For North Carolina general contractors, the big prize in last year’s lien and bond law legislation was protection from double payment exposure on bonded public contracts. Carolinas AGC lobbyist Dave Simpson has said on numerous occasions that he spent the better part of two decades pushing the N.C. General Assembly for double payment protection. In a similar vein, Carolinas AGC member Susie Shaw of Beam Construction added that “this has been an issue I have heard about from my father since I was a young child. It took a long time, but I am glad it is coming to pass in my lifetime.”
This post explains the “double payment” provisions of the new lien/bond laws in-depth, focusing on how prime contractors are exposed to double payment liability on public projects, how the new statute provides protection from that exposure, and the limits of the new legislation. Continue reading
It’s a pleasure to welcome the thoughts of David Morrison of the United Kingdom to NC Construction Law, Policy & News. David has been a contractor, subcontractor, trader and project manager throughout his years in the construction industry. Beginning life mixing concrete in Hackney, London in the 1980s, David soon began to develop a reputation as the “pen pusher” on-site when he became interested in law and legislation in the industry. Having experienced both sides of construction disputes, David now enjoys a much more tranquil life on the marketing team at UK Tool Centre. Admittedly, he does miss the smell of mortar and bacon at dawn, though…
Having a contract properly prepared and signed is the single most important aspect of securing payment for work carried out by tradesmen. A document that clearly expresses the expectations of both customer and tradesman is invaluable should any dispute arise regarding work carried out and its worth. Tradesmen in the UK should familiarise themselves with the Supply of Goods & Services Act 1982 and have their contracts and workmanship adhere to its specifications to ensure prompt payment for services rendered and the legal right of entitlement if payment in part or in whole is withheld.
In an unpublished decision released this past Tuesday, the N.C. Court of Appeals (“COA”) has construed a letter by an electrical subcontractor announcing its transition from a corporate entity to a limited liability company as a guarantee of obligations incurred by the corporate predecessor. The letter announced as follows:
Let it be known that on the 8th Day of September, 2006 WielTech Electric Company became a manager-managed Limited Liability Company between organizers Benjamin Joseph Wieland and Jennifer Dawn Fortenberry. From this date forward any and all business transactions, accounts or any other business relationship formed for WielTech Electric Co. by Tony C. Height, Catherine Robertson or any other person shall be transferred wholly into the newly formed LLC and the two individual organizers.
A supplier of WielTech sued the successor entity, its managers and others for past due invoices owed by WielTech. The supplier argued that the announcement letter constituted a personal guarantee satisfying North Carolina’s statute of frauds. For the non-lawyers who may be reading this, the “statute of frauds,” codified at NCGS c. 22-1 (2009), requires a “special promise to answer the debt … of another person” to be in writing. The successor entity and its managers defended the lawsuit on the grounds that the letter was too ambiguous to serve as a “special promise” to answer for the debts of the predecessor. The COA sided with the supplier, holding that the language in the announcement letter stating that all accounts “shall be transferred wholly” to the individual organizers constituted a payment guarantee satisfying the statute of frauds.
- Image by Naypong via FreeDigitalPhotos.net
I don’t want to speculate too much about the motivations of the organizers of the successor LLC in the WielTech decision, other than to say that based on an affidavit I have read in the record on appeal, WielTech and its principals may have been maneuvering to salvage their business after being stiffed by a bankrupt general contractor to the tune of just under $200,000. In any event, and to the extent the WielTech folks were attempting to wrap-up the business affairs of one corporate entity and transfer assets to another entity without also assuming the obligations of the predecessor, suffice to say, mission most definitely not accomplished.
The takeaway? In an environment where getting paid for labor provided and materials furnished isn’t getting any easier, creditors and their attorneys will aggressively utilize all legal remedies available to them — piercing the corporate veil, successor liability theories such as the “mere continuation” doctrine, personal guarantees, the Uniform Fraudulent Transfer Act, etc. — to track down sources of potential recovery. To those trying to avoid payment obligations, caveat scriptor. That letter you want to send to retain your customer base in the midst of a corporate transition might say a whole lot more than you think.