Article

Note: Burgess Steel (Subcontractor/Applicant) contracted with Trinity Products (Fabricator/ Beneficiary) to manufacture and install two steel towers for a building in Manhattan, NY, one of which was rejected as non-conforming, due to a warped base plate, by the contractor, owner, and their engineers. In a dispute about the expenses for cure, Fabricator/Beneficiary sued Subcontractor/Applicant for breach of contract. The trial court granted a summary judgment in favor of Fabricator/Beneficiary, dismissing Subcontractor/Applicant's counter claims, and the jury awarded Fabricator/Beneficiary damages for additional work performed. On appeal, the United States Court of Appeals, Eighth Circuit, in an opinion by Loken, J., applying Missouri law, reversed the summary judgment and affirmed the jury verdict.

Fabricator/Beneficiary had claimed prejudgment interest which was rejected in connection with the summary judgment. The court noted that the "preprinted contract form provided for 1.5% interest per month on amounts past due, but that provision was crossed out and replaced with a handwritten notation: 'as per L/C (Letter of Credit).'" The trail court had concluded that "this substitution reflected an intent that no interest would be owed on amounts past due, including amounts due for extra work. Therefore, the court ruled, [the section on prejudgment interest] did not apply, and no prejudgment interest was owing. A letter of credit ensures that the buyer's bank will promptly pay contract demands that conform to the letter of credit's requirements." The appellate court noted that "replacing a contractual rate of interest... with a provision that payment will be made under a letter of credit reflects an agreement that no interest will be owing on amounts past due, since any amounts not promptly paid would not have been demanded in accordance with the letter of credit."

Fabricator/Beneficiary argued that this arrangement related only to the initial price and not expenses caused by subsequent changed orders. The appellate court observed "[t]his argument has some force, but the issue is controlled by the contract documents, most particularly, the terms of the letter of credit that [Fabricator/Beneficiary] failed to put into evidence. Therefore, on this record, we would affirm the denial of prejudgment interest on .... But we have reversed the grant of summary judgment on ... and are remanding for further proceedings on that claim, so we will leave to the district court's discretion whether to revisit this aspect of its order denying prejudgment interest."

[JEB/jlb]

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