Construction Law Outline
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Transcript of Construction Law Outline
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Construction Law OutlinePetersen Fall 2009
I. Construction ContractsREAD green handout
Eternal triangle
o Meaning a construction contract where the owner has a K w/ the architect (Design Professional) and a K w/ the general contractor (Primes); however, the architect and general contractor do not have a K w/ one another
(+)
Familiarity & comfort – lenders, etc.
o Lenders like
o Internationally in use
o Plenty of case law
“watchdog” function – architect as consultant
Competitive bidding
Wide choice of professionals - bidding
Standard industry contracts available
(−)
Finger-pointing (GC and Arch blame each other)
o Communication problems
o Only 2 knowledgeable participants
No “fast tracking” – no bidding/construction until ALL plans complete (Slowest)
Difficult to ascertain or allocate fault
Broker Contractor – only coordinates subcontractors w/o providing other services (no incentives to produce quality work)
Unions
Design-build
o Meaning a construction contract where the owner contracts w/ a single entity – owner in contract w/ designer and builder “under one roof”
(+)
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No finger-pointing (main positive reason)
“fast tracking” → commencing construction before design is completed (Fastest)
o (+)
Project should be completed sooner
Early activation of the construction loan
o (−)
Incomplete design
Do not get to see the whole project
Greater likelihood there will be design omissions
Greater likelihood that one participant may not do what it has promised, and thus adversely affect the work of many other participants
Harmony b/w builder and designer (1-stop shop)
o Easy to determine fault
(−)
No “watchdog” function
Licensing issues
Less case law/standard contracts available
Construction management [CM]
o CM
Meaning person responsible exclusively to the owner and acts in the owner's interests at every stage of the project. The construction manager offers advice, uncolored by any conflicting interest, on matters such as project scheduling and avoidance of delays, changes, and disputes.
o Meaning a construction contract where the owner has a K w/ the CM, a K w/ the general contractor, and a K w/ the architect
Owner may contract w/ a host of general contractors
Multiple primes
o Sweet subcontractors w/ principal trades
Ex: landscaping, plumbing, etc.
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CM is agent of O
No K between CM and Primes
(+)
CM familiarity – designs, costs, methods, etc.
o Costing
o Scheduling/Coordination
CM loyalty and experience
Easy transition if lose a Prime
Better hands on with daily stuff
(−)
Expensive
Hostility toward CM
Additional party – expensive, slower
Unclear liability (defects)
o Pure v. hybrid
Pure → CM provides consultation and coordination
Estimating, observing, etc.
Hybrid → CM provides consultation and some portion of the work
Turnkey projects
o Sweet
At its simplest, the contract is one in which the owner gives the turnkey builder some general directions as to what is wanted and the turnkey builder is expected to provide the design and construction that will fit the client’s communicated or understood needs. In theory, once having given these general instructions, the owner can return when the project is completed, turn the key, and take over.
II. Pricing
Fixed
o Meaning one price for the project
(+)
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Familiarity, comfort, & certainty – lenders, owners, etc. (traditional)
GC responsible for claims
Know costs
(−)
↑ opportunity to cheat, not perform
No incentive to keep costs down
ALL risk on GC
Could overpay
Hidden costs – Contractor’s cushion
Change orders
o Unit pricing
Sweet the contractor is paid a designated amount for each work unit performed
Ex: X amount for plywood, X amount for concrete, etc.
Cost contracts
o Meaning cost predicated upon cost to general contractor and some other contractor
o Types
Cost + % for profit
Cost + Guaranteed Maximum Price [GMP]
Sweet a cost contract that attempts to accomplish the objective of letting the owner or anyone supplying funds for the project know that the costs will not exceed the particular designated amount
Cost + GMP w/ % of savings
Meaning a cost contract that rewards the contractor w/ a % of savings because project costs fell below the designated GMP and the work was of good quality
CM “at risk”
Cost + fixed fee
Sweet a cost contract where the parties agree that the contractor will be reimbursed for allowable costs and paid a fixed fee at the time the contract is made
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Cost + variable fee
Example: Cost + Overhead/Fee > GMP > % sharing of savings
Value engineering
o Sweet a method developed by the federal gov’t system attempting to provide an incentive to the contractor to analyze each contract item or task to ensure that its essential function is provided at the lowest overall lifetime cost
Reduces costs in both fixed price and costs contracts
Ex:
The function of a pencil is to "make marks.” This then facilitates considering what else can make marks. From a spray can, lipstick, a diamond on glass to a stick in the sand, one can then clearly decide upon which alternative solution is most appropriate.
