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Construction Law Outline Petersen Fall 2009

I. Construction Contracts READ 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 o o Lenders like Internationally in use Plenty of case law

watchdog function architect as consultant Competitive bidding Wide choice of professionals - bidding Standard industry contracts available

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Finger-pointing (GC and Arch blame each other) o o Communication problems 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

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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 (+)
No finger-pointing (main positive reason) fast tracking commencing construction before design is completed (Fastest) o (+) o () Incomplete design Project should be completed sooner Early activation of the construction loan

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

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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.

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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 (+)
CM familiarity designs, costs, methods, etc. o o Costing Scheduling/Coordination

Ex: landscaping, plumbing, etc.

CM is agent of O No K between CM and Primes

CM loyalty and experience Easy transition if lose a Prime Better hands on with daily stuff

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Expensive Hostility toward CM Additional party expensive, slower Unclear liability (defects)

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

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construction that will fit the clients 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 (+)
Familiarity, comfort, & certainty lenders, owners, etc. (traditional) GC responsible for claims Know costs

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opportunity to cheat, not perform No incentive to keep costs down ALL risk on GC Could overpay Hidden costs Contractors cushion Change orders

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 o Meaning cost predicated upon cost to general contractor and some other contractor 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

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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

Cost + variable fee Example: Cost + Overhead/Fee > GMP > % sharing of savings

Value engineering o Sweet a method developed by the federal govt 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

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Opportunity for minorities

o
o

reduced capitalization requirements encourage more subs Social policy

Low overhead/capitalization o Achilles heel or Dr. Sholls Support o Law suit could put them under

Cash flow

Owner not in privity with subs protecting themselves o Pass-through claim Sub passes through GC to O in suit

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CAUTION: GC may merely be a homebroker 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

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 o

Lien waivers Work description Too broad or overlapping

o o o

Indemnification clause Risk-allocation clause Conduit clauses

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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 contractors obligations and duties to the owner will also be owed by the subcontractor o Payment going down

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 o Project Method and technology

RFP Sweet an offer that creates a power of acceptance in the owner Complex projects

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Ex: waste treatment plans, nuclear power plants

Creativity, innovation, and price built into proposal o o Owner chooses the one that fits his or her perspective Becomes a trade secret violation creates major liability

Owner o Project o Gets to choose between existing technologies Not required to engage in competitive bidding

Method and technology ?

Public job v. private job o Public job Required to engage in the competitive bidding process (FL: $200K+) Exception o Emergency o Private job Rule The owner is not required to engage in the competitive bidding process. Ex: hurricane

Responsive bid v. responsible bidder o Responsive bid Focus on the bid o Ex: 4 bed/4bath bid mirrors

Responsible bidder

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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 contractors 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 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

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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 indemnitees gross negligence, intentional act, or liability for punitive damages

Intermediate form 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

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Narrow form Meaning if one party (indemnitor) does something wrong injuring another party (indemnitee), the indemnitor will cover the losses Note Not subject to the cap requirement of FL Statute 725.06 I am 100% liable for my wrongs

CL 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 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 o Committed the malpractice Judicially created indemnity

Corporation passive liability Did not do anything

Risk-shifting one part of it Warranty v. disclaimer o o Cap o Meaning setting a limit for liability Ex: environmental engineer God giveth and God taketh away Cannot disclaim intentional torts

Shop-drawing

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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: roofers plan

Stamp Disclaimer Architect says, I only conceptually approve this shopdrawing.

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) Builders risk

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 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

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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 o Sweet covers only claims made during the policy period, regardless of when the act giving rise to the claim occurred

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 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 Sweet person to whom this performance is promised

Performance bond o Sweet provides a financially responsible party to stand behind some aspect of the contractors performance Perform or $ to perform Note

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Guarantee o 3rd party general contractor will complete the job w/out errors on time unless it is specifically stated

o 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 contractors 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.

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 Sweet change clauses permitting the owner to delete a portion of the work

Minor change 7.4.1

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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 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. o Delay SOL

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Sweet not being able to work, causing the project not to be completed on time

Disruption Sweet being prevented from working efficiently May increase costs

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 o The contractor is normally entitled to a time extension but no compensation for delay damages Ex: acts of God, unusual weather, strikes, fires, acts of govt in its sovereign capacity, etc.

Compensable delays excusable Meaning delays caused by the owner or the owners agents o Usually leads to a schedule extension and exposes the owner to financial damages claimed by the contractor Ex: late release of drawings from the owners architect

o 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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Final completion Meaning the work is 100% done and all errors and omissions have been corrected

Early completion No bonus awarded

Acceleration v. constructive acceleration o Acceleration Sweet complete in a time shorter than originally agreed o Ex: overtime, additional workers

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 3 Types As-planned Intermediate Meaning a construction schedule that is updated every time a material delay is encountered

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As-built

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 o critical on the longest path Total float can be delayed w/out making the project longer

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

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Ex: executive and clerical salaries, outside legal and accounting expense, mortgage expense, rent, depreciation, property taxes, insurance, etc.

Eichleay formula STEP 1 o Total contract billings/total company billings * total home office overhead = this projects 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

Field office overhead Ex: rented equipment (i.e. crane), trailers, utilities, etc. Ex: field staff superintendent, safety, etc.

