Many construction contracts contain terms that prohibit an assignment by the party performing the work, unless written consent to the assignment is provided by the party paying for the work. A prohibition against an assignment may also be waived by the conduct of the parties. In addition, depending on the language of the agreement between an assignor and assignee, an assignee may assume the obligations and liabilities of the assignor.
In Weitz Company, LLC v. MCW Acquisition, LLC, 2013 WL 3336857 (Fla. 3rd DCA 2013), the general contractor on a construction project (“Project”) entered into a subcontract agreement (“Subcontract”) with a waterproofing subcontractor (“Subcontractor”). Towards the end of the Project, the assets and business of the Subcontractor were purchased by another subcontractor (“MCW”). Pursuant to the terms of the purchase and sale agreement (“purchase agreement”) between the Subcontractor and MCW, MCW expressly assumed the Subcontractor’s obligations under certain existing contracts of the Subcontractor, which included the subject Project. After the purchase agreement was executed by the parties, MCW performed punch-list work on the Project and submitted two applications for payment to the General Contractor.
The project owner subsequently sued the General Contractor and others claiming defective construction and design. The General Contractor filed a third-party claim against the Subcontractor, however MCW was not joined in the lawsuit. The litigation between the owner, General Contractor and Subcontractor settled. As part of the settlement, the General Contractor, Subcontractor and Subcontractor’s insurer entered into a settlement agreement (of which MCW was not a party), which specifically excluded the release of any claims the General Contractor had or might have had against MCW. The General Contractor subsequently sued MCW asserting claims for breach of the subcontract assumed by MCW, breach of MCW’s warranty obligations, and other claims.
MCW filed a motion for summary judgment arguing, in part, that the General Contractor was not a party to, or a third-party beneficiary of the purchase agreement under which MCW assumed the Subcontractor’s liabilities, and therefore the General Contractor was not entitled to claim third-party beneficiary rights under the purchase agreement. MCW’s argument was based, in part on the General Contractor never consenting to Subcontractor’s assignment of its Subcontract with the General Contractor to MCW, which consent was required under the Subcontract. The circuit court granted MCW’s motion for summary judgment, and the General Contractor appealed.
The appellate disagreed with MCW’s arguments. The appellate court reasoned that the enforcement of the anti-assignment provision was within the General Contractor’s discretion. Further, after the purchase agreement was executed, the General Contractor and MCW continued to proceed as contractor and subcontractor on the Project, as MCW performed work on the Project, and submitted applications for payment, a lien waiver and a warranty in conformance with the Subcontract. Thus, the court concluded that such conduct established consent, or the waiver of the right to withhold consent to the assignment, and MCW was estopped to contest the validity of its own action.
The Subcontractor also argued that the General Contractor may not enforce the purchase agreement providing that MCW would assume the Subcontractor’s liabilities to the General Contractor. The court held that this argument failed because the terms in the Subcontract assumed by MCW obligated the Subcontractor and its successors and assigns to fully perform all covenants of the subcontract documents. The Court concluded that MCW obtained assignment of the Subcontractor’s rights relating to the Project, and the quid pro quo was MCW’s expressed assumption of the Subcontractor’s liabilities associated with the Project.
This case demonstrates that in a construction subcontract setting, the enforcement of an anti-assignment provision is generally a matter within the general contractor’s discretion (unless the contract provides otherwise), and although anti-assignment provisions generally require the written consent of the contractor, the consent may be waived by the contractor’s conduct. Further, it is important for the party (assignee) that is being assigned the assets and rights of the assignor to review the agreement to determine what, if any, obligations and liabilities of the assignor the assignee is assuming.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].