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Indiana

Bankruptcy; Contracts

Weigand Const Co v Stephens Fabrication Inc, 929 NE2d 220 (Ind Ct App, 2010).

Facts:In 2002, Ball State University hired Weigand Construction Company (Weigand) as general contractor to build the Music Instruction Building (the Project). Weigand accepted a bid, confirmed by a purchase order on May 1, 2002, from Stephens Fabrication, Inc. (Stephens) for steel construction. The purchase order acted as the contract between Weigand and Stephens. It contained a "flow down provision" applying the terms of the Weigand-University contract to the relationship between Weigand and Stephens. The Weigand-University contract included a claim provision stating that claims for payment in addition to the amount agreed upon must be made in writing within 21 days of the event, or 21 days of becoming aware of the condition, giving rise to the claim.

To accomplish its task of fabricating and providing the steel for the project, Stephens hired two subcontractors: Cecil Wilson and Argo Engineering. In June 2002, the University's architect made changes to the design of the project's steel trusses. These changes were passed to Weigand, who passed them to Stephens, who passed them to Wilson. Subsequently, Wilson and Argo determined that the changes would require significant revisions in their own calculations. Neither Wilson nor Argo communicated this necessity to Stephens.

On April 23, 2003, a Stephens employee orally informed Weigand that the project would require significantly more expense than originally expected. This communication was followed up in writing on May 28, 2003. Weigand instructed Stephens to continue work and promised to inform the University of the changed circumstances. However, the University denied the claim on the ground that it was late under the claim provision.

On September 3, 2004, Stephens filed a suit against Weigand, the University and Ohio Farmers' Insurance (Weigand's surety). Stephens later filed for bankruptcy and its claims in the suit were deemed intangible assets of Stephens. The bankruptcy trustee eventually labeled them "fully administered" which Weigand believed meant that Stephens could no longer pursue the claims. However, the court ruled on April 9, 2008, that the trustee abandoned the claims back to Stephens, which could now pursue them. Weigand appealed that order in the instant case.

Additionally, on January 6, 2009, the court granted summary judgment to Stephens and later awarded it $268,179.85 in damages, of which approximately $40,000 arose under sums left unpaid under the base contract, with the balance being for additional sums claimed by Stephens. Weigand appealed that decision in the instant case, while Stephens cross appealed the exclusion of prejudgment interest.

Holding:Affirmed in part, reversed in part, and remanded. First, the court weighed whether Stephens' claim was barred because it was extinguished while in the control of the bankruptcy trustee. A bankrupt party's assets, including pending claims, are transferred to a trustee. The party may not pursue these claims unless they are abandoned back to them by the trustee. In this case, the trustee marked the disputed claim as "fully administered" and did not check a box among the bankruptcy forms labeled "abandoned." Nevertheless, the trustee submitted an affidavit stating his intent to abandon the claims back to Stephens. The court found that "fully administered" was not an exclusive category from abandonment, so in this case where the trustee intended to return the claims to Stephens, the best practice would have been to check both boxes. In any case, the court found that extinguishing Stephens' claims under these facts would elevate form over substance, so the claims remained enforceable.

Second, the court determined that Stephens' claim was untimely under the Weigand-University contract, adopted via the flow down provision to the agreement between Stephens and Weigand. Although Stephens claimed that it did not share its subcontractors' knowledge that the University's architectural changes would increase costs, and therefore that Stephens was not then "aware of the condition," the latest that Stephens must have known of the condition was April 23, 2003, when a Stephens employee told as much to Weigand. However, Stephens only provided written notice to Weigand 34 days later, thus failing to comply with the 21-day window to provide written notice.

Stephens unsuccessfully argued that Weigand waived the claim provision by directing Stephens to continue its work after oral notification of the increased costs. Not only did a different clause in the contract bar any act or inaction from acting as a waiver of the contract's provisions, but in this particular case, Weigand never guaranteed that Stephens' claim would be paid by the University. Weigand merely made an effort to submit Stephens' claim to the University for payment.

Stephens also unsuccessfully argued that Weigand was not entitled to enforce the contract because it separately breached the contract in several ways. The court rejected Stephens' series of assertions, mostly involving failure by Weigand to communicate with Stephens in ways that were not required by contract. The court ruled that none of these actions breached the contract or waived the claim provision.

Finally, the court ruled that Stephens was entitled to the $40,000 unpaid by Weigand under the base contract. Furthermore, the court ruled that the trial court erred by not including interest accumulated in the period prior to and during Stephens' bankruptcy. Such an award does not constitute a windfall for Weigand, nor does bankruptcy stop the accrual of prejudgment interest.

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