Recent Court of Appeals Decision Finds in Favor of Contractor With Respect to Mechanic’s Lien’s Priority Over Lender’s Deed of Trust Based on Six-Hour Time Difference and Unsigned 18% Interest Provision—Part II: Interest
- Posted by Lindsay K. Taft
- On November 5, 2015
In Part I of this two part article, we addressed a recent Division 2, Court of Appeals case that addressed two issues of first impression: (1) whether a voluntary release of an earlier lien precludes filing of a second lien, and (2) whether an interest provision requires that the contract be signed. [i] Ultimately, the Court held that the contractor was not precluded from filing a second lien despite the earlier release and, therefore, the contractor’s lien had priority over the lender’s Deed of Trust based on work completed by the contractor just six hours prior to the lender recording the Deed of Trust. As discussed in more detail below, the Court also held that the contractor was entitled to interest despite the fact the interest provision was unsigned.
The lawsuit at issue involved a lien foreclosure suit filed by Shelcon Construction Group, LLC, against a real estate developer, Scott Haymond, to foreclose Shelcon’s lien for earthwork, excavation, demolition, clearing, and grading work for a commercial building development project. Shelcon also sought interest against Haymond at the rate of 18%. Shelcon’s basis for interest was not Shelcon and Haymond’s initial contract, but a subsequent contract sent by Shelcon to Haymond halfway through Shelcon’s work. Specifically, during the course of construction, Shelcon sent a letter and contract to Haymond that summarized Shelcon’s work to date and Haymond’s payments to date. It also set out changes to the scope of work and payment terms, including that future extra work would be paid at cost plus 15% and that overdue payments would accrue interest at 18%. Finally, it included a provision that the new contract represented the final agreement between the parties and superseded all prior negotiations, representations, agreements, etc.
While neither party signed the contract, the parties discussed it, and Haymond did not object to the new terms. More importantly, after the date of the subsequent contract, Shelcon began to charge Haymond cost plus 15% for all extra work and Haymond, consistent with the new terms, paid this amount.
Despite this agreement, as part of the lien foreclosure lawsuit, Haymond objected to the 18% interest sought by Shelcon because the subsequent contract was unsigned. In a case of first impression, however, the Court affirmed the trial court’s ruling that Shelcon was entitled to 18% interest because the parties agreed to it in writing.
The Court reasoned that RCW 19.52.010(1) provides “[e]very loan or forbearance of money, goods, or things in action shall bear interest at the rate of twelve percent per annum where no different rate is agreed to in writing between the parties,” but does not expressly require a signature. The Court next turned to the doctrine of part performance, holding that unsigned contracts, even when a signature is required, may still be enforced when it is clear from the parties’ actions (partial performance, course of conduct, etc.) that such a contract existed. In this case, because Shelcon sent the writing including the 18% interest to Haymond and Haymond, without objection, partially performed the other terms of the writing, including the revisions to the scope of work and payment terms, Haymond’s conduct constituted agreement to the other terms of the agreement, including the 18% interest provision. Therefore, the Court held that “where the interest term is in writing, and the debtor partly performs the provisions in the writing, RCW 19.52.010 is satisfied,” and the interest term is enforceable. Shelcon was, thus, entitled to the 18% interest.
Comment: This case is an important reminder that, in certain circumstances, a party may be bound based on its course of conduct. As a practical pointer, if there are contract provisions, payment terms, etc., provided by another party during the course of a project (via change orders, invoices, email, etc.), you should be sure to clearly object (in writing) to any terms or provisions to which you do not agree. Otherwise, should you partially perform (e.g., pay an invoice, perform the work, etc.), the additional, objectionable term may also apply. A good example of this are invoices that provide for interest on late payments. Under the Shelcon case, there is a strong argument that if an interest provision is repeatedly included on invoices and the other party does not object and pays the amounts due without protest of the interest term, that party’s part performance constitutes acceptance of the payment amount and interest provision.
[i] Shelcon Const. Grp., LLC v. Haymond, 187 Wn. App. 878, 351 P.3d 895 (2015).