Breach of Contract Explained
A breach of contract occurs when either party fails to meet his or her obligations under a given contract. The first part of the contract gives an understanding of what each party is expected to do. If one overreaches or falls short of that expectation, he or she may be brought up on contract violation. In the construction and renovation industries, contractor violations may include:
· Excessive delays
· Construction of units that are clearly too small for the intended purpose
· Major construction techniques not followed , leading to serious safety concerns
· Major variations in the cost of construction materials or contractors
· Major changes to the layout of the building, such as the creation of extra rooms or significant changes to the size of rooms
While it is possible for a contractor to simply violate your contract by coming in late or costing more than expected, those types of breaches are not substantial enough for most clients to warrant legal action. Instead, most legal action taken against contractors for breach of contract occurs only when there are major concerns about the quality and usefulness of completed construction.
Determining Your Legal Grounds
Do you know the reason behind why your roof is leaking again? Is your full bathroom still not functional due to shoddy workmanship? Are your cabinets unfinished and "delayed" every time you ask for them? Are your doors sticking and your windows not open? Do you have a poor fence that is leaning, broken or falling apart? Are your kids sleeping in the dirt on the floor of their new bedroom? When contractors or "experts" turn out to be the source of these challenges, you will probably find yourself wondering what to do.
There is not a simple answer to the question of whether you have a legal basis to sue a contractor for breach of contract; an extensive investigation of the facts is usually required. The length and cost depend on the work, the parties and the issues. In most cases, though, a lawsuit is not likely to be worth it for either side unless it is beyond a certain amount (typically seven figures). Another question about this type of action is whether you can even afford to put together your evidence for litigation. You should always ask yourself if you have enough information to prove the contractor or his employees did not live up to the deal if you sue, whether the magic number is in your favor, and whether suing will get you more than you will spend. Frequently, that is not the case, and some cases may vary due to exceptional circumstances. While there is no set answer, most cases typically require an attorney specializing in construction law and/or an expert to support the claims.
The deal made by the parties is critical. In order to have a strong case, the general rule is that the agreement between the homeowner and contractor should be in writing. There are specific requirements for contracts. They should be written clearly and concisely. Electronic and freehand notes may not be sufficient. It is also important that the contract addresses all the pertinent details clearly. In addition, be cognizant that any handwritten amendments replace or alter written terms. Lastly, you should know about oral contracts. They are the classic "we had a handshake deal" but they can be determined by additional points. For example, if the agreement appears to be written, whether it is executed, when it was agreed upon, if it was performed, where it occurred, and the attending circumstances, it is the kind of deal that could be taken to court.
Also, if there has been damage, it is critical in all cases to ensure that the damage, injury or loss must have been caused by or due to the breach of the contractor’s duties. Like a car accident, there may have been more than one cause or problem. The issue is whether the underlying issue is a product of the actions — or inactions — of the defendant or third parties.
Suing a contractor for breach of contract can be complicated and difficult. However, it is not impossible. The exact steps involved to get a good result are unique to the specific facts and circumstances.
Collecting Evidence
Collecting this evidence is critical for establishing not only the merits of your case (i.e. what evidence you have to suggest your Contractor failed to hold its end of the bargain), but also your damages (i.e. how much money you lost as a result of what the Contractor did or did not do). So if you sue, and even if you win—for example in small claims court—a judge will likely award you little more than a penny if you do not have any evidence at all. The combination of all of the below information is essential to overcoming that hurdle.
Put simply, you must delineate exactly what it was the contractor promised to do and what it did or did not do. Whether that is written or verbal, you must be able to show noncompliance with the contract.
In general, if you have a contract with the contractor, that contract needs to be produced. If you do not have a contract, an invoice or estimate with terms of delivery or the like may be admissible evidence, at least for the terms of service. Copies and scans of contracts and invoices are the most useful, obviously. But sometimes even pictures of handwritten notes can work.
Keep track of written correspondence, be it physical letters or emails, and identify which documents discount or support your contractor’s defense or at least what was satisfied. This is also the best way to capture verbal communications.
Keep all physical receipts that pertain to the work in question (and if possible receipts in bulk that merely reference said work). Make sure to identify those receipts that were signed off on by the contractor so you can refer back to them.
In construction and home improvement especially, no matter who the contractor is, pictures are everything. Pictures of the existing structure are essential before work begins to illustrate "before" and "after." If you can get a video, great. Photographs of the people you contracted with, their vehicles, their equipment, their workers, and even tradesmen that you later factored into the cost of the job are also important. If you have all of this information and can prove an estimation, you can be sure that you will be awarded something.