III. Sub-Contracting
Definition
o Sweet the method of construction organization under which the prime contractor is allowed to perform some or even much of its contract obligations through other contracting entities
(+)
Increased specialization (more experience and lower cap requirement)
“one down is not all down” – spreads risk
Opportunity for minorities
o reduced capitalization requirements encourage more subs
o Social policy
Low overhead/capitalization
o Achilles heel or Dr. Sholl’s Support
Law suit could put them under
o Cash flow
Owner not in privity with subs – protecting themselves
o Pass-through claim – Sub passes through GC to O in suit
(−)
CAUTION: GC may merely be a homebroker
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Coordination issues with GC and SCs – timing and scheduling issues
Chain effect of delays, damages, payments
Inflationary pressure on supplies
Unit pricing – GC wants to be paid by unit or work
Allowance – amount in contract that is discretionary
“murder clauses”
o Conditional payment clauses
Meaning provision in a contract that allows the general contractor to condition its payment to the sub-contractor upon receiving payment from the project owner
o Lien waivers
o Work description
Too broad or overlapping
o Indemnification clause
o Risk-allocation clause
o Conduit clauses –
Sweet requires the prime contractor to tie the subcontractors to provisions of the prime contract that affect their work
Every participant (architect or subcontractor) is working off the same page
Incorporation by reference clauses
Flow-up
Meaning ensures the owner's obligations and duties to the contractor will also be owed to the subcontractor
o Performance going up
Flow-down
Meaning ensures the contractor’s obligations and duties to the owner will also be owed by the subcontractor
o Payment going down
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IV. Bidding
Invitation for bid [IFB] v. request for proposal [RFP]
o IFB
Sweet a request that bidders make offers to the owner that can be accepted or rejected
Might be advertised through a public medium
o Ex: trade newspaper
Plans and specifications are ready
o Very specific
Owner
o Project → √
o Method and technology → √
o RFP
Sweet an offer that creates a power of acceptance in the owner
Complex projects
o Ex: waste treatment plans, nuclear power plants
Creativity, innovation, and price built into proposal
o Owner chooses the one that fits his or her perspective
o Becomes a trade secret – violation creates major liability
Owner
o Project → √
Gets to choose between existing technologies
Not required to engage in competitive bidding
o Method and technology → ?
Public job v. private job
o Public job
Required to engage in the competitive bidding process (FL: $200K+)
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Exception
o Emergency
Ex: hurricane
o Private job
Rule
The owner is not required to engage in the competitive bidding process.
Responsive bid v. responsible bidder
o Responsive bid
Focus on the bid
Ex: 4 bed/4bath → bid mirrors
o Responsible bidder
Sweet the lower bidder has the quality, fitness, and capacity to satisfactorily do the required work
Experience criteria to complete project
Drennan rule
o Rule
Once a sub-contractor makes an offer to a general contractor, the offer becomes irrevocable (for a reasonable amount of time –jury question); however, the general contractor does not have to accept the offer.
Drennan v. Star Paving Co.
Improves the prime contractor’s already powerful bargaining position
For a short period of time, the prime contractor can seek or receive lower bid proposals from other subcontractors
o “bid shopping” & “bid peddling” – 2nd round of bidding
Avoid → language, refuse to submit w/out promise, etc.
Bid-rigging
o Ex: All general contractors in the area get together. A decision is made that Jim will be the high big on X, Bill will be the high bid on Y, etc.
Note
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Bribes, etc. occur
Bid depository
o Meaning box or location where bid documents must be lodged by the bid date to be eligible for consideration
Bids done in secret ~~~ placed in depository ~~~ pulled out and awarded later
Exculpation ¬
Meaning the umbrella label for certain forms of risk-shifting clauses in construction contracts
V. Indemnification
Contractual
o Broad form
Meaning indemnity triggered where the indemnitee is solely at fault
If I am 0% liable and you are 100% liable, I will indemnify you b/c I am under contract
Typical clause: Contractor shall indemnify, defend, and hold harmless the owner by reason of any liability imposed on the owner or its consultants (architects and engineers) arising out of acts, omissions, errors, or negligence of the indemnitees.
