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October 2nd, 2017
construction
FIFTH DISTRICT COURT OF APPEAL OF FLORIDA HOLDS THAT SUBCONTRACTS CONTAINING MERGER CLAUSES WILL APPLY RETROACTIVELY TO DATE WORK FIRST COMMENCES AND FAILURE TO ADEQUATELY PLEAD DEFENSE RAISING FAILURE TO COMPLY WITH CONDITION PRECEDENT ACTS AS BAR TO THE OTHERWISE VALID DEFENSE

In Don Facciobene, Inc. v. Hough Roofing, Inc., No. 5D15-1527, 2017 WL 3091578 (Fla. Dist. Ct. App. July 21, 2017), the Fifth District Court of Appeal of Florida held that although a valid merger clause in subcontract signed after the subcontract was almost completed, it applied retroactively to the date work first commenced.  However, the Court held that failure by general contractor to plead an affirmative defense regarding a condition precedent in the subcontract with enough specificity and particularity as required under Florida Rules of Civil Procedure barred it from relying upon what otherwise would have been an enforceable provision of the subcontract and, thus, the general contractor was required to pay the subcontractor in full. 

Don Facciobene, Inc. (DFI) was hired to complete renovations on a historic home. Part of its work included replacing the roof. DFI subcontracted the roofing work to Hough Roofing, Inc. (HRI). HRI provided an estimate and proposed statement of work to DFI in mid-March 2011. DFI's project manager signed HRI's proposal on April 5, 2011, as well as an additional expanded proposal on April 11, 2011. The proposals stated that payment was due on completion. HRI began work on the roof on April 15, 2011. However, the parties did not actually sign the subcontract until June 8, 2011, and, by that time, the project was nearly complete.

Per the subcontract, rather than being paid upon completion, HRI was due progress payments for work completed on a monthly basis, with final payments due thirty days after completion. The subcontract also imposed several conditions precedent to obtain progress payments and final payments, including DFI obtaining full payment from the Owner for work completed. HRI had mostly finished its work by the end of May 2011, and on June 8, 2011, it submitted its first “final” invoice for $22,370. Due to disputes over some of HRI's charges, DFI never paid HRI anything for its work even though it received payment from the Owner for the roofing work on July 15, 2011.

The trial court found that because the parties had not signed the subcontract until June 8, 2011, at which point in time HRI's performance was more than ninety percent complete, HRI was not required to retroactively apply the language of the subcontract to any work performed prior to that date. It therefore entered judgment in favor of HRI and ordered DFI to pay HRI for all work performed.  DFI appealed the judgment, arguing that the trial court erred in not retroactively applying the terms of the subcontract and barring recovery by HRI due to noncompliance with the conditions precedent to receive progress payments and final payment. 

The Court of Appeal agreed with DFI that the trial court erred in failing to apply the subcontract retroactively. It held that because the fully executed subcontract contained a merger clause, HRI agreed to be bound to the terms of the subcontract for all work completed, even prior work. Despite coming to this conclusion, the Court of Appeals nonetheless concluded that regardless of whether or not HRI had complied with the conditions precedent agreed upon, DFI was estopped from raising this argument and HRI was due payment in full.

In reaching this outcome, the Court determined that DFI had failed to properly preserve its right to demand proof that HRI complied with the conditions precedent to progress payments and final payment as required pursuant to Florida Rule of Civil Procedure, Rule 1.120(c). Rule 1.120(c) requires a party to provide specific notice of which condition precedent it claims was not followed and how the opposing party failed to comply with it.  In light of DFI’ failure to provide adequate notice, the Court held that HRI was entitled to recover the full amount called for under the subcontract.

This case is important for two reasons. First, in Florida, should a subcontractor begin work prior to executing a final agreement, and if the ultimate agreement includes a merger clause, the subcontractor must ensure all prior work complies with the conditions called for under the subcontract, not just work completed after the date of execution.  Second, this case is a good reminder of the importance of including specific affirmative defenses in initial pleadings or shortly thereafter. Failure to do so could result in a party who otherwise may have a valid defense being precluded from advancing it at trial or on appeal.

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