Question

Harry Homeowner and his wife Happy (the “Homeowners”) decide to renovate their house after 15 years. They hire Reckless Ruins, Inc. (“RRI”), a general contractor, to perform the work. RRI is not particularly experienced and has been in business for less than a year. The “Project” was structured in three phases: (I) the Powder Room, (II) the Family Room, and (III) a man cave in the basement (the “Man Cave”).

The project called for a down payment of $10,000 and progress payments of $15,000 upon the completion of each of the three phases, for a total of $55,000, 15% of which is profit and 85% is costs. Each phase of the Project is equal in amount of work to be performed. The contract contains the following clauses:

Warranties. RRI warrants that it will complete the Project in a workmanlike fashion and will perform its work in accordance with the knowledge and practices of a superior contractor in the industry.

Scope of Work. RRI recognizes and acknowledges that Homeowners have not and will not retain an architect or an engineer for the Project and accepts any and all risks that may result, if any. Assignability. No part of this contract is assignable without the express written consent of Homeowners.

Site Conditions. Both parties recognize there exists site conditions that are unknown at the time of this contract. In the event additional and necessary work is warranted based on actual site conditions discovered during demolition, Homeowners agree to pay RRI the reasonable cost thereof.

Time of Completion. RRI covenants and agrees that the Project will be completed by no later than December 31, time being of the essence, because of a special Super Bowl party that Homeowners will host in February. RRI agrees to pay Homeowner liquidated damages in the sum $2,500 per day for each day the Project is late.

Consequential Damages. Homeowners waive all claims for consequential damages arising from site conditions unknown at the time of this Contract.

The Homeowners paid RRI the down payment of $10,000. The Powder Room was completed seamlessly and on time. But Harry and Happy Homeowner declined to pay RRI.

Notwithstanding the Homeowners’ failure to pay RRI, RRI nevertheless proceeded with the Family Room renovation that would involve a combination of two rooms, the large, formal living room that no one uses and the small den in which everyone spends their time watching TV. On September 1, RRI commenced the demolition work. Sam Sledgehammer, an employee of RRI, performed most of the demolition work. While working on the job, Sam falls off a ladder given to him by the Homeowners and breaks both legs. The demolition reveals two rather large posts in the walls that appear to be structural in nature. RRI suggests to Homeowner that they hire an architect or engineer to assess whether the posts are load-bearing or not and whether they can be removed without causing structural damage to the house. Homeowners explain they did not budget for either an architect or an engineer and direct RRI to do what is “best.” On behalf of Homeowners, RRI hires the Helix Engineering Labs Project, Inc. (“HELP”) and pays it $5,000 to survey the project. Based on HELP’s engineering report, RRI advises Homeowners that the posts are structural in nature and cannot be removed without installing a structural “I” beam for the additional cost of $5,000. Homeowners refuse to pay RRI for the cost of HELP’s bill and the cost of an additional “I” beam. On October 1, RRI walks-off the job, afraid they may cause structural damage to the house.

Homeowners freak-out and don’t know what to do. In an effort to clear their minds, they travel to Key West for an extended vacation to chill and learn bone fishing. They return home on November 1. Upon their return, they talk with other contractors and hire Supreme Contractors, Inc. (“SCI”). SCI agrees to complete the work on the Family Room for $25,000 and the Man Cave for $25,000. The contract between Homeowners and SCI is identical to the contract between Homeowners and RRI. SCI is very, very experienced and examines the original drawings for the house and determines that the posts between the living room and den are not structural in nature.

SCI proceeds to remove the posts without incident and completes the Family Room expansion. Homeowners pay $25,000 to SCI. SCI next proceeds with the Man Cave portion of the Project. In the middle of the construction, SCI notices that ground water is seeping into the basement through cracks in the foundation. SCI advises Homeowners they should consult with an engineer, and with Homeowners’ consent, SCI hires Earnest Engineers (“EE”). EE advises that waterproofing material should cure the problem and recommends to SCI that it use ABC sheeting and WonderSealant compound. SCI covers the foundation with the ABC sheeting, but uses a generic brand of sealant compound. Homeowners pay SCI the remaining $25,000. Homeowners also pay EE’s bill of $2,500.

The work is finally completed by February 1 and Harry Homeowner schedules a Super Bowl party for February 4. Harry invites his supervisors at his company, European Express, including its President, Elvis Presby. Harry knows that Elvis is a huge Justin Timberlake fan and knows that his new Man Cave equipped with the best Surround Sound system will make Justin sound GREAT! He is sure this will result in a promotion.

