Tag Archives: breach of contract

FIVE ISSUES TO CONSIDER IN GOVERNMENT CONTRACTING (OR ANY CONTRACTING!)

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The appeal of Appeals of – Konecranes Nuclear Equipment & Services, LLC, ASBCA 62797, 2024 WL 2698011 (May 7, 2024) raises interesting, but important, issues that should be considered.  In this case, the government (in a supply contract) procured four portal cranes from the claimant.  After an initial test of one of the cranes failed, the government refused to accept delivery even after the issue was addressed by the claimant. The government did not accept the manner in which the claimant addressed the issue and would only accept cranes if the claimant employed “an unnecessary alternative solution [that] caused further delay and increased [claimant’s] costs.” On appeal, it was determined the government’s decision to delay delivery based on its demand for the alternative solution was not justified, i.e., constituted a breach of contract.  Below are five issues of consideration in government contracting, or, for that matter, any contracting.

Issue #1- Patently Ambiguous Specifications

The government argued that the specifications were patently ambiguous and because the claimant failed to inquire regarding the ambiguous specifications prior to performance, its interpretation of the ambiguous specifications should govern. The contractor countered that the specifications were unambiguous and it met the specifications.

“Contract interpretation begins with the language of the written agreement.” If unambiguous, the plain meaning of a contract controls. “A contract term is unambiguous if there is only one reasonable interpretation.” However, “[w]hen a contract is susceptible to more than one reasonable interpretation, it contains an ambiguity.” “‘To show an ambiguity it is not enough that the parties differ in their respective interpretations of a contract term,’ rather, both interpretations must be reasonable.”  To show a patent ambiguity, which we construe against the non-drafting party, the drafting party must show an ““obvious, gross, [or] glaring” ambiguity so substantial as to impose a “duty to inquire” before contract formation. 

Appeals of – Konecranes, supra (internal citations omitted).

Here, it was determined “there was no ambiguity, much less an obvious, gross, or sufficiently glaring ambiguity that would trigger [claimant’s] duty to inquire before contract formation.”  Id.

Issue #2 – Rejection of Work Based on Specifications

The government rejected the cranes for not complying with the specifications.

“When the Government rejects work as being not in compliance with its specifications, the Boards of Contract Appeals have held that the burden is upon the Government to demonstrate that fact.” We have explained this anomaly of the government bearing the burden for a contractor claim “as a variation of the implied warranty of specifications seen in impossibility and defective specifications cases and characterized it as the government ‘putting in issue the sufficiency of its own specifications.”’ In assessing these ““inspection and rejection cases,” we focus on whether the evidence demonstrates that a product fails “to meet contract requirements.”

Appeals of – Konecranes, supra (internal citations omitted).

Here, it was determined, “[r]egardless of which party bears the burden of proof, [claimant] proved by a preponderance of the evidence that the luffing drums [in the cranes] complied with the Contract’s specifications after changing the wire rope and should not have been found defective with the new rope.” Id.

Issue #3 – Delay

The claimant argued the government had no basis to reject delivery of a crane because it complied to the specifications after the claimant addressed the initial issue.  To this point, the claimant argued the government’s refusal to allow it to ship cranes unless it employed the unnecessary alternative solution resulted in delays.

“A contractor seeking to prove the government’s liability for a delay must establish the extent of the delay, the contractor’s harm resulting from the delay, and the causal link between the government’s wrongful acts and the delay.” As to causation, “a contractor has the burden of demonstrating that the specific delays were due to government-responsible causes, that the overall completion was delayed as a result, and that any government-cause[d] delays were not concurrent with delays within the contractor’s control.”

Appeals of – Konecranes, supra (internal citations omitted).

Here, it was determined the government’s refusal to accept delivery when the cranes met the specifications resulted in compensable delay.

Issue #4 – Implied Duty Not to Interfere

Yes, there is an implied duty of good faith and fair dealing that exists in government contracts:

In the absence of a contract provision allowing the government to unilaterally stop or delay a contractor’s performance, any government caused delay constitutes a breach of the government’s implied duty not to interfere with a contractor’s performance.The implied duty not to interfere derives from the implied duty of good faith and fair dealing, assuring that one party cannot destroy the other party’s reasonable expectations regarding the fruits of a contract. “An implied duty of good faith and fair dealing exists in government contracts and applies to the government just as it does to private parties.”

