What is omitted from a written contract is often just as important as what is included. At least, that is the lesson recently learned by one Iowa contractor. In a recent decision, the Iowa Court of Appeals held that a contractor could not foreclose its mechanic’s lien because the contractor had not timely performed the work required by the parties’ written contract, even though the written contract was silent as to a completion date.
In this case, the owner and contractor entered into a written contract for exterior improvements to a commercial building. The owner later terminated the contractor for failing to timely complete the project. In response, the contractor filed a mechanic’s lien against the property and subsequently filed suit to foreclose its lien.
At trial, the owner argued that a condition of the contract was that the contractor promised to have the work completed by a specific date and that when he failed to do so, the owner justifiably terminated him. The contractor disputed that he agreed to this time frame and presented the written contract which did not contain any provision concerning when the work needed to be completed.
As noted by the Iowa Court of Appeals, a contractor needs to show substantial performance of the contract to enforce a mechanic’s lien. An exception to this requirement is when the contractor’s inability to complete the project was due to the owner’s obstruction or delay. The contractor contended that his lien was enforceable and that he had met the substantial performance exception because the owner prevented him from completing the project (due to the alleged wrongful termination).
After hearing testimony from the contractor and owner, the trial court found the owner’s testimony more credible and held that the orally “agreed” upon completion date was an important term and inducement for execution of the contract, despite the date not being included in the written contract. Accordingly, the appellate court held that the contractor had not shown that he came within the exception to the substantial performance requirement and therefore could not enforce his lien.
An important takeaway from this case is that even if your contract does not provide a completion date, an owner may attempt to and may successfully argue that the parties had orally agreed upon a completion date. To prevent this from happening to you, take the time to draft a fully integrated contract that contains all of the key terms (including time) and conditions for your performance.
If you have any questions or need assistance, please contact one of Woods Aitken’s Construction Attorneys. For additional construction news, tips, and updates, we encourage you to view our Construction E-Brief archives.