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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