Any implied duty derives from the explicit terms of a government contract. Here, as we concluded above, the [government] unreasonably inspected [claimant’s] cranes pursuant to the inspection provisions of the Contract Terms and Conditions — Commercial Items clause and Contract’s specifications. The [government’s] unreasonable inspection and ensuing delays resulted in a breach of the implied duty not to interfere.

Appeals of – Konecranes, supra.

Issue # 5 – Christian Doctrine

This was a supply contract so it did not incorporate a provision that allowed the government to stop or suspend work where it was determined such provision did not need to be incorporated:

However, the Contract does not include a Stop-Work Order, Government Delay of Work, or Suspension of Work clause. Instead, because we cannot incorporate these clauses by operation of law in a commercial items contract, we find that the Navy breached its implied duty not to interfere by unreasonably inspecting the cranes. There can be no “constructive” suspension or stop-work order if there is no clause to base it on. It becomes a breach.

For our Board “to incorporate a clause into a contract under the Christian doctrine, it generally must find (1) that the clause is mandatory; and (2) that it expresses a significant or deeply ingrained strand of public procurement policy.” Here, the Suspension of Work, Government Delay of Work, and the Stop-Work Order clauses are not mandatory for commercial items contracts and, thus, we will not incorporate any of these clauses into the contract by operation of law.

In particular, the Contract does not incorporate a Suspension of Work, Government Delay of Work, or Stop-Work Order clause.  … Notably, the FAR implements the congressional requirement that commercial items contracts “shall, to the maximum extent practicable, include only those clauses” required by law or “consistent with customary commercial practice.” So, given the policy preference to limit the number of standard FAR contract clauses in a commercial items contract, we should not be surprised that there is no explicit suspension, delay, or stop-work provision to hang the parties’ “constructive” hat on.

Instead, we must assess whether any of these clauses is mandatory and must be incorporated by operation of law under the Christian doctrine. Only fixed-price construction or architect-engineer contracts, not commercial items contracts, require the Suspension of Work clause. The Government Delay of Work clause would permit similar suspension of work for a fixed-price supply contract. FAR However, the Government Delay of Work clause is “optional,” not required, for commercial supply contracts such as this one.

Appeals of – Konecranes, supra (internal citations omitted).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CONTINUING BREACH DOCTRINE

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Have you ever heard of the “continuing breach” doctrine?  Probably not.  It is not a doctrine commonly discussed. It’s a doctrine used to try to argue around the statute of limitations.

In an older Southern District Court of Florida case, Allapattah Services, Inc. v. Exxon Corp., 188 F.R.Ed. 667, 679 (S.D.Fla. 1999), the court explained: “Under this [continuing breach] doctrine, a cause of action for breach of a contract does not begin to accrue upon the initial breach; rather, on contracts providing serial performance by the parties, accrual of a breach of contract cause of action commences upon the occurrence of the last breach or upon termination of the contract.”

Recently, this doctrine came up in an opinion by Florida’s Fifth District Court of Appeal.  In Hernando County, Florida v. Hernando County Fair Association, Inc., 49 Fla.L.Weekly D947b (Fla. 5th DCA 2024), a plaintiff appealed the trial court’s dismissal with prejudice of its breach of contract claim based on the statute of limitations.  The plaintiff claimed the defendant breached the contract by its failure to substantially redevelop property. The trial court dismissed based on the statute of limitations. However, the complaint alleged the defendant’s failure to comply “with numerous other intertwined, ongoing, and continuing contractual duties and obligations.”  Hernando County, supra.   The Fifth District reversed based on the continuing breach doctrine: “Where the nature of the contract is continuous, statutes of limitations do not typically begin to run until termination of the entire contract.”  Id. quoting and citing Allapattah Servs., Inc.

