied with the notice requirements of the contract provision, the plaintiffs never actually filed the claims themselves with the construction manager and architect. Therefore, the plaintiff could not later bring these claims to a court of law since it had already breached the contract by not following this procedure.
Since the plaintiff never actually filed any equitable claims with the construction manager, it could not later brings those claims to court.
Simply put, the lower court agreed with the defendant and the court of appeals affirmed: Since the plaintiff never actually filed any equitable claims with the construction manager, it could not later bring those claims to court so its lawsuit was dismissed.
In the second case, N.L. Construction Corporation v. Ohio Department of Administrative Services, the court took an equally strict view of contract interpretation. In this case, however, the contractor won summary judgment against the state agency, not the other way around.
The issue, in this case, was a provision in the contract between the parties which stated:
If the Contractor provides Defective Work or fails or neglects to perform the Work in accordance with the Construction Progress Schedule, the Contracting Authority may issue a written notice providing 3 days for the Contractor to begin to correct Defective Work or to recover schedule deficiencies [. . .]
In other words, if ODOT wanted N.L. to correct any of the work it performed, it should have notified N.L. of that need to do so within three days, presumably, of when ODOT discovered the defective work.
In this case, after N.L. allegedly performed defective work, ODOT terminated the contract without providing the three-day notice discussed above. Since the clause above contained permissive language, the court needed to determine whether the three-day notice was, in fact, mandatory.
Another so-called “canon” of traditional contract interpretation is that contract provisions aren’t evaluated in isolation; rather, the contract is read as a whole. In this case, other provisions in the contract rendered the three-day notice mandatory, prompting the court to conclude that sending such notice was a condition precedent to terminating the contract. Therefore, since ODOT did not follow the procedures for contract termination, its termination was invalid and it was liable for N.L.’s damages.
Both of these cases outline an extremely strict outlook on contract interpretation from Ohio courts.
Are These Claims Deadline Provisions Disguised No Lien Clauses?
In both of these cases, parties were prevented from bringing “claims” against another party because the procedural requirements as outlined in the contract for bringing claims were not followed.
Would this reasoning be extended, however, to the claims in a lawsuit to foreclose on a mechanics lien?
In an attempt to answer that question, let’s edit one of the contract provisions above for analysis. Imagine that the first provision only states that a party must bring a “claim” only if notice was filed within 10 days of the facts giving rise to the claim. Would this amended contract provision (and the second clause, by extension) just be no lien clause in disguise, and if the property owner alleged as much, would courts enforce them as no lien clauses?
Would these amended contract provisions just be no lien clauses in disguise?
The first question is: What constitutes a “claim”? The answer to this question is far from a cut-and-dried, with interpretations ranging from only refers to breach of contract claims, to all claims – whether in tort, contract, or something else.
Presumably, a breach of contract claim would be included in any definition of “claim”, so for our purposes, if a mechanics lien can be classified as a breach of contract claim (another potential point of contention) would Ohio courts enforce claim-timing provisions in a contract as de facto no-lien clauses given Ohio courts’ strict interpretation of contracts?
One on hand, it may seem unreasonable for courts to hold that claims deadline provisions prevent parties from filing some breach of contract claims, but not other breaches of contract claims. On the other hand, courts – and the law itself – have always treated mechanics liens as a special, more protected, area of law. Thus, courts may not extend claims deadline provisions as also bars to suits foreclosing on mechanics liens.
Neither Ohio courts nor any other state, so far as we can tell, have addressed this very specific issue. At this point, it would seem likely that Ohio courts would not enforce claim-timing provisions in a contract as de facto no-lien clauses because of other laws holding that no lien clauses must be expressly and unambiguously stated. Many courts in Ohio have consistently stated that in order for a no lien clause to be enforceable, it must be clearly stated and understood by both parties as a no lien clause. In all other cases, the no-lien clause is unenforceable.
Because the provisions above act as claim deadline provisions but do not specifically state that they are to be a no lien clause, Ohio courts would probably not extend these provisions to bar a party from filing and later suing to foreclose on a mechanics lien.