Note
FL Statute 725.06 → anti-indemnity legislation that acts as a hurdle to enforcement
o Enforceable
Contract contains a monetary limitation (cap) on the extent of the indemnity
AND
Bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any
AND
Indemnitor may not indemnify the indemnitee for the indemnitee’s gross negligence, intentional act, or liability for punitive damages
o Intermediate form
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Meaning indemnity where the losses are caused in whole or in part by the indemnitee
Typical clause: Contractor shall indemnify, defend, and hold harmless the owner by reason of any liability imposed on the owner or its consultants for acts, omissions, errors, or negligence of the indemnitees caused in whole or in part by the acts, omissions, or errors of the indemnitor.
Note
Subject to FL Statute 725.06
o Insurance policy may exclude coverage for such a warranty
o Narrow form
Meaning if one party (indemnitor) does something wrong injuring another party (indemnitee), the indemnitor will cover the losses
I am 100% liable for my wrongs
Note
Not subject to the “cap” requirement of FL Statute 725.06
CL
o Meaning
Sometimes a party bears no actual responsibility for a wrong; however, they may still be deemed contractually or statutorily responsible. If so, that party may seek reimbursement from the real tortfeasor
Judicially created indemnity
Ex:
Byron Petersen is an officer and employee for the law office of Byron Petersen, a corporation. Shortly after working there, he commits malpractice
o Byron Petersen → “active” liability
Committed the malpractice
o Corporation → “passive” liability
Did not do anything
Risk-shifting – one part of it
Warranty v. disclaimer
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o “God giveth and God taketh away”
o Cannot disclaim intentional torts
Cap
o Meaning setting a limit for liability
Ex: environmental engineer
Shop-drawing
o 3.12.1
Shop Drawings are drawings, diagrams, schedules, and other data specially prepared for the Work by the Contractor or a Subcontractor, Sub-subcontractor, manufacturer, supplier or distributor to illustrate some portion of the Work
Ex: roofer’s plan
o Stamp
Disclaimer
Architect says, “I only conceptually approve this shop-drawing.”
VI. Insurance
Terms control – “devil is in the details”
Re-insurance: one company agrees to be responsible up to certain point; another company agrees to cover further (“stacking” or “umbrella” insurance)
Builder’s risk
o Meaning a special type of property insurance which indemnifies against damage to buildings while they are under construction
Named peril/project specific
Sweet expressly described risk
o Ex: theft, fire, flood, wind, etc.
Premium added to the contract price
Comprehensive general liability [CGL]
o Purpose
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Sweet to indemnify the insured contractor against claims by 3rd parties who assert they have suffered losses b/c the insured contractor has not acted in accordance w/ tort law
Premium paid by the owner
Does not cover malpractice (errors and omissions) by the general contractor
Contractually assumed liability
o Many insurers refuse to assume liability that would not otherwise be present absent a contractual provision creating the liability
Ex: broad form indemnity
Claims made v. occurrence
o Claims made
Sweet covers only claims made during the policy period, regardless of when the act giving rise to the claim occurred
o Occurrence
Sweet gives coverage if the act or omission occurs during the policy period
VII. Bonds
Surety bonds
o Surety
Sweet obligates itself to perform or to pay a specified amount of money if the “principal debtor” does not perform
“Obligee”
o Sweet person to whom this performance is promised
Types
Bid bond
o Sweet provides the owner w/ a financially responsible party who will pay all or a portion of the damages caused if the bidder to whom a contract is awarded refuses to enter into it
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Performance bond
o Sweet provides a financially responsible party to stand behind some aspect of the contractor’s performance
Perform or $ to perform
Note
Guaranteeo 3rd party − general contractor will
complete the job w/out errors
o ≠ on time unless it is specifically stated
Payment bond
o Sweet an undertaking by the surety to pay unpaid subcontractors and suppliers
$
VIII. Modifications and Changes
Change
o Sweet the term used in construction contracts that allows the owner to unilaterally direct that changes be made w/out obtaining the contractor’s consent to perform the work
Case by case analysis
Must be w/in the realm of reason
o Ex: An owner and a general contractor have a contract for a 3 bedroom house. The owner cannot change the contract to a 12 bedroom house.
o Types
Cardinal change
Meaning change so outside the realm of reason
o Bundling → “aggregate of changes” – volume of changes
Might be cc if put together
Miorelli – change order must be signed
Deductive change
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Sweet change clauses permitting the owner to delete a portion of the work
Minor change
7.4.1
o The Architect will have authority to order minor changes in the Work not involving adjustment in the Contract Sum and Contract Time, or otherwise reach agreement upon the adjustments, such agreement shall be effective immediately and shall be recorded by preparation and execution of an appropriate Change Order.
