CONSTRUCTION DEFECT DISPUTES: KNOW YOUR MEASURE OF DAMAGES!!!!!

Posted on January 4, 2025January 4, 2025 by David Adelstein

Remember this: know your measure of damages in a construction defect dispute. If you don’t, as shown below, the outcome can be unforgiving. The measure of damages is one of your most important elements of proof. You are filing suit for damages; thus, knowing what you can reasonably recovery is paramount.

In a recent dispute, Bandklayder Development, LLC v. Sabga, 50 Fla.L.Weekly D91e (Fla. 3d DCA 2025), a residential developer sold a single-family house while it was under construction in an as-is purchase agreement. Post-closing, the purchasers claimed defects and served a Florida Statutes Chapter 558 notice of construction defects letter. The purchaser subsequently initiated a construction defect lawsuit. During the nonjury trial, the purchaser’s expert testified that the purchasers suffered damages approximating $323,000 calculated as of January 19, 2022 (which was the date of the expert’s report). The expert further testified that the cost to finish the incomplete/defective work increased by 35% at the date of the May 2023 trial. However, the expert never testified as to the amount of damages as of the date of the contractual breach, which at the latest, would have been in April 2018 when the notice of construction defects letter was sent (or, at its earliest, June 2017 when closing occurred). At trial, the judge entered judgment for the purchasers in the amount of about $425,0000. This was reversed on appeal with judgment to be entered in favor of the developer. Why? Because the purchasers employed the wrong measure of damages and the only thing that prevented them from introducing the right measure of damages was within their control. Harsh outcome for not applying the correct measure of damages!

To apply the correction measure of damages:

As a general rule in construction defect cases, “the measure of damages is the reasonable cost of making the performed work conform to the contract.” “The purpose of compensation is to restore the injured party to the condition which he would have been in had the contract been performed.”

It is well-established in Florida that damages for breach of a construction contract based on defective work are calculated as of the date of the breach. In 1982, the Florida Supreme Court, in Grossman Holdings Ltd. v. Hourihan, 414 So. 2d 1037 (Fla. 1982), adopted subsection 346(1)(a) of the Restatement (First) of Contracts (1932), which provides:

(1) For a breach by one who has contracted to construct a specified product, the other party can get judgment for compensatory damages for all unavoidable harm that the builder had reason to foresee when the contract was made, less such part of the contract price as has not been paid and is not still payable, determined as follows:

(a) For defective or unfinished construction he can get judgment for either

(i) the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste; or

(ii) the difference between the value that the product contracted for would have had and the value of the performance that has been received by the plaintiff, if construction and completion in accordance with the contract would involve unreasonable economic waste.

In doing so, the Court observed: “Subsection 346(1)(a), therefore, is designed to restore the injured party to the condition he would have been in if the contract had been performed. This aim corresponds with general Florida law. We adopt subsection 346(1)(a) as the law in Florida regarding breaches of construction contracts.”

Importantly, the Court then held:

Damages for a breach of contract should be measured as of the date of the breach. Fluctuations in value after the breach do not affect the nonbreaching party’s recovery.

See Bandklayder Development, supra (internal citations omitted).

The purchasers’ problem here, is that they failed to prove their damages or offer evidence of their damages as of the date of the breach. Otherwise, damages is based on guesswork which is a big no-no! “‘[D]amages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.’” See Bandklayder, supra. This guesswork is demonstrated by the purchaser’s expert that testified that the repair damages increased by about 35% from the date of his report to the date of the trial.

If you need help understanding your measure of damages, please consult a construction lawyer that works collaboratively with an expert. Just remember: KNOW YOUR MEASURE OF 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.

THE INDEPENDENT TORT DOCTRINE (AND ITS IMPORTANCE)

Posted on October 1, 2022October 1, 2022 by Edward Garber

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.

MEASURE OF DAMAGES FOR BREACH OF CONSTRUCTION CONTRACT

Posted on September 26, 2021September 26, 2021 by Edward Garber

How do you determine damages for a breach of a construction contract? If you are interested in pursing a breach of a construction contract action, this is something you NEED TO KNOW!

The recent Fourth District Court of Appeal’s decision in Cano, Inc. v. Judet, 46 Fla. L. Weekly D2083b (Fla. 4^th DCA 201) explains:

Where a contractor breaches a construction contract, and the owner sues for breach of contract and the cost to complete, the measure of damages is the difference between the contract price and the reasonable cost to perform the contract. See Grossman Holdings Ltd. v. Hourihan, 414 So. 2d 1037, 1039-40 (Fla. 1982). In Grossman, the supreme court adopted subsection 346(1)(a) of the Restatement (First) of Contracts (1932), which it concluded was “designed to restore the injured party to the condition he would have been in if the contract had been performed.” Id. at 1039. In other words, the owner will obtain the benefit of his bargain [and this is known as benefit of the bargain damages]. But where there is a total breach of the contract as opposed to a partial breach, an injured party may elect to treat the contract as void and seek damages that will restore him to the position that he was in prior to entering into the contract or the party may seek the benefit of his bargain. See McCray v. Murray, 423 So. 2d 559, 561 (Fla. 1st DCA 1982).

