Chapter 21
The text to this point has dealt with the major project participants: owner,
design professional, and prime constructor (whether prime contractor, CM or
D/builder). Subcontractors differ from these participants in 2 major aspects:
1. As a general rule, they are the economically weakest actor.
2. They have no contractual connection to the source of project funding.
Notwithstanding the above (especially the first aspect), the Drennan rule
(Section 21.3B) favors the prime contractor. Do rules against bid shopping and
peddling even things out? How about ethical codes of conduct? Refer the
students to Rule II of the Constructor Code of Conduct (Section 13.4).
Each remedy has its limitations, of course. Mechanics’ liens are complex and
have a variety of deadlines and notices; failure to strictly comply may result in
loss of the right. Note the decision of Stokes v. Millen Roofing Co. in Section 21.7
(ruling that unlicensed contractors may not use the mechanics’ liens). This case
was earlier discussed in Section 8.6B.
Section 21.11 shows the desperation of unpaid subcontractors, seeking
recovery from the owner under a theory of unjust enrichment (restitution) in the
event a statutory remedy fails.
Answers to Chapter Questions
1.) What is the principal reason for a “flow–through” or conduit clause?
2.) What elements are needed to satisfy the doctrine of promissory estoppel?
72
© 2015 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
a. To satisfy the doctrine of promissory estoppels, there must be: (1) a clear
and definite offer, (2) a reasonable expectation that the offer will induce
reliance, (3) actual and reasonable reliance by the offeree, and (4) an
“injustice” that can be avoided only by enforcement of the offer.
3.) What is the difference between bid shopping and bid peddling?
4.) What is the difference between line item retention and payment conditions?
5.) What is a mechanics’ lien and what remedy is accorded a lien holder?
6.) When do mechanics’ liens become effective for design professionals?
7.) If there are several lien claimants with security interests in a property, which
claimant has priority?
8.) What is the difference between a payment bond and a stop notice?
9.) What is a liquidating agreement and how does it function?
10.) What are the three theories owners employ to recover losses they have
suffered that were caused by subcontractor breach?
73
© 2015 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
beneficiary to the subcontract, (2) the owner may assert that the
subcontractor’s breach was negligent in that it failed to live up to the legal
standard of care, and (3) the owner may contend that the prime contractor
was merely a conduit between owner and subcontractor.