Architect → aesthetics
Binding on the owner and general contractor
Change order
o 7.2.1
A Change Order is a written instrument prepared by the Architect and signed by the Owner, Contractor and Architect, stating their agreement upon all of the following:
Change in the Work;
The amount of the adjustment, if any, in the Contract Sum; and
The extent of the adjustment, if any, in the Contract Time.
Time notice
o 4.3.2
Time Limits on Claims. Claims by either party must be initiated w/in 21 days after occurrence of the event giving rise to such Claim or w/in 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later. Claims must be initiated by written notice to the Architect and the other party
SOL
IX. Delays and Scheduling
All construction contracts must be completed on time and w/in budget.
Delay v. disruption: The substantive basis for what are sometimes called “delay and disruption” or inefficiency claims is the implied obligation not to prevent the contractor from performing its obligations in a logical, orderly, and inefficient manner.
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o Delay
Sweet not being able to work, causing the project not to be completed on time
o Disruption
Sweet being prevented from working efficiently
May increase costs
o Inexcusable delays v. non-compensable delays v. compensable delays
Inexcusable delays
Meaning delays caused solely by the contractor or its suppliers
o The contractor is generally not entitled to relief and must either make up the lost time through acceleration or compensate the owner
Non-compensable delays – excusable
Meaning delays caused by 3rd parties or incidents beyond the control of both the owner and the contractor
o The contractor is normally entitled to a time extension but no compensation for delay damages
o Ex: acts of God, unusual weather, strikes, fires, acts of gov’t in its sovereign capacity, etc.
Compensable delays − excusable
Meaning delays caused by the owner or the owner’s agents
o Usually leads to a schedule extension and exposes the owner to financial damages claimed by the contractor
o Ex: late release of drawings from the owner’s architect
Completion
o Substantial completion
9.8.1
The stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance w/ the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.
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o Final completion
Meaning the work is 100% done and all errors and omissions have been corrected
o Early completion
No bonus awarded
Acceleration v. constructive acceleration
o Acceleration
Sweet complete in a time shorter than originally agreed
Ex: overtime, additional workers
o Constructive acceleration
Meaning
Owner says to general contractor, “you are late and it is your fault! ~~~ general contractor brings in additional workers, overtime, etc. ~~~ delay not contractors fault ~~~ error by owner to instruct acceleration
5 requirements
A cause exist that would have justified a time extension
A request for a time extension
Denial of that request
Demand (express or implied) that performance be completed on time
Actual acceleration
Construction schedule
o Sweet a formal summary of the planned activities, their sequence, and the time required and the conditions necessary for their performance
o 3 Types
As-planned
Intermediate
Meaning a construction schedule that is updated every time a material delay is encountered
As-built
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o Critical path method [CPM]
Meaning 1 1 day of delay on critical path translates to 1 day of delay in substantial completion date
Meaning 2 a mathematically based algorithm for scheduling a set of project activities
3 steps
The contractor divides the total project into different activities or work packages
The contractor determines the activities that must be completed before other activities can be started
The contractor estimates how long it will take subcontractors to complete their activities
Using these values, CPM calculates the longest path of planned activities to the end of the project, and the earliest and latest that each activity can start and finish without making the project longer.
o Activities
“critical” → on the longest path
“Total float” → can be delayed w/out making the project longer
o Effective mgmt of project completion
“fast tracking” → performing more activities in parallel
“crashing the critical path” → shortening the duration of critical path activities by adding resources
Damages
o Home office overhead
Sweet costs that are incurred to the mutual benefit of all contracts and cannot be tied to a specific project
Ex: executive and clerical salaries, outside legal and accounting expense, mortgage expense, rent, depreciation, property taxes, insurance, etc.
Eichleay formula
STEP 1
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o Total contract billings/total company billings * total home office overhead = this project’s allocable overhead
Step 2
o Allocable overhead/# of days of contract performance including delay days = daily allocable overhead rate
Step 3
o Daily allocable overhead rate * compensable delay days = home office overhead damages
o Field office overhead
Ex: rented equipment (i.e. crane), trailers, utilities, etc.
