In Cano, Inc. v. Judet, the Florida Fourth District Court of Appeal recently reaffirmed that when a contractor breaches a contract and the owner sues for breach of contract, the owner has three options for calculating its damages as follows:
- the owner may obtain the difference between the contract price and the additional money the owner spent to complete the project; or
- the owner can seek the difference between the value the construction would have had if completed and the value of the construction that had been performed before the contractor was terminated; or
- the owner can treat the contract as void and seek damages that will restore the owner to the position it was in before entering into the contract.
Courts refer to the first two options as the benefit-of-the-bargain remedy, which is intended to put the non-breaching party in the position it would have been in had the contract been completely performed.
In Cano, a home owner hired a contractor to repair lightning damage to a home, and the owner agreed to pay the contractor $300,000 in $30,000 increments. The contractor started to work and the owner made $90,000 in payments. The owner discovered that the contractor had not obtained permits for some of the work, and as a result, the owner terminated the contractor. The contractor then placed a lien on the property and sued the owner to foreclose on the lien and for breach of contract and unjust enrichment. The owner counterclaimed for breach of contract.
After a bench trial was held, the trial court found that the contractor committed the first material breach of contract by failing to obtain the permits and by failing to substantially perform its obligations. The trial court concluded that the contractor was only entitled to the value of the work performed, which the court found to be $49,150. Since the owner had already paid the contractor $90,000, the court entered judgment in favor of the owner in the amount of $40,850. That was the difference between the amount paid to the contractor ($90,000) and the value of the contractor’s work ($49,150).
On appeal, the contractor argued that the trial court used the wrong measure of damages. The Fourth District disagreed and as a part of its analysis, the court noted the above three damages options available to the owner. The court found that the trial court had properly entered judgment for the owner to “place him in the position immediately prior to the contract by returning the payments [the owner] made to [the contractor] less the quantum merit value of [the contractor’s] work.” Thus, the court held that the trial court did not err in its measure of damages, and the court affirmed the judgment in favor of the owner.
Botton Line: If you are a project owner who terminates a contractor, you should consider the options you have for calculating the damages you may seek against the contractor in a future lawsuit.