This case is interesting because the continuing breach doctrine is not a doctrine that comes up a lot.  And when it does, it’s in the statute of limitations context.  Thus, because it was relied on by the Fifth District Court of Appeal in reversing a dismissal based on the statute of limitations, if you plead your case “right,” you may be able to plead it to survive a statute of limitations motion to dismiss under this doctrine.  Now, this does not mean the facts will play in your favor down the road.  But, it does mean you’ll live to fight the factual fight and you’ll focus on evidence to support this factual fight, which is ultimately the objective in any dispute.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

BREACH OF AN ORAL CONTRACT AND UNJUST ENRICHMENT AND IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

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In an ideal world, parties would have written contracts.  In reality, parties should endeavor to ensure every transaction they enter into is memorialized in a written contract.  This should not be disputed.  Of course, written contracts are not always the case. Parties enter transactions too often whereby the transaction is not memorialized in a clean written agreement.  Rather, it is piecemealing invoices, or texts, or discussions, or proposals and the course of business. A contract can still exist in this context but it is likely an oral contract.  Keep in mind if there is a dispute, what you think the oral contract says will invariably be different than what the other party believes the oral contract says. This “he said she said” scenario gets removed, for the most part, with a written contract that memorializes the written terms, conditions, and scope.

A recent federal district court opinion dealt with the alleged breach of an oral contract. In Movie Prop Rentals LLC vs. The Kingdom of God Global Church, 2023 WL 8275922 (S.D.Fla. 2023), a dispute concerned the fabrication and installation of a complex, modular stage prop to be used for an event. But here lies the problem. The dispute was based on an oral contract and invoices. The plaintiff, the party that was fabricating the modular stage prop, sued the defendant, the party that ordered the stage prop for the event, for non-payment under various claims.  The defendant countersued under various claims.

The trial court analyzed a motion for summary judgment relating to the defendant’s breach of oral contract claim against the plaintiff. Each party claimed a different fixed price term for the transaction. The trial court found that while the parties disputed the fixed price amount, and whether there were fixed installment payments, it was undisputed that an oral contract existed for a fixed price with money being exchanged for the fabrication of the stage prop, and within a specific duration, as consideration. However, the trial court found that whether the payments were to be installment payments were not an essential term when “it is undisputed that the Oral Contract contains a specified price, a specific duration, and a defined scope of work to be performed.” Move Prop Rentals, supra, at *6.

Because of the oral contract, the trial court granted summary judgment as to an unjust enrichment claim. “As noted, Defendants rely on their payments under the Oral Contract to support their unjust enrichment claim. That fact is fatal to their unjust enrichment claims, as [a]ny proof of an express agreement between the parties as to the compensation to be paid for the services rendered…defeat[s] rather than sustain[s] an action based upon quantum meruit.” Movie Prop Rentals, supra, at *8 (internal quotations and citation omitted). Stated differently, the oral contract precluded the unjust enrichment claim.

Because of the oral contract, the trial court granted summary judgment as to a breach of an implied duty of good faith and fair dealing claim.

Where a party to a contract has in good faith performed the express terms of the contract, an action for breach of the implied covenant of good faith will not lie. Accordingly, a cause of action for breach of the implied covenant cannot be maintained (a) in derogation of the express terms of the underlying contract or (b) in the absence of breach of an express term of the underlying contract.

Movie Prop Rentals, supra, at *8 (internal quotations and citation omitted).

Here, the trial court found that the breach of implied covenant of good faith and fair dealing was in derogation of the express terms of the oral contract because it was based on the plaintiff’s failure to fabricate in exchange for payment:

Defendants content that the Oral Contract obligated Plaintiffs to fabricate the Stage Prop in exchange for Defendants’ installment payments, contingent on Plaintiffs’ status updates. Defendants’ breach of the Oral Contract claim is based on Plaintiffs breach of this express term rather than on an implied duty to perform in good faith. Plaintiff’s failure to fully perform either constitutes a breach of this express term, or, should Plaintiff prevail on their breach of contract claim, Plaintiff’s partial performance does not constitute a breach in light of Defendants’ failure to continue making payments.

Movie Prop Rentals, supra, at *8.

