- Posted by Matt T. Paxton
- On March 11, 2014
On January 23, 2014, the Oregon Court of Appeals held that a general contractor’s offer to modify a subcontract upon acceptance by subcontractor was an insufficient form of tender to cut off the general contractor’s obligation to pay prejudgment interest.
In McDowell Welding & Pipefitting, Inc. v. U.S. Gypsum Co., U.S. Gypsum contracted with BE & K Construction (“BE & K”) to act as the general contractor for the construction of a new gypsum plant. BE & K subcontracted with McDowell Welding & Pipefitting (“McDowell”) to perform work on the project. During construction, BE & K asked McDowell to perform additional tasks with the promise to pay additional amounts. After the work was completed, the parties agreed to an adjustment of $800,000 for the additional work.
One day after the parties reached the agreement, BE & K sent McDowell a document entitled “Modification to Subcontract Agreement” (“Modification”), which stated, in part, the following:
Upon your acceptance hereof, this letter will constitute a Modification of the Subcontract previously entered into, dated August 7, 2000…. If the foregoing Modification is satisfactory to you, please note your acceptance thereof in the space provided below on all copies hereof. Please return all signed copies to us.
The purpose of the Modification to Subcontract Agreement was to memorialize the $800,000 agreement. McDowell did not sign and return the Modification, and later repudiated the settlement.
McDowell filed suit against BE & K and U.S. Gypsum, alleging, among other things, breach of contract. Defendants filed counterclaims seeking to enforce the oral agreement of $800,000 for the additional work. The trial court agreed with the defendants and held that the oral agreement was an enforceable promise to pay $800,000 in exchange for the additional work performed by McDowell. The trial court, however, refused to award prejudgment interest on that amount.
The issue of prejudgment interest eventually made its way to the Oregon Supreme Court, which held that the trial court should have awarded prejudgment interest. The case was remanded back down to the trial court in order to determine the amount of interest to be awarded.
On remand, the defendants argued that McDowell was entitled to only one day of prejudgment interest because the day after the oral agreement was reached, BE & K submitted a the written Modification promising to pay the additional $800,000. Pursuant to ORS 81.010, “[a]n offer in writing to pay a particular sum of money [is] equivalent to the actual production and tender of the money….” According to the defendants, the Modification constituted a tender and, thus, cut off any further obligations to pay prejudgment interest. McDowell argued that the Modification was not adequate tender and that defendants had not tendered payment until they deposited the $800,000 with the court clerk. The trial court agreed with the defendants, finding that the Modification was an adequate written tender of the $800,000 and that McDowell was entitled to only one day’s interest in the amount of $197.26.
On appeal, the Oregon Court of Appeals disagreed, finding that in order to substitute a written offer of payment for the actual production of money, the debtor must communicate a present offer of timely payment. The court found that the prospect that payment might occur at some point in the future is insufficient. Here, the Modification was not a present offer of timely payment because it was conditioned upon McDowell’s acceptance. Thus, the Court of Appeals held that the trial court erred and that McDowell was entitled to more than one day’s prejudgment interest.