Masonry Magazine October 2002 Page. 44
Legal Advice
Construction Claims:
An Overview
By Warren Lutz, Esq.
Disagreements can and do arise in construction. When negotiation fails to resolve the dispute, arbitration or litigation typically follows.
Claims can arise in a variety of contexts. For example, a general contractor may challenge the extent to which a subcontractor performed its obligations under contract. Alternatively, a contractor may contest the quality of material the GC has purchased for installation on a job. Or, a building owner may contend that a defect in a building's design or construction caused injury. In each of these instances, a multitude of differing legal claims exist. This article provides a brief overview of such claims.
Breach of contract
Breach of contract is the most prevalent claim to arise in construction-related disputes. Even where an injured party may be able to prove not only breach of contract but also negligence or fraud, courts tend to structure a case and analyze it under the rubric of breach of contract.
Typically, the obligations of parties to a construction project are set forth in written contracts, although oral contracts are equally valid, but generally more difficult to prove. Standard-form contracts, such as those published by the AIA, are used in many projects, sometimes with the parties modifying the standard form provisions to accommodate their specific needs.
The party asserting the breach of contract claim has the obligation to prove the terms of the contract, showing that all parties agreed to specific terms. Even where a contract is written, debate may arise over significant terms that are ambiguous. The greater the ambiguity, the greater the likelihood that the party asserting breach may encounter difficulty proving its claim. For this reason, great care should be exercised in drafting clear and precise contract provisions.
One fairly unique aspect of contract-based claims is that the person or firm alleging the breach is usually limited to asserting claims only against those persons with whom they have a contract. Thus, a building owner may encounter difficulty asserting a contract claim directly against a subcontractor, and instead, must pursue its claim against the general contractor, with whom it has a contract. This is known as the doctrine of "privity of contract."
An exception exists where an injured or aggrieved party can show that they are a "third-party beneficiary" of another party's contract. In essence, this requires showing that the contract was intended to benefit another party (i.e. the third-party beneficiary).
Once a breach of contract is proven, the legal relief is generally limited to money damages, proven with "reasonable certainty" and measured as the difference between what was promised and what was delivered otherwise known as "consequential damages." Unless the contract contains a provision for the recovery of attorney's fees, such fees are not recoverable from the losing party. In virtually no instance are punitive damages recoverable for breach of contract.
Breach of warranty
A claim similar to breach of contract concerns breach of warranty. Most states have adopted the Uniform Commercial Code (UCC) governing, in part, the sale of goods. Where goods fail to perform as promised or expected, a claim may arise for breach of the express warranty or breach of the implied warranty of merchantability. Many general contract principles govern these warranty claims.
In the context of construction contracts, breach of expressed and implied warranty claims occur, for example, where a manufacturer makes a specific representation as to how its product (i.e. goods) will perform. An implied warranty also arises that goods will perform as ordinarily expected. For example, if it is ordinarily expected that caulk will have a life expectancy of at least three years, and the caulk fails in only one year, a claim may arise for breach of the implied warranty of merchantability.
Two principal defenses arise where a UCC warranty claim is asserted in the construction context. First, where a construction contract calls for the provision of services and goods (e.g, installation of roofing materials), and the cost of the labor predominates over the cost of the goods, the UCC generally does not apply, as the Commercial Code is limited to the sale of goods. Second, where the goods are incorporated into and become a part of a building (e.g where brick veneer is installed to form the exterior sides of a new house), many courts hold that the UCC does not apply either because the homeowner purchased realty, not goods (i.e. bricks).
Negligence
Negligence claims differ considerably from contract and most warranty claims. Here, the claimant alleges that the defendant had a duty to exercise reasonable care, yet breached that duty causing damage.
For example, an architect has an obligation to exercise reasonable care in