Ex: field staff – superintendent, safety, etc.
o Liquidated damages clauses
Sweet provisions under which the parties agree that certain types of unexcused delay will result in damages of a specific amount
Too low → might be rejected by a jury
o Unfair
Too high → might be rejected by a jury
o Penalty
o “no-damage-for-delay-clauses”
Sweet attempt to place the entire risk for delay damages on the contractor and to limit the contractor to time extensions
5 exceptions
o Delay caused by fraud, misrepresentation, or other bad faith
o Delay caused by active interference
o Delay which has extended such an unreasonable length of time that the party delayed would have been justified in abandoning the contract
o Delay that was not contemplated by the parties
o Delay caused by gross negligence
o Force majeure
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Sweet clauses which single out specific events and general causes as justifying relief to the contractor
Ex: acts of God, rain, etc.
o Total cost method
Sweet a comparison of the actual costs of performance w/ what the contractor contends should have been the cost of the project
o Modified total cost method
Sweet it focuses on the impacted work activities and adjusts the original estimate to remove mistakes, inaccuracies, and work items not affected
X. Construction Lien LawREAD packet
Dual purpose
o The Construction Lien Law provides a mechanism to insure that most people and companies providing construction services or products are paid, while at the same time insuring that an owner, provided that he or she has complied w/ the Lien Law, will not have to pay more than the Contract Price.
Lienors
General contractors
Sub-contractors and sub-subcontractors and suppliers
o Not sub-sub-subcontractors under 713: Part 1
≠ anyone supplying ↑ either
Notice of commencement
o Recorded and posted at the job site
Lender (if one) or owner
o Provides → name and address of owner, lender, owner’s agent, and other information
o 2 functions
Informational character
Instrument for fixing priorities among those claiming interests in the land upon which the project is being built
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o Construction lien claims, w/ the exception of claims of professionals and subdivision lienors, “relate back” to the Notice of Commencement and take priority from that date
o Building departments are not supposed to do inspections unless the Notice is posted at the job site
o Expires at the end of 1 year
May be renewed
Termination of notice of commencement
o If construction ceases, the owner may terminate the Notice of Commencement and move forward to restart the work. A Notice of Termination, if properly utilized, shortens the time for filing a lien from 90 days to 30 days.
Notice to owner
o Rule
Except for laborers, professionals, and those doing subdivision work, all persons providing services or materials to the job site that are not under a direct contract w/ the owner must provide a Notice to Owner before or not later than 45 days after commencing work.
Creates “statutory privity”
o 2 functions
Informs owner who is working on the site and when their work began
Provides the owner w/ the opportunity to ensure that these “lienors giving notice” are paid for their work
Claim of lien
o Rule
The Claim of Lien must be recorded no later than 90 days after the lienor’s final work or after materials were finally “furnished.”
90 days
o Runs from final ≠ substantial completion
o Not extended by repair work or replacement
Lien foreclosure
o Rule
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An action to foreclose a lien must be brought w/in 1 year of the date the Claim of Lien was recorded.
o 3 ways – shorten
The owner can file a “Notice of Contest of Lien” to be served on the Lienor by the Court Clerk
Lienor → 60 days to bring his or her foreclosure action
The owner can bring his or her own civil “show cause” action
Court → issues an order to the lienor to show cause why the lien should not be discharged
o Lienor → 30 days to respond
Transfer bond
Meaning bond posted in substitution of the lien and transferred by the Clerk of Court
o Formula
Amount of claim + 12% interest for 3 years + $500 court costs
o Before foreclosure, must make good faith effort to negotiate claim of lien
Sullivan v. Galske (917 so.2d 412)
Payments
o Methods
Pay lienor directly
10 day notice must be given to contractor unless waived in the owner – general contractor agreement
Joint checks
Sweet a check issued w/ the names of both payees appearing on the check
o Protection
“Sworn Statement of Account”
Meaning establishes what the lienor claims to be due
o Final payment
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The owner is to make no final payments until the contractor has furnished a “Contractor’s Final Affidavit” stating that all lienors have been paid or listing those that have not been paid.
o Note
Rule
If two lienors claim the same payment the owner is to pay the most remote lienor.
Fraudulent lien
o Meaning one that is “willfully exaggerated” in amount or which includes a claim for work not performed or materials not furnished, or which was prepared in a grossly negligent fashion
Lose right to seek any portion of his or her lien
Attorneys fees
o Rule
In both Construction Lien Foreclosure actions and actions on the Statutory Private Payment Bonds, the prevailing party is entitled to attorney’s fees.