Could this dispute have been avoided with a written contract? Maybe. Maybe not.  However, one thing is clear.  A written contract would have memorialized terms and conditions and each of the parties’ expectations under the contract as it relates to payment and work progress.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

FOR BREACH OF CONTRACT CLAIM, THERE NEEDS TO BE A BREACH OF A CONTRACTUAL DUTY

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Remember this law (and I mean: remember this law!):

“An essential element of a claim for breach of contract is the existence of a material breach of a contractual duty.”  JD Development I, LLC v. ICS Contractors, LLC, 2022 WL 4587083, *3 (Fla. 2d DCA 2022) (citation and quotation omitted).

This law is important because how can another party breach of a contract if there is no contractual duty you claim they breached?  This question, and, of course, the answer, should not be overlooked from a strategic standpoint because it may dictate what claims you assert, how you assert those claims, and how you present your case from a theme and evidentiary standpoint.

JD Development provides an example of why this law is important and how this can play out.

In this case, a site contractor’s written bid formed the parties’ contract.  The site contractor sued the owner for non-payment of work it performed under the bid.  The owner claimed that the alleged unpaid invoices did not fall within the scope of the work in the bid; therefore, the trial court should have granted a directed verdict in favor of the owner on the contractor’s breach of contract claim.  The appellate court agreed!

The site contractor’s bid was a unit cost bid made up of 8 work categories and included exclusions in a notes section that were not included in its bid price.  The owner accepted the bid.  The site contractor performed 3 of the 8 categories in its bid and then was terminated. The site contractor claimed it was owed in excess of $100,000.  This amount represented additional work the site contractor testified it was asked to perform based on site plan revisions.  “No testimony was elicited during direct examination connecting the work activities set forth in the disputed invoices to any express provision of the bid.”  JD Development, supra, at *2.

The owner moved for directed verdict stating the contractor “failed to present any evidence establishing that the work activities identified in the disputed invoices correlated to any express provision of the bid.” JD Development, supra, at *3.  The contractor argued that the unpaid work was contemplated by the exclusions in the bid.  For this reason, the trial court denied the motion for directed verdict.  The jury returned a verdict in favor of the contractor finding that the owner breached the contract.

As mentioned above, the appellate court agreed that the trial court should have granted the directed verdict. Here is why:

It is undisputed that none of the work activities set forth in the unpaid invoices fell within the scope of the three work categories of the bid actually completed by [the site contractor] prior to termination…Finally, [the site contractor’s] testimony that the activities referenced in the disputed invoices fell within the express exclusions in the “Notes”  section of the bid actually supports [the owner’s] position: if the work activities referenced in the disputed invoices are of the type that was expressly excluded from the bid, then clearly the bid did not reflect an agreement as to the performance of—and payment for—those work activities. Stated differently, the bid did not require [the site contractor] to perform those work activities and in turn it did not require [the owner] to compensate [the site contractor] for performing those work activities. Whether the parties may have orally agreed to the performance of those work activities or whether a written document other than the bid reflects the parties’ agreement as to the performance of those work activities has no bearing on whether the trial court properly denied the motion for directed verdict on the breach of contract claim. [The site contractor] pleaded a claim for beach of the written bid and proceeded under that legal theory at trial.  And since no reasonable view of the evidence could sustain a verdict in favor of [the site contractor] on its breach of contract claim—even when viewing testimony and evidence in the light most favorable to [the site contractor]—we hold that the trial court erred in denying [the site contractor’s] motion for directed verdict with respect to this claim.

JD Development, supra, at *3.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

THE INDEPENDENT TORT DOCTRINE (AND ITS IMPORTANCE)

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A non-construction raises an important legal principle.  Here it is because it applies to construction disputes.  It actually applies to many business-type disputes.  It is based on what is widely referred to as the independent tort doctrine:

Florida law does not allow a party damaged by a breach of contract to recover exactly the same contract damages via a tort claim. “It is a fundamental, long-standing common law principle that a plaintiff may not recover in tort for a contract dispute unless the tort is independent of any breach of contract.  A plaintiff bringing both a breach of contract and a tort claim must allege, in addition to the breach of contract, “some other conduct amounting to an independent tort.” 

