Barton Properties, Inc. v. Superior Gunite Corp., California Court of Appeal, Second Appellate District (not officially published)

In an unpublished decision, Barton Properties, Inc. v. Superior Gunite Corp, the Second Appellate District of the California Court of Appeal has held that a “continued performance” clause in a construction contract was rendered unenforceable by the owner’s material breach of contract. The clause at issue provided that in the event of the dispute between the parties, the contractor would

“continue the work diligently to completion and will neither rescind this contract nor stop the progress of the work, but will submit such controversy to determination by a court of competent jurisdiction after the project has been completed.”

Because Barton Properties is an unpublished decision, it is not binding authority on California courts. The case is noteworthy, however, given that many widely used standard form construction contracts contain continued performance provisions similar to the clause at issue in Barton. For example, Article 4.3.3 of the American Institute of Architects’ form A-201 – General Conditions of the Contract for Construction, provides:

“Continuing Contract Performance. Pending final resolution of a Claim . . . , [with certain exceptions] the Contractor shall proceed diligently with performance of the Contract and the Owner shall make payments in accordance with the Contract documents.”

If other courts were to follow Barton Properties, continued performance clauses such as this would be rendered essentially meaningless. To the extent Barton Properties holds that a continued performance clause is unenforceable when the owner’s breach is material, and remains enforceable when a party’s breach is minor or immaterial, such clauses would add little or nothing to the parties’ legal relationship that is not already part of California law. California contract law already provides that, all else being equal, a contracting party is generally not entitled to stop performance or rescind the contract when the other party commits only a minor or immaterial breach. On the other hand, with some exceptions, a party generally is justified in discontinuing performance when the other party has materially breached the contract. See, e.g., Integrated v. Alec Fergusson Electrical Contractor, 250 Cal. App. 2d 287 (1967) (holding, in the context of progress payments, that the contractor may rescind or abandon performance when the owner imposes “new and onerous conditions to payments” or outright refuses payment, but an immaterial breach such as a “slight deviation either in time or amount of progress payments should not justify rescission or abandonment”). To the extent Barton Properties may shed light on how California courts might rule on the effect of continued performance clauses in the future, parties in the construction industry should exercise caution when relying on the potential binding effect of these clauses.

In Barton Properties, Barton was the developer of two luxury homes located on a hillside in Bel Air, California. Barton entered into a written subcontract with Superior Gunite for installation of steel reinforced concrete caissons to support the two homes. Paragraph 35 of the contract contained the “continued performance” clause quoted above. Paragraph 23 of the contract also provided that Superior Gunite was required to give Barton notice and an opportunity to cure if Superior Gunite intended to rely on any breach or other conduct by Barton as an excuse for its own delay or non-performance.

During the course of the project, Superior Gunite asserted that Barton had breached the contract by delaying Superior’s work, by failing to adequately supervise and coordinate the work of other subcontractors, by failing to provide it with necessary information about the job, and by failing to properly schedule the work. After numerous delays, Superior Gunite told Barton it was canceling the contract because of the continuing problems. Based on the continued performance clause, Barton demanded that Superior Gunite complete its work. Superior Gunite did not return to the project.

Barton and Superior Gunite sued each other breach of contract, negligence and other claims. After a full trial, the jury returned a verdict finding that Barton had breached the contract, and that Superior Gunite had not breached the contract, though it had been negligent. The Court of Appeal’s opinion noted that the jury impliedly found that Superior Gunite was excused from performing under the contract by Barton’s material breach. 

On appeal, Barton argued that the jury’s finding that Superior Gunite had not breached was erroneous as a matter of law because Superior Gunite “was required to complete its performance pursuant to paragraph 35 of the contract,” regardless of whether Barton had breached. Barton also contended that Superior had failed to give notice under Paragraph 23, and was therefore precluded from relying on any alleged breach by Barton to excuse its own delay or non-performance.  

The Court of Appeal affirmed, holding that that Superior Gunite did not breach and was excused from performing by Barton’s material breaches of contract. The court based its decision on Civil Code section 1511 and the California Supreme Court’s decision in Peter Kiewit & Sons’ Co. v. Pasadena Junior College Dist., 59 Cal. 2d 241 (1963). Civil Code section 1511 provides that

“[t]he want of performance of an obligation, . . . in whole or in part, or any delay therein, is excused . . . . [w]hen such performance . . . is prevented or delayed by the act of the creditor . . ., even though there may have been a stipulation that this shall not be an excuse . . . .”

In Peter Kiewit, the Supreme Court had considered section 1511’s effect on a contract clause which provided that if the contractor believed it was entitled to an extension of time in which to perform the work, it was required to timely submit a request for an extension of time in writing to the architect. The owner contended that if the contractor did not comply with that requirement, it was not entitled to the applicable extension of time. The Supreme Court stated:

An owner who is a party to a construction contract is a creditor within the meaning of section 1511 . . . and, as [that] section makes clear, a provision in an agreement that the contractor is not to be excused for late completion caused by the owner is rendered inoperative by the statute. A provision in a contract which would require the contractor to make an application for an extension of time before he may be excused for a delay caused by the owner’s conduct would obviously constitute a substantial limitation on the policy declared by section 1511.

Peter Kiewit, 59 Cal. 2d at 244. The court therefore held that the provision was unenforceable under section 1511. Id.

Relying on this holding, the Barton Properties court held that the continued performance clause in the Barton-Superior Gunite subcontract was unenforceable because Barton had materially breached the contract. The court reasoned that

where a general contractor . . . materially breaches a contract so as to delay or prevent the performance of the subcontractor . . ., the subcontractor is not foreclosed from refusing to perform and rescinding the contract by reason of a contractual provision, such as Paragraph 35, which requires a contractor not to rescind the contract or stop working but instead to “continue the work diligently to completion” and then “submit any controversy”. . . to determination by a court of competent jurisdiction after the project has been completed.” A contrary conclusion would impermissibly conflict with the controlling plain language of section 1511 . . . .

2006 WL 541025, at *5.

Harold E. Hamersmith is a partner in Sheppard Mullin’s Los Angeles office.

Robert Sturgeon is an associate in Sheppard Mullin’s Los Angeles office.