XI. Economic Loss DoctrineREAD packet
ExamWhat is the Economic Loss Doctrine?What are economic damages?What are the exceptions?Know Casa Clara case very wellKnow facts, holding, etc. of other cases (1973-2001)
Definition
o Put simply, the ELD is a rule that disallows a party to bring suit for “economic losses” in tort w/out privity of contract; however, it does not bar recovery for “economic losses” in tort w/ a claim of personal injury or property damage to other property. It is important to note that there are other exceptions – professional negligence, statutory, and fraudulent inducement. SEE public policy
o Examples: cost of repair, lost profits, delay losses, diminution of value
A.R. Moyer v. Graham 1973
o Basic facts → The supervising architect was negligent in his preparation of plans and specifications and administration of the work. Furthermore, he failed to provide a certificate of completion.
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o Question → Can a general contractor sue a supervising architect despite a lack of privity?
o Holding → Under FL law, a non-privity contractor has a cause of action against a supervising architect if contractor’s injuries were foreseeable and caused by the “negligent performance of a contractual duty of the architect.”
“The power of the architect to stop the work alone is tantamount to a power of economic life or death over the contractor.”
3rd party beneficiary analysis
Incidental v. intended
o ≠ intended
o Insufficient intent expressed in the owner-architect K
Drexel Properties v. Bay Colony Club Condominium, Inc. 1981
o Basic facts → The Condominium Association sued the developer b/c he failed to construct a decorative fence around the air conditioning units which are located on the top of the roof of each building.
Holding → “no privity of contract need exist in order for negligent performance of a contractual duty to give rise to liability for damage to an intangible economic interest…”
Analogy to Old West
Opened floodgates to actions by an Association against all participants in a construction project
o FL → GO SUE!
East River Steamship v. Transamerica Delaval, Inc. US Supreme Court 1986
o Basic facts → Charterers of supertankers sued a turbine manufacturer for design and manufacturing defects which caused the supertankers to malfunction while on the high seas.
o Distinguishes b/w damage to the property itself and damage to “other property”
Would eliminate difference b/w warranty and strict products liability
o Beginning of ELD
Makes no impact on practicing bar in FL
Support for ELD from admiralty law
Florida Power and Light v. Westinghouse Electric Corporation 1987
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o Basic facts → A purchaser of nuclear steam generators sued seller for defects in generators (leaks in all six).
Sale of goods
o Rule
FL law precludes recovery for “economic loss” in tort w/out a claim for personal injury or property damage to other property.
Exceptions
o Personal injury
o Property damage to other property
o 1st FL case to address ELD – defective products case stemming from a sale of goods
AMF Corporation v. Southern Bell Telephone and Telegraph 1987
o Basic facts → AMF sued Southern Bell Telephone and Telegraph Business for the recovery of lost profits based on listing of old telephone number in directory and mistaken disconnection of referral system number twice.
Defective services
Lattite Roofing 1988
o If no other avenue for redress, can sue in the absence of privity
Casa Clara Condominium Association v. Charlie Toppino and Sons, Inc. 1993
o Basic facts → Homeowners sued a supplier of concrete for negligence and violation of building code. The concrete contained excessive salts or chlorides causing reinforcing steel in concrete columns to rust, expand, and spall (“exploding concrete”).
Note
A.R. Moyer and Drexel
o A.R. Moyer = limited to facts
o Drexel = overruled
Rejections
o Emergency exception
Building falling → did not compel departure from law
o Homeowners exception – most important investment of life
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o Latite theory of “no alternative remedies”
Famous quote
o “If we held otherwise, contract law would drown in a sea of tort.”
Negotiations cannot be replaced by CL tort remedies
o “economic loss”
Definition damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits
It includes the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold. In other words, economic losses are disappointed economic expectations, which are protected by contract law, rather than tort law. This is the basic difference between contract law, which protects expectations, and tort law, which is determined by the duty owed to an injured party. For recovery in tort there must be a showing of harm above and beyond disappointed expectations. A buyer's desire to enjoy the benefit of his bargain is not an interest that tort law traditionally protects.
o #1 barred economic loss = cost of repair or replacement
o Application
Could have been a K but none were utilized
AND
Could not have been a K
Ex: supplier − Association
o Public policy: W/out the judicial brakes of the economic loss doctrine, there would be little reason to enter into contracts. The parties could simply allow society, through tort law, to bear the costs of what would otherwise be contract doctrines - Allocate risk. DO NOT WANT TO LET CONTRACT LAW DROWN IN A SEA OF TORTS.
