Minnesota Court of Appeals Affirms Summary Judgment rulings that the assertion of a right to liquidated damages was a “claim” under a contract and therefore governed under the time limits for asserting claims; and, an owner waived its right to enforce completion date by requesting changes in the construction after the scheduled completion date had passed

A. Hedenberg & Co., Inc., v. St. Luke’s Hospital of Deluth,
1996 Minn. App. LEXIS p. 379 (Minn. Ct. App. April 2, 1996)

In July 1992, St. Luke’s Hospital of Deluth (“Hospital”) contracted with A. Hedenberg & Co., Inc. (“Contractor”) to build a hospital addition. The contract provided for a 240-day construction period and allowed $500 per day as liquidated damages for work not completed within that time period. The contract also included a provision entitled “Claims and Disputes,” and defined claim as:

a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of contract terms, payment of money, expenses and time or other relief with respect to the terms of the contract. The term “claim” also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract. Claims must be made by written notice.

The contract further required the claimant to submit written notice within 21 days after the occurrence of the event giving rise to such claim or within 21 days after the claimant first recognized the condition giving rise to the claim, whichever was later. The scheduled completion of the construction project was March 8, 1993.

During the course of the project, ten change orders were executed, all at the Hospital’s request. Each change order indicated that the contract time was to remain unchanged. However, three change orders were executed after the scheduled completion date of March 8, 1993 and increased the total value of the contract by nearly $50,000.

Substantial completion was achieved on August 27, 1993. On September 7, after receiving the final payment request, the Hospital claimed an entitlement to liquidated damages because the project was completed 180 days late and informed the Contractor that it would be withholding $90,000 from future payments. Contractor subsequently sued the hospital.

The Contractor moved for summary judgment on two grounds: first, that the Hospital’s claim for liquidated damages is barred because it was not timely asserted under the “Claims and Disputes” provision of the contract; and, second, the Hospital waived the right to enforce the scheduled completion date because it requested change orders after that date. The District Court granted the Contractor’s motion on both grounds and the Hospital appealed.

The Court of Appeals initially found that the contract defined “claim” very broadly. Given the terms a plain and ordinary meaning, the Court found that the Hospital was making a “demand or assertion. . .seeking, as a matter of right. . .payment of money.” Indeed, the Court noted that the Hospital’s director of facility used the word “claim” numerous times in referring to the Hospital’s attempt to assess liquidated damages. Against this back drop, the Court held that the Hospital’s attempted assessment of liquidated damages was a “claim” subject to the time limits contained in the “claims and dispute” provision of the Contract.

Because the Hospital failed to provide written notice of its “claim” for liquidated damages within 21 days, as it was required to do under the contractual notice provisions, the Court found that the trial court properly ruled that the Hospital failed to provide the required notice of its claim. The Court rejected the Hospital’s argument that the claim did not arise until the project was completed because that is the point at which damages could be fixed or determined. In particular, the Court found that the contract plainly allowed the Hospital to begin withholding payments the moment the scheduled completion date had passed, which was on March 9, 1993. The Court also focused on the fact that the project’s architect testified that the Hospital had discussed with him, and was contemplating a claim for, liquidated damages as early as October 12, 1992, five months before the scheduled completion date.

The Court also affirmed that by requesting change orders after the scheduled completion date, the Hospital “waived” the right to enforce the scheduled completion date. Borrowing from Texas law, the Court held that the Owner may waive or extend the time within which a building contract is to be performed by the Contractor. The waiver or extension may be implied as well as expressed. However, if after the time for completion of the work has expired, and the owner assents the continuance of the work without objection to the delay, he will be deemed to have waived the provision as to time of performance.

The Court found that it was undisputed that the Hospital executed three change orders after the scheduled completion date. The Court further found that there could be little doubt that the Hospital realized that the completion date would be delayed even further by the requested changes. Against this backdrop, knowing the completion of such change orders would run beyond the completion date of the contract, and giving some change orders after that date, the Hospital had waived its right to enforce the completion date and the resulting retention of moneys for failing to complete on time.

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