Bedoyan v. Samra, 47 Fla.L.Weekly D1955a (Fla. 3d 2022) (internal citations omitted).

The reason this principle–the independent tort doctrine–is important is because it has become common for parties to assert many causes of action against another party in the same lawsuit.  Oftentimes, they deal with the SAME damages and underlying conduct.  Sometimes, it is the “throw everything but the kitchen sink” approach.  Thus, a party may assert a contract claim (or seek contractual damages) in conjunction with numerous tort claims (e.g., negligence, fraud, negligent misrepresentation, breach of fiduciary duty, etc.).  Yet, when push comes to shove, the damages sought are no different than the contractual damages, i.e., it is all the same damages based on the same conduct.  The damages do not derive from an independent tort (e.g, separate conduct) unrelated to a contractual breach, or contractual damages.

This case of Bedoyan is an example. Here, there was a partnership dispute that was tried. The plaintiff claimed the defendant breached their oral partnership agreement and breached fiduciary duties. The trial court granted defendant’s motion for a directed verdict on plaintiff’s breach of fiduciary duty claim. The plaintiff’s breach of fiduciary duty claim “was not independent from his allegation of breach of contract; the same conduct gave rise to both. As such, there are no damages for breach of fiduciary duty separate and apart from the breach of the contract, and the trial court correctly directed a verdict against [plaintiff] on this issue.”  Bedoyan, supra.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ANTICIPATORY REPUDIATION OF A CONTRACT — THE PROSPECTIVE BREACH

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There are instances where a party can engage in the anticipatory repudiation of their obligations under a contract.  In essence, this is basically a party prospectively breaching the contract by repudiating their obligations in the contract.

A prospective breach of contract occurs where there is absolute repudiation by one of the parties prior to the time when his performance is due under the terms of the contract.  Such a repudiation may be evidenced by words or voluntary acts but the refusal must be distinct, unequivocal, and absolute. Moreover, repudiation can be shown where one party makes additional demands not included in the initial agreement:

            The law is clear that where one party to the contract arbitrarily demands performance not required by the contract and couples this demand with a refusal to further perform unless the demand is met, the party has anticipatorily repudiated the contract, which anticipatory repudiation relieves the non-breaching party of its duty to further perform and creates in it an immediate cause of action for breach of contract.

24 Hr Air Service, Inc. v. Hosanna Community Baptist Church, Inc., 46 Fla. L. Weekly, D1344a (Fla. 3d DCA 2021) (quotations and citations omitted).

In 24 Hr Air Service, an air conditioning contractor agreed to perform repairs to a Church’s air conditioning unit.  However, when the contractor went into the attic to start the repairs, the wooden platform in the attic was unstable and a portion of the ceiling collapsed.  The Church repaired the ceiling.  However, the contractor refused to return to complete its repairs citing safety reasons.  The contractor requested proof the repairs to the ceiling were made before it returned to complete its contracted work and such proof was never provided.

Did the contractor’s refusal to complete its work amount to anticipatory repudiation of its contract by imposing the additional demand of proof of repairs to the ceiling before completing its contracted work?  Both the trial and appellate court believed so.

The Contractor’s request that the Church provide safety assurances of the ceiling repairs constitutes an additional demand that was not agreed to by the parties under the service contract.  Despite the Contractor’s argument that it never abandoned the job, its demand for safety assurances coupled with its refusal to complete the agreed repairs until such assurances were provided was an anticipatory breach of the contract. 

24 Hr Air Service, Inc., supra.

Based on the anticipatory repudiation or breach of the contract, what were the Church’s damages?

The proper measure of damages “would be either the reasonable cost of completion, or the difference between the value the repair would have had if completed and the value of the repair that has been thus far performed.”  24 Hr Air Service, Inc., supra (quotation and citation omitted).  This is referred to as benefit-of-the bargain damages, with the objective to place the damaged party in the position “he would have been in had the contract been completely performed.”  Id.    The party, however, cannot seek what is known as “betterment” or a better deal than what it originally bargained for—a party “can neither receive more than [it] bargained for nor be put in a better position than [it] would have been had the contract been performed.”  Id.