If you are to claim damages resulting from the allegedly deficient work of your contractor, it is ideal to get this information beforehand. If possible, call in an expert (a general contractor, structural engineer, etc.) to inspect the work done and have him or her provide you with a quote on what it would cost to fix. Then, when you sue the contractor, there can be no doubt that the estimate is legitimate and fair.
This is not easy, obviously, and it requires hiring an attorney and that attorney hiring an outside expert to verify that your complaint is credible and the contractor’s defense is unfounded and dishonest.
Considering Alternative Dispute Resolution
Although lawsuits can be the most effective way to find resolution to a dispute with a contractor or subcontractor, there are other options that can still be beneficial even if the court system is avoided. Mediation and arbitration are two processes available to parties when they want to reach a settlement without using the courts.
Mediation
At mediation, both the contractor and homeowner come together with their lawyers and a facilitator who is trained to help both parties talk about their needs in the contract dispute. The facilitator is not the judge, but instead is a person well-trained in the ways of conflict resolution. It’s important to note that this process is much more amenable than an adversarial court process.
During the process, a mediator can help both the homeowner and the contractor more clearly understand the issues at hand, and work together to resolve their differences ahead of the court process.
Mediation can also be a good solution if there are many smaller issues (like you had a stain on the carpet or the stove wasn’t working). You can sort through each issue and avoid having to go to the court for every little thing.
When Should You Use Mediation?
Many times, alternative dispute resolution, such as mediation, is a quick, successful, and low-cost way to settle your case amicably. Seeking a solution with the help of an impartial third-party is usually more cost-effective than preparing for trial. Mediation is especially valuable when the two parties have a complicated case that would be difficult to settle through the legal system. It can also be used if the parties wish to preserve the relationship for future business dealings.
Arbitration
Arbitration is another form of settlement where both parties agree to present their case to the contractor board and accept its ruling without seeking additional litigation. Arbitration is usually faster and less expensive than going to court.
The parties both agree to a neutral third party and present all the contract information, any evidence, and each side’s claims to the adjudicator. Although it’s much like preparing for a court case, arbitration is not quite as formal. While the contractor board does implement procedures, it’s much more flexible than court proceedings.
Finally, both the contractor and homeowner agree up front to accept the board’s ruling. Because it is a legally binding ruling, though, it limits the rights of both parties to appeal. Most of the time, those parties that go through arbitration find that it adequately meets their needs, and the process is much quicker than going through the court process. If you win the case against the contractor, you may be able to recoup additional costs, because the contractor is required to pay for attorney fees and other costs.
When Should You Use Arbitration?
Arbitration can be the answer when both parties are aware of what they want. Once the parties decide to use arbitration, you must be willing to abide by the findings of the contractor board. Arbitration works well for those who don’t want to go through the court system, yet who want a binding decision about the dispute. You may not want to go through mediation first, because that would provide you with a non-binding opinion, but requiring you to go to court if you don’t get what you want. Arbitration provides a binding solution that eliminates the need to go through the courts.
Finally, arbitration is a good option for parties that do not want others to know their business, or to publicly air their dirty laundry during a court case.
Initiating a Lawsuit
If you have given your contractor a chance to finish the job and pointed out to him the various defects, and/or delayed paying him for the last draw, without any resolution, and if you want to sue him, then you will need to file a lawsuit. You can file a lawsuit in two different stages: Small Claims Court, or in Superior Court. This is going to be determined on how much you are suing your contractor for. Later on in the article I am going to discuss how to determine how much you are suing him for, if you do not know. If the total claim is for $7500 or less, you can sue in Small Claims. If the total claim is for more than $7500, you will have to sue in Superior Court.
Suing in Small Claims is a relatively simply process. You can go down to the local court, and fill out a small claim form. You do not need a lawyer, and the filing fee is only $25.00. In most cases, If you win in Small Claims, the judge is going to order the contractor to pay you. If he doesn’t pay you then you can garnish his wages, file a lien against the contractor’s real estate, repossess his construction tools, or do other things in order to get the money that you were awarded. For more information on this process visit my website www.contractorliabilltypro.com. I will provide you one free hour of reading time (lots of reading), including examples of lawsuits won against contractors, if you go to my website and fill out the form my assistant will send you an email containing links to download the material.