Airport Rent-A-Car v. Prevost Car, Inc. 1995
o Basic facts → A bus owner sued a manufacturer after buses caught fire and were destroyed.
o Rule
A sudden calamitous event will not circumvent the economic loss rule.
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o Warns of burdening society as a whole w/ losses of one who has failed to bargain for adequate contractual remedies
o Confirms rejection of a strict liability claim in the absence of physical injury
HTP v. LACSA 1996
o Basic facts → LACSA sued HTP alleging that LACSA was fraudulently induced into entering a settlement agreement. HTP counterclaimed asserting that LACSA was in breach of the settlement agreement.
o Exception
Rule Fraudulent inducement is tort independent from breach of contract in
that it requires proof of facts separate and distinct from breach and, thus, economic loss rule does not bar claim of fraudulent inducement.
Murthy v. Sinha Corporation 1994
o Basic facts → A contractor sued homeowners for breach of contract and to foreclose on mechanics' lien. In turn, the homeowners filed a 3rd party complaint against contractor's president, who was the sole stockholder and qualifying agent.
o Statutory exception
Must have a private cause of action
Legislative history > duty to benefit a class of individuals
Comptech International v. Milam Commerce Park 1999
o Basic facts → A tenant sued his landlord alleging that improper wiring during renovation damaged computers. The suit was based on a violation of a FL building code – no permit.
Computers w/in warehouse under renovation are “other property”
o Statutory exception
Rule
The economic loss rule does not apply to statutory causes of action, especially when the statute provides that the remedy exists “notwithstanding any other remedies available.”
o Statute ~~~ private cause of action ~~~ violation of statute ~~~ damages
Moransais v. Heathman 1999
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o Basic facts → A homeowner sued an engineer (company too) for defects. The engineer inspected the home and missed problems in construction or design.
o Professional exception
Rule
The economic loss rule does not bar a cause of action against a professional for his or her negligence even though the damages are purely economic in nature and the aggrieved party has entered into a contract with the professional's employer.
o Engineer could be sued for deficient professional services
o Engineering company employing the engineer cannot be sued except in contract b/c there is privity
Weakness in ELD
Limited value in FL damages law
Bates v. Rosique 2001
o Basic facts → Prospective purchasers of a hotel resort sued vendors for fraudulent inducement, among other claims.
o Exception to exception
Rule
Where the alleged fraudulent misrepresentations are inseparably embodied in the parties' subsequent agreement, the Economic Loss Rule will apply.
o Ex: term in the written K of the parties (“integration clause”) that their written K supersedes all prior agreements or understandings
Cases NOT IN READING (read HeadNotes)
o Swope (886 So2d 270)
o S&B (2004 U.S.Dist LEXIS 27502)
o Southern Track and Pump v. Terex (623 Fed.Supp 2d 558)
o Bates v. Rosique (777 So.2d 980)
o Biscayne Investment v. Guarantee M (2005 Fla.App. LEXIS 4668)
XII. LitigationREAD packet
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ExamHypo: You represent the Condominium Association, what are all the possible claims and defenses?List 2 causes of actions, etc.
Damages
o Rule
In almost all cases, the proper measure of damages is the cost of repair or replacement of the defective building component.
o Economic waste doctrine
Meaning cost of making the repairs – excessive v. benefits obtained
“economic waste”
o Sweet primarily a result-oriented concept, not a fiscal one. Economic waste comes into play in those cases in which the defective building is still serviceable and useful to society. If repairs are possible but would completely destroy a substantial portion of the work, damage or injure good parts of the building, impair the building as a while, or involve substantial tearing down and rebuilding, then that is “economic waste.”
Formula
Fair market value of the unrepaired structure (−) fair market value of the structure had it been correctly completed
Causes of action
o CL negligence
o Strict Liability
No privity required
Purpose → protect ultimate users or consumers from damages caused by “unreasonably dangerous products”
Neumann v. Davis Water and Waste, Inc.
o Rule
Strict liability is not available to redress defects in structural improvements to real property.