If you are dealing with a breach of contract, or even a prospective breach / anticipatory repudiation of an existing contract, it is advisable to seek legal counsel to assist you in preserving your arguments, the proper measure of damages for the breach, and any potential betterment associated with your damages.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

BASIS TO RESCIND A CONTRACT UNDER EQUITABLE REMEDY OF RESCISSION

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When a seller of residential real property fails to knowingly disclose defects that are not readily observable and materially affects the value of the real property, this gives rise to a fraudulent nondisclosure or concealment claim, otherwise known as a Johnson v. Davis claim.  (See this article that discusses this claim.).   This is not the easiest claim to prove because a seller rarely will concede they knew of a hidden defect that they failed to disclose.  Thus, discovery is warranted to show they evidently knew but elected not to disclose because doing so would have impacted the sale or the value of the sale.  If you believe you have a fraudulent nondisclosure claim, make sure to consult with counsel so that you understand your rights relative to the facts associated with the claim.

In a recent case, Rost Investments, LLC v. Cameron, 45 Fla. L. Weekly D1717a (Fla. 2d DCA 2020), a lessee/potential buyer of residential property entered into a lease with an option to purchase contract.   The option to purchase needed to be exercised by the lessee.  Immediately after entering into this contract, the lessee claimed the contract should be rescinded based on the lessor’s fraudulent nondisclosure of defects that materially affect the value of the real property and the seller’s refusal to complete warranty-type items on an intake sheet.

First, the lessee claimed that when they moved into the house, the lessor agreed it would repair certain items that were identified on an intake sheet – hot water in the showers, low water pressure, two remote controls for the garage, and the refrigerator needed to be replaced.  The lessor did not.

Second, the lessee claimed there were latent defects with the property that the lessor knew about but failed to disclose.

After trial, the trial court granted rescission in favor of the lessee.  The Second District Court of Appeals reversed.

Rescission of a contract is an equitable remedy if the party seeking rescission has no adequate remedy at law (such as with a breach of contract claim where monetary damages would be awarded for the breach).  Rost Investments, supra (citation omitted).

“[A] party who voluntarily executes a document . . . is bound by its terms in the absence of coercion, duress, fraud in the inducement or some other independent ground justifying rescission.” 

***

“While an agreement may be rescinded for fraud relating to an existing fact, as a general rule, rescission will not be granted “for failure to perform a covenant or promise to do an act in the future, unless the covenant breached is a dependent one.”  “A covenant is dependent where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted.”

Rost Investments, supra (internal quotations and citations omitted).

The Second District held that the items on the intake sheet that the seller did not address “were [not] so essential to the bargain that [the lessor’s] failure to attend to them destroyed the contracts.”  These are items that could have been resolved with money damages through a breach of contract claim, i.e., an action at law.  Hence, the lessor’s failure to fix these items did not serve as a basis for the lessee to rescind the contract.

Next, the fraudulent nondisclosure claim for latent defects did not apply because the lessee was leasing the house as the option to purchase the real property had not been exercised.  The fraudulent nondisclosure claim applies to buyers of real property.   While perhaps the lessee had an argument for fraudulent misrepresentation, the trial court found that the lessor’s nondisclosure of certain defects was not intentional and, without the intent, there was no basis for a fraudulent misrepresentation claim.  (Notably, in a fraudulent nondisclosure claim that applies to buyers of real property, a seller’s state of mind is not at-issue– what is at-issue is that the seller had knowledge of a defect not readily observable that materially affects the value of the real property and did not disclose it.)  See Rost Investments, supra, n.7.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ACTIVELY INTERFERING WITH ANOTHER’S PERFORMANCE GIVES RISE TO A BREACH OF CONTRACT

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A bedrock principle under contract law is that one party cannot actively hinder, interfere, obstruct, or delay another’s party’s performance.  Doing so can give rise to a breach of contract.

