Does contractor release to owner cover architect?

Does contractor release to owner cover architect?

Generally speaking, the most important distinction between independent contractors and agents is their liability vis-a-vis third parties. As a recent Missouri case illustrates, the distinction is equally pertinent when dealing with releases. In Tri-City Construction Co. vs. A.C. Kirkwood and Assoc., 738 S.W.2d 925 (1987), a Missouri appeals court addressed the issue of whether a release executed by a contractor in favor of the owner and "its officials, officers, agents and employees" barred the contractor's claims against the engineer on the project. This issue is of major concern-to the owner because if the contractor can sue the engineer, then the engineer may bring a third party claim against the owner.

The engineer in Tri-City was employed by the owner pursuant to a written contract as a design engineer to prepare plans for improvements to the owner's waste water system. The engineer was also responsible for processing the contractor's bids and supervising the contractor's work to assure that there was compliance with the contract between the owner and the contractor. The owner terminated the contractor due to disputes regarding the contractor's performance of its work.

Thereafter, the owner and contractor engaged in litigation but later settled their differences through an agreement in which the owner paid the contractor a substantial sum of money and the contractor executed a release of claims against the owner and "its officials, officers, agents and employees." The contractor, however, reserved any claims it had against those persons or entities not identified in the release.

After settlement with the owner, the contractor brought this action against the engineer claiming, among other things, that the engineer was negligent in its administration of the contract and that the plans prepared by the engineer failed to satisfy an implied warranty of fitness.

Relying on the language contained in the release, particularly the word "agent," the engineer moved to dismiss the contractor's action by claiming that the engineer was the "agent" of the owner.

Conversely, the contractor argued that the engineer was not an agent of the owner but, rather, an independent contractor and therefore not a party included in the language of the release. In determining whether the engineer was an independent contractor or an agent of the owner, the court in Tri-City explained as follows:

Agency is a fiduciary relationship which results from the consent by one person, the principal, to another, the agent, for the agent to act on the principal's behalf and subject to the principal's control. ... An independent contractor is one who contracts with another to do something for him but is not controlled by the other nor subject to the other's control with respect to his physical conduct in the performance of the undertaking. ... One who contracts to act on behalf of another and subject to the other's control except with respect to his physical conduct is an agent and also an independent contractor. ... If the independent contractor has a fiduciary obligation to the contracting party, and agency is established.

Upon reviewing the contract between the owner and the engineer, the court found that the engineer "was an independent contractor to the extent it supplied professional engineering services, but ... at the same time, the [owner's] agent because the acts of (the engineer) were subject to the direction and control of the (owner)." Stressing that the engineer was subject to the direction or control of the owner in matters which involved the contractor and the owner, the court in Tri-City concluded that the engineer was the "agent" of the owner and was therefore covered by the release. Accordingly, the contractor's suit was dismissed.

The lesson to be learned from the decision in Tri-City is two- fold. First, when executing releases one should consider whether the broad language of the release includes potential litigants. Secondly, one should be precise in identifying those potential litigants when reserving claims in the release. If the owner is settling with the contractor and feels the contractor may wish to pursue damage claims against the architect, the owner must make sure his release from the contractor also prevents a third party claim by the engineer against the owner. This can be accomplished through appropriate indemnity arrangements with the contractor.

Peter Goetz, Esq., is a senior member of the New York- and New Jersey-based law firm of Goetz, Fitzpatrick & Flynn which concentrates its practice in construction and real estate law and related fields. The firm litigates and arbitrates construction and real estate matters throughout the United States and abroad. Goetz is both an attorney and a graduate civil engineer.