Owner’s Payments of Reduced Amounts to Subcontractors Found to be Unfair and Deceptive Trade Practice

Can an owner, who is in a dispute with the general contractor, pay subcontractors reduced amounts on their contracts without first obtaining the consent of the general contractor? According to a recent decision by a Boston Municipal Court trial judge, the answer is no. In Fauteux v. Digicom Technology Corporation d/b/a Laptop Superstore, Boston Municipal Court Civil Action No. 243834 (June 4, 1999), the plaintiff contractor and defendant owner, who had a long standing personal and business relationship, entered into an oral contract for a series of construction jobs, including one for a computer store in Boston. The original contract price was $18,000, increased to $20,000 and later $29,000 by agreement. The defendant agreed to pay the increased amounts in order to induce the plaintiff to complete the work on time. The court found that the defendant, however, did not intend to pay the contractor. The owner went directly to the subcontractors (presumably – although there is no mention of this by the court – to prevent liens from being filed) and negotiated with and paid the subcontractors reduced or compromised amounts that were less than 70 cents on the dollar.

The court found the owner's actions in (1) inducing the contractor to complete the project work by promises of payment and (2) by paying the subcontractors reduced amounts, violated the "implied contract of good faith and fair dealing" and also constituted unfair or deceptive acts or practices within the meaning of Massachusetts General Law c. 93A §11. Under that statute a defendant can be liable for attorneys' fees if a violation is found, plus up to treble the amount of actual damages if the court finds that the acts of the defendant were knowing and willful. In Fauteux, the court found that the acts were knowing and willful, and awarded the plaintiff treble the amount of his actual damages, plus attorneys' fees. The court found that the owner's payment of reduced amounts to the subcontractors interfered with the plaintiff contractor's ability to work with the subcontractors on future projects, which was intentional, unscrupulous, and an unfair or deceptive act or practice.

The payments of the reduced amounts to the subcontractors are what appeared to be the catalyst for the judge's decision. Owners should exercise caution when dealing with subcontractors, particularly when there is a dispute with the general contractor. The defendant in Fauteux could likely have avoided at least part of the judgment if it had paid the subcontractors in full or had obtained the contractor's consent, preferably in writing.