It is one of the most basic premises of contract law that where a party contracts for another to do a certain thing, he thereby impliedly promises that he will himself do nothing which will hinder or obstruct that other in doing the agreed thing. Indeed, if the situation is such that the co-operation of one party is a prerequisite to performance by the other, there is not only a condition implied in fact qualifying the promise of the latter, but also an implied promise by the former to give the necessary co-operation.

Harry Pepper & Associates, Inc. v. Hardrives Co., Inc., 528 So.2d 72, 74 (Fla. 4th DCA 1988) (citation omitted).

The ruling in Harry Pepper & Associates demonstrates what can happen if a contracting party actively hinders, interferes, obstructs, or delays the other party’s performance.  Here, a paving subcontractor walked off the project prior to performance.   At the time it walked off the job its work could not commence due to prior delays with predecessor activities, revised drawings had not been approved by the governing building department, change orders had not been issued to deal with different site conditions, and the subcontractor was not offered an increase in its original contract price.  For these reasons, it called it quits.  The general contractor claimed the subcontractor did not have the contractual right to walk off the project.  There was a no-damage-for-delay provision in the subcontract and the subcontractor’s only remedy for delays was extensions of time for delayed performance. The general contractor, therefore, sued the subcontractor for the additional costs incurred in hiring a replacement paving subcontractor.  Conversely, the subcontractor was not seeking additional costs due to the delays but simply the right to cancel the contract.

The appellate court, affirming the trial court, held that regardless of the no-damage-for-delay provision, it was rendered unenforceable by the active interference of the general contractor: “There is competent and substantial evidence in the record that the general contractor did not cooperate with the subcontractor and engaged in conduct which hindered or obstructed the performance of the contract.”  Harry Pepper & Associates, 528 So.2d at 74.

Remember, regardless of whether your contract addresses delays or production, a party that actively interferes, hinders, obstructs, or delays another’s performance can give rise to a breach of contract.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CLAIMS BASED ON MISREPRESENTATION MUST BE INDEPENDENT OF CLAIMS BASED ON A CONTRACTUAL BREACH

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While misrepresentation-type tort claims (fraudulent inducement, fraudulent misrepresentation, or negligent misrepresentation) sometimes sound like attractive claims, they are oftentimes not appropriate claims, particularly when there is a contract between the parties.  The reason being is the the same damages for the breach of contract and misrepresentation-type tort claims are pursued and the claims rely on the same conduct as the breach of contract claim.  This is wrong.  As explained further in this article, the misrepresentation forming the fraudulent inducement, fraudulent misrepresentation, or negligent misrepresentation claim (1) must be pled with specificity in the operative pleading (complaint or counter-claim), (2) are not a substitute or way to navigate around the burden of proof of a breach of contract claim, and (3) must be based on conduct independent of the breaches of contract, i.e., a breach of the actual contract is not a misrepresentation.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CONSEQUENTIAL DAMAGES CAN BE RECOVERED AGAINST INSURER IN BREACH OF CONTRACT

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In a favorable case for insureds, the Fifth District Court of Appeal maintained that “when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the [insurance] contract.”  Manor House, LLC v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1403b (Fla. 5thDCA 2019) (internal citations and quotation omitted).   Thus, consequential damages can be recovered against an insurer in a breach of contract action (e.g., breach of the insurance policy) if the damages can be proven and were in contemplation of the parties at the inception of the insurance contract.

 

In Manor House, the trial court entered summary judgment against the insured holding the insured could not seek lost rental income in its breach of contract action against Citizens Property Insurance because the property insurance policy did not provide coverage for lost rent.  However, the Fifth District reversed this ruling because the trial court denied the insured the opportunity to prove whether the parties contemplated that the insured, an apartment complex owner, would suffer lost rental income (consequential damages) if the insurer breached its contractual duties.

 

This ruling is valuable to insureds because Citizens Property Insurance, a creature of statute, cannot be sued for first-party bad faith.  However, the Fifth District found that the consequential damages in the form of lost rental income did not require the insured to prove the insurer acted in bad faith, but merely, breached the terms of the policy.   This holding can be extended to other breach of contract actions against an insurer when the insured suffered and can prove consequential-type damages caused by the breach. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.