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

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

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o o

Delay caused by active interference Delay which has extended such an unreasonable length of time that the party delayed would have been justified in abandoning the contract Delay that was not contemplated by the parties Delay caused by gross negligence

o o o

Force majeure Sweet clauses which single out specific events and general causes as justifying relief to the contractor Ex: acts of God, rain, etc.

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

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 Law READ 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

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Notice of commencement o Recorded and posted at the job site o o Lender (if one) or owner

Provides name and address of owner, lender, owners agent, and other information 2 functions Informational character Instrument for fixing priorities among those claiming interests in the land upon which the project is being built

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 Building departments are not supposed to do inspections unless the Notice is posted at the job site Expires at the end of 1 year May be renewed

o o

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

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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 lienors final work or after materials were finally furnished. 90 days o o Runs from final substantial completion Not extended by repair work or replacement

Lien foreclosure o Rule o An action to foreclose a lien must be brought w/in 1 year of the date the Claim of Lien was recorded.

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

Before foreclosure, must make good faith effort to negotiate claim of lien Sullivan v. Galske (917 so.2d 412)

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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

Protection Sworn Statement of Account Meaning establishes what the lienor claims to be due

Final payment The owner is to make no final payments until the contractor has furnished a Contractors Final Affidavit stating that all lienors have been paid or listing those that have not been paid.

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 attorneys fees.

XI. Economic Loss Doctrine READ packet

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Exam What is the Economic Loss Doctrine? What are economic damages? What are the exceptions? Know Casa Clara case very well Know 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 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. Question Can a general contractor sue a supervising architect despite a lack of privity? Holding Under FL law, a non-privity contractor has a cause of action against a supervising architect if contractors 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 o intended Insufficient intent expressed in the owner-architect K

o o

Drexel Properties v. Bay Colony Club Condominium, Inc. 1981

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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. Distinguishes b/w damage to the property itself and damage to other property o Would eliminate difference b/w warranty and strict products liability

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 o Basic facts A purchaser of nuclear steam generators sued seller for defects in generators (leaks in all six). 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 o Personal injury Property damage to other property Sale of goods

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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 o A.R. Moyer = limited to facts Drexel = overruled

Rejections o Emergency exception o o Building falling did not compel departure from law

Homeowners exception most important investment of life 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

economic loss

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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

Application Could have been a K but none were utilized AND Could not have been a K Ex: supplier Association

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 o Basic facts A bus owner sued a manufacturer after buses caught fire and were destroyed. Rule o o A sudden calamitous event will not circumvent the economic loss rule.

Warns of burdening society as a whole w/ losses of one who has failed to bargain for adequate contractual remedies Confirms rejection of a strict liability claim in the absence of physical injury

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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. 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. 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. o Computers w/in warehouse under renovation are other property

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 o Basic facts A homeowner sued an engineer (company too) for defects. The engineer inspected the home and missed problems in construction or design.

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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 o Engineer could be sued for deficient professional services 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 o Basic facts Prospective purchasers of a hotel resort sued vendors for fraudulent inducement, among other claims. 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 o o o o Swope (886 So2d 270) S&B (2004 U.S.Dist LEXIS 27502) Southern Track and Pump v. Terex (623 Fed.Supp 2d 558) Bates v. Rosique (777 So.2d 980) Biscayne Investment v. Guarantee M (2005 Fla.App. LEXIS 4668)

XII. Litigation READ packet

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Exam Hypo: You represent the Condominium Association, what are all the possible claims and defenses? List 2 causes of actions, etc. Damages o Rule o In almost all cases, the proper measure of damages is the cost of repair or replacement of the defective building component.

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 o CL negligence 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

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Strict liability is not available to redress defects in structural improvements to real property. Exception o Product incorporated into an improvement is unreasonably dangerous

Violation of building code Evidence of negligence Instruction to the jury is ambiguous

Negligence per se

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 o 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

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

Statutory warranty

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Must be brought by someone expecting a residence Cannot be disclaimed Condominiums Each unit 3 years from completion 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

Express warranties Must be brought by someone in privity of contract

Defenses o o o ELD Routine maintenance Betterment o Meaning credits for repairs that would make the structure better than it would otherwise have been

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 o o o

Last clear chance No causation Failure to mitigate damages 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

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Condominiums Rule o The SOL shall not begin to run until the unit owners have elected a majority of the board of administration.

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

Statute of repose Meaning bars any claims after 15 years Exception o Murder

o o

Warranty duration lapse 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 o Not extended to commercial properties Applies to realtors

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 2 special rules?? Sufficient numerosity and just for condos?

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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 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
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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

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o Neutral arbitrator v. advocate arbitrator Neutral arbitrator 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

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 goods o Exception Plans o Meaning drawings Manufacturers, etc. $500

Specifications o 1.1.6 The Specifications are that portion of the Contract Documents consisting of the written requirements for materials, equipment,

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systems, standards and workmanship for the Work, and performance of related services.

The Delivery Systems Estimating costs o o o Eternal triangle good Design-build easier than eternal triangle 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 Public job o Cannot lien the property Payment bond Required w/ projects < $200,000

Arbitration and Mediation Arbitration

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o o o

Typically contractual (+) and () 2 types Binding Non-binding Attempts to urge parties to reach a settlement

Mediation o o o o Meaning assisted negotiation (+) and () Salaries are based on the amount of mediations Treat as serious o May be more likely to take your side

impass Meaning unable to reach a settlement May continue mediation at a later time