MEASURE OF DAMAGES FOR BREACH OF CONSTRUCTION CONTRACT

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. 4th 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 contractSee 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 bargainSee 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.

 

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.

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