In Judet, an owner entered into a fixed price contract with a contractor to repair damage from a lightning strike. The contract amount was $300,000 payable in $30,000 installments. A few months after the contractor commenced performance, the owner terminated the contractor because the owner learned the contractor had not obtained required electrical and plumbing permits. At this time, the owner had paid the contractor $90,000. The contractor recorded a $40,000 lien for an amount it claimed it was owed and filed a lawsuit to foreclose its construction lien. The owner counter-sued the contractor to recover a claimed over-payment and a disgorgement of monies for unpermitted work. The owner was NOT claiming benefit of the bargain damages, but rather, damages for the contractor’s total breach “to restore him to the position that he was in prior to entering into the contract.”

After a bench trial, the trial court found the contractor committed the first material breach by failing to obtain the required electrical and plumbing permits. Thus, the trial court held that the contractor was only entitled to the value of the work it performed, an amount of $49,150 as determined by the owner’s expert. The trial court then entered a judgment in favor of the owner for $40,850 which was the difference between the value of the work performed ($49,150) and what the owner had paid the contractor prior to termination ($90,000). This was affirmed by the appellate court: “The trial court entered judgment for [the owner] to place him in the position immediately prior to the contract by returning the payments he made to [the contractor] less the quantum meruit value of [the contractor’s] work.” Judet, supra.

CONTRACTOR WALKS OFF JOB. WHAT ARE THE OWNER’S DAMAGES?

Posted on September 14, 2018April 24, 2020 by Edward Garber

What are your damages as the result of a breach of the construction contract? This is an important question, right? It is probably the most important part of your case. If you didn’t have damages, you wouldn’t be in a dispute. So, I repeat, what are your damages as the result of a breach of the construction contract? The below case explains dealing with a contractor that elected to walk off the job mid-construction.

In Forbes v. Prime General Contractors, Inc., 43 Fla.L.Weekly D20194a (Fla. 2d DCA 2018), owners hired a contractor to perform a residential renovation job for $276,000. The owners were to pay the contractor in five draw payments (common for residential jobs) where the third draw payment was due upon the contractor’s completion of the dry-in (as defined in the contract). After the contractor received the first two draw payments totaling $138,000 plus an additional $6,000 for updated architectural plans, the contractor claimed the job doubled in price and demanded that the owners pay the contractor the third draw payment immediately (before it was due) plus an additional $31,450. The contractor refused to continue unless the owners agreed to its terms, and then walked off the job when the owners would not agree to these terms (nor should the owners agree to those terms). At the time the contractor walked off the job, the owners’ home was not habitable due to the construction.

The owners sued the contractor for breach of the construction contract and had two damages methodologies they could employ:

(1) they could deem the contract a total breach, treat the contract as void, suspend their own performance under the contract, and look to be placed in the position they would have been in prior to entering the contract (i.e., had they not hired the contractor); or

(2) they could seek the damages that would place them in the position had the contractor completed the contract. This damages methodology is more common and would result in the owners seeking the difference between the total amount to complete the contract and the amount owed under the original contract. For example, if the owners were all in at $376,000 to complete the contract, the contractor would be liable for $100,000, since the owners were always planning on the original contract amount of $276,000.

In this case, however, the owners chose the less common first damages methodology. The reason being is that the owners could not find another contractor that was reasonably willing to complete the contract. Also, because the home was uninhabitable, the owners were forced to buy another house versus indefinitely renting. This resulted in the owners losing the uninhabitable house to foreclosure and their $45,000 equity in the house. Accordingly, the owners, seeking to be put in the position had they never hired the contractor, sought to recover, among other damages (i) the first two draw payments totaling $138,000 plus the additional $6,000 for updated architectural drawings, (ii) $5,600 in rent, and (iii) $45,000 in lost equity. These were permissible recoverable damages under the first damages methodology:

They [owners] sought to be put in the position they would have occupied had they never contracted with Prime [contractor]. It was clear at trial that the Forbeses [owners] regarded the breach as total; indeed, they were explicit that they were entitled to suspend their own performance under the contract. And the damages they asked the court to award — return of payments made under the contract and the equity in their home at the time of contracting — were of a type that regarded the contract as void and attempted to restore the Forbeses to their precontractual situation.

Forbes, supra.