Defects, Damages and Deadlines: Recent Appeals Affect Contractors’ Rights

Three recent appellate cases reversed the decisions of the trial courts on issues that affect contractors’ rights regarding defective work, claims of liens and evidence of damages.

Third District Court of Appeals Enforces Contractor’s Right to Perform Repairs to Defective Work

In Underwater Engineering Services, Inc. v. Utility Bd. of City of the City of Key West, 194 So.3d 437 (3rd DCA 2016), the 3rd DCA reversed the trial court’s final judgment awarding damages to the Utility Board (“Owner”) for the costs of repairs to allegedly defective work performed by the Contractor. At trial, the Owner alleged that the Contractor breached the contract by failing to perform certain work in accordance with the contract specifications. As a result of such breach, the Owner alleged that it had to hire another contractor to repair the defective work and sought reimbursement for the costs of the repairs. However, the Contractor defended on the grounds that: (i) the work was not defective; instead it was the specifications provided by the Owner that were defective, and (ii) the Contractor was not notified that the work was defective and was not allowed an opportunity to cure such defects. The appellate court did not discuss whether the work or the specifications were defective. Instead, the appellate court analyzed the relevant portion of the contract and found that the Owner had a contractual duty to provide the Contractor the opportunity to replace any defective work. Since the evidence at trial established that the Owner did not give the Contractor the opportunity to repair the defective work, the Owner was not entitled to damages.

Third District Court of Appeals Reaffirms Strict Compliance with Deadlines in Florida Construction Lien Law

In Hiller v. Phoenix Associates of South Florida, Inc., 189 So.3d 272 (2nd DCA 2016), the Court was asked to interpret the deadline for filing an action against a surety on a lien transferred to a bond pursuant to §713.24, Florida Statutes. When Hiller failed to pay Phoenix Associates (“Contractor”) for construction work performed on Hiller’s home, Contractor recorded a Claim of Lien against the property. Contractor then timely commenced an action to foreclose on the Claim of Lien. After commencement of the action, Hiller posted a Lien Transfer Bond, thereby transferring the lien on the real property to a surety bond. Hiller then filed a Notice of Contest pursuant to §713.22(2), Florida Statutes, thus shortening the time for Contractor to commence an action against the Lien Transfer Bond to 60 days (instead of one year). However, Contractor failed to timely commence the action against the transfer bond. Contractor argued at the trial court level, that since it had timely filed its Claim of Lien before the lien was transferred to bond, there was no deadline to commence the action against the surety. The trial court held that the delay in joining the surety did not violate the statute or prejudice the surety in any way. The 2nd DCA reversed, holding that “[T]he mechanics' lien law is to be strictly construed in every particular and strict compliance is an indispensable prerequisite for a person seeking affirmative relief under the statute.” The Court held that the Owner properly transferred the lien to a bond and properly shortened the time for filing an action against the bond. Thus, Contractor’s failure to timely commence an action against the surety resulted in the extinguishment of the right to make a claim on the bond.

Second District Court of Appeals Reiterates Long-Standing Measure of Defective Construction

In Gray v. Mark Hall Homes, Inc., 185 So.3d 651 (2nd DCA 2016), Angela Gray (“Owner”) entered into a contract with Mark Hall Homes (“Contractor”) for the construction of a new single family home on her property in exchange for payment of $168,144. Shortly after moving into her home, Owner discovered a number of defects. Contractor attempted to remedy some of the defects, but Owner eventually filed suit against Contractor for Breach of Contract. At trial, Owner’s expert testified that the lack of flashing allowed water to penetrate into the house, causing the wood to rot. Other experts testified that the house should be torn down because it was worthless, could not be sold, could not be rented and could not be insured. A structural engineer testified that the house was salvageable, but that the cost would not justify the effort. A general contractor testified that Owner paid him $16,000 to replace the balcony. At the close of Owner's case, Contractor moved for a directed verdict arguing that Owner had not properly proved damages. The trial court granted the motion in part, limiting damages to $16,000 because, in its view, the only evidence of damages was the testimony that the general contractor was paid $16,000 to replace the balcony. When the jury returned a verdict for $168,000, the trial court reduced the award to $16,000. In reversing the trial court, the appellate court reiterated the long-standing measure of damages for defective construction (citing Grossman Holdings Ltd. v. Hourihan, 414 So.2d 1037, 1039 (Fla.1982)(in part: “…the difference between the value that the product contracted for would have had and the value of the performance that has been received by the plaintiff, if construction and completion in accordance with the contract would involve unreasonable economic waste.”) Since multiple witnesses testified that the house was worthless, the appellate court reasoned, that the jury could have reasonably concluded that the house was valueless and the jury’s verdict was sustainable under Grossman Holdings.