The signing of contracts is a basic element of construction projects, and contract breaches occur when one of the parties partly or wholly fails to fulfill the obligation(s) described in the contract.
With construction projects, the stakes are generally high and contracts can be lengthy and complex, so a breach of contract can have serious consequences.
Here’s what you need to know about breaches of contract, the main reasons why they happen, and the potential legal remedies available to affected parties.
What does “breach of contract” mean?
A construction contract is a legally binding agreement between two or more parties based on a set of policies and conditions recorded in the document.
By signing the contract, the parties commit to a mutual understanding that they intend to be bound by the terms of the contract.
A breach of contract occurs when a party fails to uphold one (or more) of their contractual obligations. In other words, they were required to do (or not to do) something under the terms of the contract they signed — and failed to do so.
Three common causes for breach of construction contracts
Well-drafted construction contracts will account for almost any possibility and may outline what needs to happen in the event of a dispute. But, even then, problems can occur with a breach of contract.
Commonly, breaches of contract in the construction industry in Florida result from a contractor’s failure to perform a specific duty or a general contractor’s failure to pay.
The most common payment disputes are due to “deviation” and defective performance. Changes to the construction project occur, leading to additional costs that are not recognized by the general contractor or another payer.
But let’s take a closer look at three typical ways that a contract is breached on construction projects:
Disputes over the quality of workmanship can be lengthy and drawn out, sometimes boiling down to the opinions of different parties.
Any deviation from the original plan may not be welcomed but doesn’t necessarily constitute a good case for breach of contract. Minor deviations are not generally worth the time and expense of challenging the breach.
Construction projects need to run like clockwork for a successful outcome. Each party must perform the work on time and to the required standard. Delays can become expensive as they can hold up multiple parties and require work to be rescheduled.
Sometimes, elements beyond our control cause delays — like the weather — but if a contractor falls behind schedule, it may lead to a breach of contract. Construction contracts may, however, include a “no damages for delay” clause that protects the parties from legal action resulting from delays.
As discussed, construction is a process and one party’s failure to perform has a ripple effect, negatively impacting multiple parties. This could lead to a claim for breach of contract and damages from an impacted party or parties.
Major vs minor contract breaches
Some breaches of contract are more serious than others and this affects the lengths to which parties go to seek remedies.
Major contract breaches (sometimes called “material” contract breaches) are when a party strays a long way from what it committed to do in the contract. Examples include not following the project plans, using substandard or inferior materials or failing to make payment.
Minor or “non-material” contract breaches may not make much difference to the overall project outcome. They don’t generally lead to disputes that end up in court but can escalate. Examples include using a different color or type of material than that specified in the contract, which might technically be a breach of contract but will make little difference if the client is ultimately happy with the result.
Legal remedies available for breach of construction contracts
A breach of contract need not end up in court. Sometimes, other remedies are more suitable and can save the time and expense of a lawsuit.
In fact, there are four or five main legal remedies available in Florida construction law for breach of contract issues: damages, repudiation, specific performance, reformation and rescission.
Let’s take a closer look at each one…
Seeking damages is the most common remedy for a breach of contract. Damages are monetary awards paid to a plaintiff in civil cases to “make them whole” after an injury or loss.
Damages are awarded as they might be in personal injury cases. If the plaintiff can show that the breach of contract has caused foreseeable loss (damage to property, mental or emotional injury or physical injury) he/she has the right to pursue damages.
Damages awarded are usually compensatory, compensating the aggrieved party for actual damages or injuries incurred.
However, three other types of damages may be awarded:
- Nominal damages: when the court rules that no calculable damages resulted but still awards a small amount.
- Contemptuous damages: when the case should not have been brought and a judge awards a very small amount to make the point and express disapproval.
- Exemplary damages: these are a warning to third parties not to make the same mistakes.
Repudiation is when an anticipatory breach of contract occurs and one of the parties terminates the contract before the service is delivered.
This remedy can take several forms:
- Express repudiation: when one party informs the other of a specific intention not to provide services or payment as per the terms of an executed agreement.
- Impossible terms: if a party is unable to honor the terms of an agreement due to losses suffered or other decisions that have adversely affected them financially, repudiation due to “impossible terms” may apply.
- Property transfers: if the property owner sells the building to a new owner, who does not want to continue the project, the contract may be repudiated and contractors may need to walk away (possibly unpaid).
If the breach of contract matter ends up in court, the judge may order the defendant to perform the duties in the contract or face a charge of contempt of court.
This is known as a specific performance remedy and it replaces the need for damages. However, it is rarely used in breach of contract disputes because forcing parties to work together once a breach has occurred often leads to further issues.
Like damages, the specific performance remedy usually results from litigation by the affected party.
Rescission is where all parties to a contract return as closely as possible to the state in which they were before the contract was signed. Once they achieve this state, they no longer need to work together.
If the injured party seeks rescission and the other party agrees, it will dissolve and invalidate the contract.
Reformation requires a “reformed” agreement, i.e., the original agreement is reinstated with new obligations and duties for the parties.
This remedy may be favorable over the specific performance remedy because it neither forces the parties to work together nor one party to pay the other.
Call Bennett Legal Group for Help with a Breach of Contact
Ultimately, all property owners, general contractors and construction subcontractors in Florida should carefully review draft contracts to prevent breach of contract issues and avoid contract disputes.
For advice about a breach of contract, call Bennett Legal Group today at 407-734-4559 to arrange a free consultation or complete a short form and let us know the nature of your issue.
