Attorney's Column
Appellate Court Ratifies Owner’s Approval of Changes Based on Failure to Object
By THOMAS H. WELBY, P.E., ESQ., and GREGORY J. SPAUN, ESQ.
Many construction contracts are entered into by an entity, such as a construction manager (CM), acting as an agent for an owner. As a disclosed agent, that entity has no independent liability of its own; it is considered a mere appendage of the owner. (Undisclosed agents, however, are liable for the contracts they enter into and cannot simply pass liability through to the undisclosed owner.) As a practical matter, this is the one remaining way that a pay-if-paid clause may still be enforced. If a construction manager enters into a contract as an agent for an owner, and that contract provides as a condition precedent that the CM must receive funds from the owner before any payment obligation arises, the provision will be held to be enforceable because the CM is a mere conduit for the owner’s funds and has no independent liability of its own. Owners can also use such agency agreements against contractors in other ways, typically by disclaiming the actions of their agents and, thus, avoiding liability.
An appellate court, in the recent case of Waterworks Operating Company v. 514 West 24th Owner, reminds us that an agency agreement is not carte blanche to avoid obligations and that an owner may nonetheless ratify its agent’s actions after the fact, notwithstanding specific requirements in the agency agreement.
Background
In 2015, 514 West 24th Owner entered into an agreement with Largo Construction, under which Largo was to serve as construction manager for the project and act as 514 Owner’s agent. In August 2016, Largo, acting as agent, entered into a purchase order with Waterworks Operating Company for Waterworks to supply plumbing fixtures for the project. Largo was subsequently replaced as CM by JDS Construction under a similar CM-as-agent agreement. In September and November 2018, JDS entered into additional purchase orders with Waterworks, all as 514 Owner’s agent. There was also a change order entered into between Waterworks and 514 Owner (again, through JDS as agent) because some fixtures needed to be changed to comply with the Americans with Disabilities Act. All told, Waterworks provided more than $2.5 million worth of fixtures but was paid only $1.6 million.
Waterworks ultimately filed a mechanic’s lien for the difference between the value of the fixtures and the amount paid and subsequently filed a lawsuit to foreclose that lien. After discovery, Waterworks moved for summary judgment on its complaint, arguing that there were no questions of fact that 514 Owner had breached the agreement and that Waterworks was entitled to recover the unpaid amount. 514 Owner opposed the motion, arguing that Waterworks’ submission did not account for missing or disputed items and did not sufficiently establish its right to collect. The motion court granted Waterworks’ motion, except as to $237,069 in disputed materials. 514 Owner appealed, arguing that it could not be held liable for breaching the contract because its agent lacked authority to enter into the change orders without 514 Owner’s “prior written approval,” as required by the agency agreement. Waterworks responded by noting that 514 Owner was fully aware of the change orders and had raised no objection.
Decision
The appellate court affirmed the motion court’s decision, finding that Waterworks had established its entitlement to everything except the $237,069 in disputed materials. As to the change orders, the appellate court, following well-settled law, held that the “Owner’s acceptance of materials delivered pursuant to the change orders, without objection, constituted an implied ratification of those agreements.” In doing so, the appellate court noted that “[a]n affirmance of an unauthorized transaction can be inferred from a failure to repudiate it.” Accordingly, while acknowledging the unauthorized nature of the transaction, the appellate court found that this was no obstacle under the circumstances and upheld the grant of summary judgment to Waterworks.
Comment
As noted, contracts involving agents can be problematic because contractors, while dealing with the face of one entity (here, Largo and JDS), are really dealing with another. The terms of the agency agreement define the scope of the agent’s authority, but the extent of that authority is frequently not known by the contractor. Without knowledge of the agent’s boundaries, the contractor is vulnerable to the owner using the agency agreement as a sword to defeat otherwise valid claims at a time when it is too late for the contractor to act accordingly. Here, the appellate court saved the day for the contractor by resorting to the doctrine of ratification because there was clear evidence that the owner had full knowledge of the subject change orders and the materials delivered pursuant to them, yet failed to raise any objection. However, if the facts were less clear, the court might not have been able to apply that doctrine, and the contractor would have been without recourse because it was unaware of the requirement for the owner’s prior written approval and, therefore, was unable to ensure that it had such documentation before entering into the change orders.
Whenever a contractor encounters a situation in which another party enters into a contract as a disclosed agent for an owner or any other party (again, this problem is not encountered with undisclosed agents, as they remain liable for the contracts they enter into), it would be wise to request the contract documents that created the agency arrangement and consult with experienced construction counsel. This will help the contractor understand the boundaries of the agency and what it must do to protect itself from the later use of the agency agreement to defeat otherwise valid claims.
About the Authors: Thomas H. Welby, Esq., P.E., is General Counsel to the CIC and the BCA, and founder and Senior Counsel to Welby, Brady & Greenblatt, LLP. Gregory J. Spaun, Esq., is General Counsel to the Queens and Bronx Building Association and a partner with the firm.
Published: November 12, 2026.