Missouri Court of Appeals Reverses Trial Court Decision That Subcontractor Could Claim Damages From a General Contractor Despite a “No Damages for Delay” Provision in the Subcontract Agreement

Roy A. Elam Masonry, Inc. v. Fru-Con Construction Corporation,
1996 Mo. App. LEXIS 481 (March 26, 1996).

On November 14, 1988, the general contractor, Fru-Con Construction Corp. (Fru-Con) entered into a construction contract with Southwestern Redevelopment Corp (SRC), the owner. In early 1989, Fru-Con and a subcontractor Roy A. Elam Masonry (Elam) entered into a subcontract for masonry work to commence September 1, 1989 with a completion date of July 1, 1990.

The terms of the General Contract were incorporated into the subcontract; however, the Subcontract also provided; “In the event of conflict between the contract documents and this subcontract, the provisions of this subcontract shall govern.” And included Article 3(c):

“Should Subcontractor be delayed by any act or omission of Contractor … or by any other cause beyond Subcontractor’s control and if the cause of delay is not due to any act or omission of Subcontractor, Subcontractor shall be entitled to request a reasonable extension of time … No payment of any kind, for compensation, or for damages, or otherwise, shall be made to Subcontractor … unless Owner is obligated to pay Contractor compensation or damages …”

Fru-Con encountered various problems prior to September 1, 1989, which greatly delayed the start of the subcontract. These schedule extensions resulted in Elam not beginning its work under the subcontract until November 1, 1990 – a delay of 14 months.

In March 1991, Elam sent to Fru-Con a “formal request for an equitable adjustment to our contract … based on the delay in the project that has caused us to incur unanticipated costs”. Fru-Con replied to Elam by informing them that their claim had been forwarded to SRC, and directed Elam to the terms of the subcontract.

In August 1991, Elam asserted that they were entitled to compensation due to the 14 month delay which was beyond Elam’s control, unreasonable in duration, and were beyond the contemplation of the parties. Elam stated that there was a significant body of case law (from jurisdictions outside of Missouri) indicating that under these conditions, a “no damages for delay” clause is legally unenforceable.

On July 23, 1992, Elam filed suit against Fru-Con for breach of contract requesting damages for costs caused by delay. Fru-Con answered by saying their damages was precluded by the subcontract. On August 3, 1992, Fru-Con filed a petition against SRC seeking damages (including Elam’s claim).

The trial court directed the jury that the issue raised by subcontract clause 3(c) was withdrawn from the case and should not be considered. Fru-Con appealed alleging that the trial court erred in removing Article 3(c) from the jury’s consideration. The Court of Appeals of Missouri agreed with Fru-Con’s contention, stating that the record showed that Fru-Con included Elam’s claim for damages in it own claim against SRC, which was still pending. Elam’s action was, at best, premature.

The Court of Appeals noted Article 3(c) was not, in fact, a “no damage for delay” clause at all. Elam was not absolutely barred from seeking damages for delay, but could recover, through Fru-Con, its share of those delay damages for which SRC is liable. Elam’s right to recover delay damages was, and is, contingent upon the success of Fru-Con’s pending action against SRC.

The court saw no reason why this unambiguous provision could not be enforced as written. The subcontract was agreed to by two experienced commercial entities, in equal bargaining positions. Its terms were readily ascertainable, and applied to all delays, regardless of whether the delay was contemplated or reasonably foreseeable by the parties. Elam could still recover delay damages if SRC were obligated to Fru-Con for the same; its right to seek such damages has not been extinguished. Therefore, the judgment of the trial court was reversed and the cause was remanded for dismissal of Elam’s action as premature.

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