By: Alexander S. Beck, Esq., Stearns, Roberts & Guttentag, LLC
Under Florida law, when suing for damages resulting from a breach of contract arising out of non-payment for work performed and where the contract is fully performed, the unpaid contract price is the measure of damages. Where the contract is substantially performed, the measure of damages is the contract price less the damages that the party receiving the work sustains in achieving full performance. If the contract is less than substantially performed, the measure of damages is the reasonable cost of the work performed, plus lost profit on the remainder of the work. Substantial completion is generally defined as when construction is sufficiently completed in accordance with the contract documents so the project can be occupied or utilized for the use for which it was intended. The case of Hibachi Grill, Inc. v. Arki Const., Inc., 2014 WL 1814163 (Fla. 3rd DCA 2014) dealt with a contractor’s damages for non-payment after it had substantially performed under its contract with the project owner.
Hibachi Grill, Inc. v. Arki Const., Inc. involved a dispute arising out of a prime contract between a restaurant owner (“Owner”) and Contractor under which the Contractor was retained to build-out of a restaurant. The case began as a breach of contract claim by the Owner against the Contractor, after which the Contractor brought a counterclaim against the Owner for the unpaid contract balance. The parties settled the Owner’s breach of contract claim against the Contractor, but the Contractor’s counterclaim was left to be decided by the court.
In its counterclaim, the Contractor alleged that it was entitled to the full unpaid balance under the prime contract. As a defense to the Contractor’s counterclaim, the Owner argued that the unpaid balance of the contract should be set off (i.e. reduced) by all sums paid by the Owner directly to the Contractor’s subcontractors for work performed under the prime contract. The trial court, however, struck the Owner’s defense on the grounds that it was barred and released by the earlier settlement agreement and dismissal of the Owner’s claim for breach of contract. The trial court then granted the Contractor’s motion for summary judgment for the full unpaid balance with no deduction for amounts paid by the Owner directly to the subcontractors. The Owner appealed the trial court’s decision.
On appeal, the Owner argued that it was error to award the full unpaid balance of the contract because: a) the damages should be deducted by the amounts paid by the Owner directly to the subcontractors; and b) the Contractor should only have been awarded its anticipated net profit on the job rather than the unpaid contract balance.
The appellate court agreed with the Owner’s first argument to reduce the unpaid balance by the amounts paid directly to subcontractors, since these payments were for the Contractor’s benefit. In support of its ruling, the court noted that the Contractor’s own amended complaint, filed after the settlement agreement, acknowledged that the unpaid contract balance was to be reduced by “whatever amounts” were paid by the Owner directly to the subcontractors. The Court concluded that it would be a windfall to the Contractor to allow the Contractor to recover the gross amount remaining payable to the Contractor without deduction for the amounts paid by the Owner to subcontractors.
The Owner’s second argument, to limit the Contractor’s claim to only include “lost profit” rather than the full unpaid contract balance, was rejected by the court. Lost profits are the profits the non-breaching party expects to earn and which would have been possible only if the contract was fully performed. The Court explained that the cases cited by the Owner to support reducing the damages were substantially different from the facts of the present case. Specifically, the cited cases dealt with contracts that were breached by the defendant before substantial performance occurred, and therefore the non-breaching party would have incurred expenses in performing the balance of the work required by the contract. In other words, since the non-breaching party still would have to incur expenses to perform the contract, by awarding the full unpaid balance the non-breaching party would be placed in a better position than it would have been in by full performance of the contract.
In the present case, however, the Contractor substantially performed the work under the prime contract, and therefore is entitled to be paid the full unpaid contract price, less only those amounts paid by the Owner directly to the subcontractors.
This case demonstrates that where the contract is substantially performed, the measure of damages is the contract price less those amounts paid by the Owner directly to the contractor’s subcontractors, if any, and the damages that the party receiving the work sustains in achieving full performance.
About the Author: Alexander S. Beck is an associate with Stearns, Roberts & Guttentag, LLC. Mr. Beck in construction law including construction lien claims, payment and performance bond claims, bid protests, construction contract preparation, and construction and design defect claims He can be reached for consultation at [email protected].