Elec-Trol, Inc. v. C.J. Kern Contractors, Inc.

Brief Fact Summary.

Plaintiff sued Defendant for additional compensation for its work. The trial court granted Defendant’s motion for summary judgment. Plaintiff appealed.

Synopsis of Rule of Law.

A contract term requiring an architect or engineer’s approval before a contractor may be paid is a binding condition precedent to the contractor’s payment.

Facts.

Elec-Trol, Inc. (Plaintiff) was a subcontractor for contractor C.J. Kern Contractors, Inc. (Defendant) on a project for North Baptist Hospital, Inc. Under the terms of the contracts between (1) Plaintiff and Defendant and (2) Defendant and the hospital, if there were additional costs for the project and the hospital and Defendant could not agree on the amount to adjust the contract for those costs, the adjustment amount was to be determined by the project’s architect. Plaintiff sued Defendant for additional compensation for its work. The trial court granted Defendant’s motion for summary judgment. Plaintiff appealed.

Issue.

Whether a contract term requiring an architect or engineer’s approval before a contractor may be paid is a binding condition precedent to the contractor’s payment.

Held.

Yes. The trial court’s ruling is affirmed. A contract term requiring an architect or engineer’s approval before a contractor may be paid is a binding condition precedent to the contractor’s payment.

Discussion.

In North Carolina, a contract term that requires the architect or engineer’s approval before a contractor may be paid is binding. Such a term acts as a condition precedent to the contractor’s payment, even if the architect or engineer is employed by the property owner, unless the architect or engineer has agreed to keep the cost of work below a certain amount without the contractor’s knowledge. Under those circumstances, the architect or engineer acts as the sole arbiter of the parties, and the parties are bound by his decision in the absence of bad faith, gross mistake, or fraud. Here, there is no allegation that the architect’s decision regarding the additional costs due to Plaintiff was the result of bad faith, gross mistake, or fraud. Plaintiff also cannot recover the reasonable value of its work based on a theory of quantum meruit, because there is an express contract term governing the issue of additional costs. An express contract precludes an implied contract in relation to the same subject matter. Because the parties agreed that the architect was to determine the adjustment amount, Plaintiff is bound by that agreement.