Suing in Superior Court is more expensive and time consuming. You do not need a lawyer but I highly recommend hiring a lawyer to assist you, unless of course you have experience with court trials. If you decide to represent yourself, and do not hire a lawyer, you will eventually have to go to trial. And if you have no experience or background in court law, you are not going to win . Lawyers know the law, and how to prove all the elements of a breach of contract. They can prove things that you never even thought of. I can not tell you how many times I have been in contact with a prospective client, wanting to talk about hiring me for a lawsuit, and after a few minutes of talking, it is clear that they have a case. But if they were to proceed alone, they would lose. Not necessarily because they are not right, or that they owe their client money, but because the contractor will have a lawyer, and he has prepared the case in the proper format, and has evidence to support his side of the story. Without a lawyer, the unsuspecting homeowner would be at a serious disadvantage.
A lawsuit can cost anywhere from $2500 to $50,000. The amount that you will have to spend will depend on several factors. Once the amount goes above $5000 I would highly suggest hiring a lawyer to help you.
To determine the amount of money that you should be suing for, you simply need to sit down and go through the entire contract, and every single addendum, and add up the total value of everything you are owed. If there is a dispute about the quality of the work, you will have to secure experts to back you up. The cheaper, quicker thing to do is to sue for the entire amount that you are owed. The contractor may then come back and make some claims against you for delays, and has probably already filed a Mechanics’ Lien against your property anyway, and he can file a Mechanic’s Lien for more money than what you owe him because of the added legal fees and penalties. If you sue the contractor for the full amount, in Small Claims, you may lose bad. However, if you sue him for a partial amount, in Supreme Court, he can cross claim against you for the other portion, and you will still have to fight the case out in trial. The truth is that neither way is the right way to go about it, and so either way there is a risk, and either way you could lose.
What to Expect in a Lawsuit
When a lawsuit against the contractor is filed, the plaintiff may be entitled to a variety of remedies from the contractor. These remedies vary by state, and each case is different. In most contract claims, if won, the plaintiff can choose between being paid for damages and either being awarded the amount owed under the contract or rescinding the contract. There are four types of damages that are awarded in real estate contract claims.
Intended breach damages: real estate damages typically reflect the contract price minus the remaining payments owed to the contractor. These damages are generally calculated by taking into account the value the defendant has performed, or unjust enrichment. For example, if a contractor takes $10,000 and performs work that is valued at only $5,000, the plaintiff is awarded $2,500 in damages, or restitution/conversion damages.
Out-of-pocket damages: damages are assessed using the amount the plaintiff has paid a contractor minus the amount saved from not having to pay a contractor who did not perform. For example, if a contractor receives $10,000 for renovation work, and the plaintiff obtains another contractor to do the same work for $5,000, in this scenario, the plaintiff would receive $5,000 in damages.
Lost profit damages: if the plaintiff is a contractor and can demonstrate that they would have made a profit had the contract been performed as planned, the plaintiff can typically recover those lost profits. For example, if a contractor is contracted to remodel a heating and cooling system for $10,000, and the plaintiff files a lawsuit to recover the remaining $5,000 of contract price, and can demonstrate lost profits or business as a result of the breach of contract, they can be awarded damages reflecting the loss of those profits.
Safeguarding Your Future Contracts
In the future, when you contract with a builder or contractor, make sure that you draft your contract as thoroughly and specifically as possible. The more detail you include in the contract, the better you will be able to protect yourself and the project. Be sure to include all necessary details, such as what materials will be used, where they will be delivered, how bills will be paid, when the work will be completed, how and when the contractor will be paid, and what happens if the contract is breached. For example, if your builder requires that you pay them 30% of the total project cost up front, you should include the specific amount they are required to do with that money in order to prove that they started their work. Applications for payment should also be detailed in contracts, outlining when they will be requested and how they will be approved. When you hire a contractor, you want to make sure that they have the educational background , licensing, and experience they claim they do. Check their background by calling former clients. Ask for references for past work and follow up with them. Visit the company’s past projects in person and talk to clients. Ask to see proof of insurance and a license/registration with your state. You can also go online to check if there are any address or phone number complaints against the company. When you are discussing the details of the contract with your builder or contractor, show them the exact details that you expect to be completed before their payment is made. You should also clarify the terms and scope of the project with them often. Be sure to thoroughly explain exactly what you want done and how you want the payment schedule to work before the project begins. Be sure to maintain open communication with your contractor so that there are no gray areas when it comes to how you expect the project to be done and when payments will be made.