Exception
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o Product incorporated into an improvement is “unreasonably dangerous”
o Violation of building code
Evidence of negligence
Instruction to the jury is ambiguous
Negligence per se
o CL “judicially implied” warranty
Meaning warranties created by the imagination of the court out of whole cloth and w/ little precedential support
Types
Habitability
o Meaning “ordinary, normal standards reasonably to be expected of living quarters of comparable kind and quality”
Home owner and developer must be in privity w/ one another
Does not extend to subsequent purchasers
Not extended beyond homes – i.e. commercial structures
o Not just a matter of the home itself
Ex: sea wall
Compliance w/ plans and specifications
Compliance w/ building code
May be disclaimed
“a bold and conspicuous disclaimer”
o Statutory warranty
Must be brought by someone expecting a residence
Cannot be disclaimed
Condominiums
Each unit → 3 years from completion
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Personal property → manufacturer provides
Roof, structure, mechanical, electrical, and plumbing elements → 3 years from completion or 1 year after owners, other than developer, obtain control
o No more than 5
o Express warranties
Must be brought by someone in privity of contract
Defenses
o ELD
o Routine maintenance
o Betterment
Meaning credits for repairs that would make the structure better than it would otherwise have been
o Allocation of fault
Comparative
Meaning if the plaintiff is also at fault, damages can be apportioned by the judge or jury based on % of fault
Contributive
o Last clear chance
o No causation
o Failure to mitigate damages
o SOL
Applies to an action founded on the design, planning or construction of an improvement to real estate
It sets a 4 year limitation period that begins to run from possession or completion, except as to latent defects
Condominiums
Rule
o The SOL “shall not begin to run until the unit owners have elected a majority of the board of administration.”
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Tolling
SOL avoided by waiver or estoppels
o Estoppel → there must be an element of deception or inducement to keep the plaintiff from filing the action sooner
o Statute of repose
Meaning bars any claims after 15 years
Exception
o Murder
o Warranty duration lapse
o Non-disclosure of defects in a residence
Rule
A seller has post-closing right and remedy to go after the seller if the seller knew that there were material defects and did not advise the purchaser.
o Not extended to commercial properties
o Applies to realtors
o Substantial performance
Rule
Provided that the contractor has “substantially performed” its construction contract w/ the owner, even if defects exist the contractor is entitled to the full contract price less the cost to the owner of correcting the defective work.
Class action − condominiums
o 2 special rules??
“Sufficient numerosity” and just for condos?
o 4 requirements
Members of the class are so numerous that joinder is impractical
Common questions of law or fact exist
The representative claim or defense is typical
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The representative can fairly and adequately protect and represent class interest
XIII. Mediation and Arbitration
Mediation
o Sweet it involves the use of a neutral, 3rd party, usually an individual but on occasion a team of co-mediators, to seek to bring disputants together and settle the dispute
(+)
(−)
3 types
Rights-based
o Sweet mediation seeks to achieve a settlement focusing on the legal rights of the parties
Interest-based
o Sweet mediation is more “freewheeling,” directing attention less to legal rights and more to “the parties’ legal interests or compelling issues of the dispute.”
Therapeutic
o Sweet mediation emphasizes “the emotional dimensions of the dispute” and seeks methods to handle future conflicts
Arbitration
o Meaning a method of dispute resolution involving one or more neutral 3rd parties who are usually agreed to by the disputing parties and whose decision is binding
(+)
(−)
o Neutral arbitrator v. advocate arbitrator
Neutral arbitrator
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Meaning impartial
o Picked for 1 member panel and 1/3 of 3 member panel
Advocate arbitrator
Meaning hand-picked by each side − no requirement to be fair and impartial
o 2/3 for 3 member panel
o “splitting the baby” → √
Exam Review – extra information
The Contract Documents Construction contracts can be verbal
o No SOF Considered to be a service contract
≠ sale of goodso Exception
Manufacturers, etc. → $500 ≥ Plans
o Meaning drawings Specifications
o 1.1.6 The Specifications are that portion of the Contract Documents consisting of the
written requirements for materials, equipment, systems, standards and workmanship for the Work, and performance of related services.
The Delivery Systems Estimating costs
o Eternal triangle → ≠ goodo Design-build → easier than eternal triangleo CM → SEE above
The Pricing Structure Fixed
o (+) and (−) Cushion
General contractor
Damages for Delay and Disruption No-damage-for-delay-clause → disclaimer
o Fully enforceable in FL Claim for equitable adjustment → time, performance, or scope of performance
Construction Lien Law and Litigation
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Public jobo Cannot lien the property
Payment bond Required w/ projects < $200,000
Arbitration and Mediation Arbitration
o Typically contractualo (+) and (−)o 2 types
Binding Non-binding
Attempts to urge parties to reach a settlement Mediation
o Meaning assisted negotiationo (+) and (−)o Salaries are based on the amount of mediationso Treat as serious
May be more likely to take your sideo “impass”
Meaning unable to reach a settlement May continue mediation at a later time