Zacherl, Inc. v. Flaherty Mechanical Contractors, LLC, 131 A.3d 1030, 2016 Pa. Commw. LEXIS 22 (Jan. 6, 2016)

The West Allegheny School Board (the “School Board”) voted to approve the School District’s (the “District’s”) plan to renovate its high school building (the “Project”).  The District contracted with Flaherty Mechanical Contractors, LLC (“Flaherty”) to act as the prime contractor.  Flaherty submitted the names of its subcontractors for the School Board’s review.  When the School Board raised no objections to Flaherty’s submission, Flaherty subcontracted with F. Zacherl, Inc. (“Zacherl”) to perform sheet metal work at the Project.

During the Project, the District made timely payments to Flaherty, but Flaherty failed to make timely payments to its subcontractors, including Zacherl.  The District terminated Flaherty’s contract in part as a result of Flaherty’s payment issues.  Flaherty, in turn, terminated Zacherl’s contract.

The District approached Zacherl and asked it to complete the sheet metal work it had agreed to perform under its contract with Flaherty.  Zacherl responded with an affidavit stating that Zacherl was owed for four months’ work and setting forth how much work was yet to be billed.  Zacherl orally agreed to return to the Project provided the District paid at least two of its four outstanding invoices.

The District paid two of the four outstanding invoices, and Zacherl returned to the Project.  Despite the fact that Zacherl completed the work on the Project and invoiced the District for the work, the District made no further  payments to Zacherl.  Zacherl filed suit against the District for breach of the oral agreement, seeking payment of the two remaining outstanding invoices and payment for the work it completed after its return to the Project.  After a trial, the jury found in favor of Zacherl.

On appeal, the District argued that the parties’ oral agreement was null and void because Section 508 of Pennsylvania’s Public School Code requires a majority vote of the School Board to enter into a contract, and the School Board had never approved Zacherl’s oral agreement to return to the Project and complete the work.  The Commonwealth Court held that Section 508 does not bar a contractor’s claim for payment of additional work where that work is part of an already-approved contract.   Separate School Board approval of Zacherl’s oral agreement was unnecessary because the oral agreement was for work already approved by the School Board.  Furthermore, the School Board failed to object to Zacherl’s performance of the work when Flaherty submitted the names of its subcontractors for its review, and under the prime contract, failure to object constituted approval.

The District also argued that Zacherl had failed to sufficiently establish the terms of the oral agreement.  The Commonwealth Court found the affidavit, Zacherl’s testimony that it would not have agreed to return to the Project and finish the work if Zacherl realized it would not be paid, the lack of evidence of negotiation of the terms on which the work would be completed, and the fact that the District never questioned Zacherl’s submission of invoices to the District sufficient to support the jury’s finding that the School District agreed to pay Zacherl the balance owed and to be paid under its subcontract with Flaherty if it would return and complete its work.

The Commonwealth Court affirmed the jury verdict for Zacherl.

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