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Superior Court Reaffirms Oral Change Orders Are Effective Despite Contractual Provisions Requiring Written Approval

Owen-J-Mcgrann-profile.jpgIn C.E. Pontz Sons, Inc. v. Purcell Constr. Co., 2015 Pa. Super. Unpub. LEXIS 3192 (Pa. Super 2015), the Pennsylvania Superior Court addressed the often disputed question regarding whether oral modifications to construction contracts have effect despite a contractual provision requiring written amendments to the contract. (A copy of this case is attached HERE) Holding with the prevailing case law, the Court found that oral modifications are enforceable for contracts that are not for the sale of goods.

C.E. Pontz subcontracted with Purcell, which was performing work on a municipal project. C.E. Pontz was to perform landscaping work for a total contract price of $3,500. Id. at 1. The subcontract clearly stated that "all change orders must be in writing, approved by [Purcell], and, in addition, approval for payment must be given by" the school district. Id. at 2. Not long after C.E. Pontz began performing the work contemplated by the subcontract, representatives from C.E. Pontz and Purcell had extensive discussions regarding work to be performed "in addition to the work included in the $3,500 contract price." Id. Although C.E. Pontz agreed to perform this additional work - and did, in fact, perform the work - it failed to submit any change orders until after the work was completed. Id.

Months later, C.E. Pontz submitted a request to Purcell for additional payment. Id. Despite the fact that Purcell admitted C.E. Pontz performed work beyond the scope of the initial contract, Purcell authorized only partial payment regarding the work performed. Id. As always, C.E. Pontz then sued, leading litigation through the compulsory arbitration division of Lancaster County, through a bench trial, and finally to the Superior Court.

At issue before the Superior Court is a fundamental, although at times fraught, issue: can a subcontractor collect for work performed via oral agreement when the written document precludes payment for such work?

Purcell first attempted to argue that under Scott Twp. School Dist. Authority v. Branna Constr. Corp., 185 A.2d 320 (Pa. 1962), the stricter "public contract" interpretation rules ought to apply because the project involved work on a public school. C.E. Pontz at 11. The Superior Court rejected this argument for two reasons. First, the Court found that Purcell waived the argument by failing to raise it at the trial court level. More importantly, the Court found that "Purcell's reliance on Scott is misplaced because Purcell fails to explain how the parties' written agreement qualifies as a 'public' contract when both entities are private companies." Id. at 12. In other words, the stricter rules apply only when a government entity is a signatory to the contract at issue; subcontracts attendant to a government contract do not invoke Scott.

Having dispensed of that argument, the Superior Court found that, under the longstanding law of Pennsylvania a "written contract which is not for the sale of goods may be modified orally, even when the written contract provides that modifications may only be made in writing." Id. at 13. The key in this case was that C.E. Pontz was able to establish clear and convincing evidence that Purcell not only knew, but approved of the additional work performed by C.E. Pontz. To permit the contractual defense proffered by Purcell would create potential windfalls for general contractors, and the Superior Court smartly reiterated the traditional rejection of the same.

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