Prime contractors and their subcontractors often haggle over subcontract language, and they often simply strike through language that is undesirable thereby leaving the language (and strikethrough) readable in the executed version.
The stricken language is always regarded by courts as omitted from the subcontract. But can a court use language appearing in a subcontract that is crossed out to draw other conclusions regarding what the parties intended? A court in Missouri recently said no.
In G&G Mechanical Constructors, Inc. v. Jeff City Industry, Inc., 2017 WL 1384503 (Miss. App.), Jeff City Industry Inc. (JCI) entered into an agreement with the city of Columbia, Mo., to construct a water and sewer project. JCI subcontracted boring work to G&G Mechanical Constructors Inc. (G&G).
G&G sent its proposed subcontract to JCI, which contained a provision stating that “any pay estimate overdue by 60 days shall bear interest at the annual rate of 18% or the highest rate allowed by law, if lower. Retainage shall not be held out of payment.” JCI struck through the entire provision with a single line and wrote “5% Retiange [sic]” in the margin.
After JCI failed to pay G&G for its work, G&G filed a lawsuit against JCI for, among other things, breach of contract and violation of Missouri’s Prompt Pay Act. The jury returned a verdict against JCI in the amount of $445,408.94. The trial court determined that since the interest provision in the subcontract was stricken by the parties, the subcontract was silent on whether interest accrued on unpaid amounts. It thus resorted to Section 408.020 of the Missouri Prompt Payment Act and entered judgment in favor of G&G for $445,408.94, plus 9% interest. JCI appealed on the issue of prejudgment interest, arguing the parties expressly agreed in their subcontract that no interest would be charged on amounts due.
The Missouri Court of Appeals acknowledged that agreements reached by parties regarding the interest rate, even if the agreement is that no interest will be paid, are enforceable. However, where no agreement is made, including where a contract contains a provision concerning interest, but the rate is left blank, the creditor is entitled to interest at the rate designated by Section 408.020.
JCI contended that the mutual striking of the provision in the subcontract relating to prejudgment interest equated to an agreement that no interest would be paid, and thus it argued the trial court erred in awarding interest. G&G countered that the striking of the interest provision did nothing more than remove it from the parties’ subcontract, thereby leaving the final subcontract silent on the issue of prejudgment interest.
The court of appeals noted that in cases like this, it must ascertain the intent of the parties and give effect to that intention. If, the court noted, a contract is unambiguous, the intent of the parties should be discerned from the contract alone based on the plain and ordinary meaning of the language used. However, if the contract is susceptible to more than one interpretation, it is ambiguous. If the ambiguity cannot be resolved within the four corners of the contract, the parties’ intent must be determined by use of extrinsic evidence—i.e., testimony of the witnesses and/or any writings that exist outside of the contract.
Citing prior Missouri case law, the court noted that “stricken language [in a contract] is [considered] extrinsic and may not be resorted to in construing [a] . . . contract.” The rationale of this rule “is that the writing excised from the agreement, whether by way of striking, erasing, or simply transferring the agreement to a new piece of paper without the stricken language, is not part of the agreement between the parties.” It thus agreed with the trial court that the stricken language should be disregarded, which results in only one conclusion: that the contract remains silent on the issue of prejudgment interest.
Contractors and subcontractors negotiating their subcontracts should carefully consider if their intent is truly served by merely striking proposed language as opposed to substituting or adding other language that leaves no doubt on a particular matter. For example, in a scope of work attachment, it might not be enough for a subcontractor to strike through an item of work it contends is not included. Rather, the preferred course of action might be to also add a specific statement excluding that work.