It rains cats and dogs before the Super Bowl party. As a result, the Man Cave is flooded with three feet of water. The renovations in the basement are water damaged and moldy and need to be replaced, along with the furnishings and the new 55 inch flat screen TV and Surround Sound system, costing $10,000. Harry embarrassingly tells his boss Elvis that he must cancel the party. Elvis yells at Harry and calls him irresponsible for not being able to put the party together. He publically posts on Instagram: “Harry Homeowner is the worst salesman I’ve every employed.”

Two weeks later, European Express announces the need to lay-off employees. Harry is on the list and loses his $75,000 a year job, which he has had for a year. Harry is European Express’ top salesman. The Homeowners pay $25,000 to The Best Contractors, Inc. (“TBC”) to repair the Man Cave.

1. Identify and define each legal cause of action applicable (the legal theories) specifying the elements of each cause of action. Your analysis should include, but should not be limited to, the following concepts: (i) material and minor breach of contract, (ii) breach of contract remedies, (iii) compensatory and consequential damages, (iv) anticipatory repudiation, (v) liquidated damages, (vi) mitigation of damages, (vii) negligence and malpractice, (viii) agency and independent contractors, and (ix) workers compensation.

2. Argue both sides of each case.

3. Define the damages, if any, and quantify where possible.

4. What would be the court's final verdict?

Answer 1

(i) Material and minor breach of contract,

Breach in contract between Homeowners and RRI:

The main breach in contract with Reckless Ruins, Inc. (“RRI”), a general contractor was the Homeowners (Harry and Happy) has not asked to provide the working standards of RRI even Homeowners was knowing that they have a less than one year experience in this profession. The working standards should be define well for billing and claims against the damage. Instead they should have asked RRI to submit the all specification, drawings, bill of materials and “Terms and conditions” of contract.

RRI should also do a walk through and have examine all the current site conditions prior to give warranty and completion schedules. Also, the construction equipment (ladder) shall be provided by RRI to it’s employee Sledgehammer who was involved in demolition.

Breach in contract between Homeowners and SCI:

It is already stated by RRI (on behalf of HELP) that the posts are structural in nature and cannot be removed without installing a structural “I” beam. But when new hire SCI (Supreme Contractors, Inc.) gave the statement that posts are not the natural structure and need not to install ‘I’ Beam, the Homeowners should have taken third party opinion prior to give green signal to SCI.

The SCI should also asked about the posts to Homeowners additionally they should have consulted with more then one consultants about the posts.

(ii) Breach of contract remedies,

Breach of contract remedies between Homeowners and RRI:

Nobody step out for the amendment in contract. The contract can be modified as the un-determined site condition has taken place.

RRI hires the Helix Engineering Labs Project, Inc. (“HELP”) in behalf of owner without any contractual agreement as it was not in primary contract. This puts RRI into big trouble for losing money simply.

RRI should not lay off and should have submitted the contact amendment with ‘I’ Beam.

Breach of contract remedies between Homeowners and SCI:

The SCI should also asked about the posts to Homeowners additionally they should have consulted with more then one consultants about the posts.

(iii) Compensatory and consequential damages,

The fall of Sam by ladder was consequential damage because the ladder provided by the Homeowners. In this case, the RRI is non-breaching party.

The labor cost and consultant cost charged by RRI to owner is also the consequential. In this case also the RRI is non-breaching party.

(iv) Anticipatory repudiation

The Anticipatory repudiation is well written contact with best specification of material and labor cost. The warranty, guaranty and delay shall be well explained with situations. If such has been done, the RRI would have completed the contact successfully and there were no damage due to rain water because RRI offered the ‘I’ beam to strengthen the posts.

(v) Liquidated damages,

The liquidate damages are well defined in the contract between Contractors (RRI & SCI) and Homeowners. The damages are not easy to foreseen so around 5% ($2500) of total contract is good to go.

(vi) Mitigation of damages,

Mitigation of damages was not defined in contact as they both agreed to go with best professional approach in market for these kind of work.

(vii) Negligence and malpractice,

Not checking load bearing capacity of ladder was first Negligence and malpractice. SCI has also neglected support requirement of posts.

(viii) Agency and independent contractors,

Agencies are good for industrial and big contracts while independent contractors are good for small renovations. The biggest benefit with small contactors is, the communication gap is very less and they are good to do alteration in plan as required.

(ix) Workers compensation.

Like a consequential damages, the worker should also get benefitted for additional working hours. This shift timing should be mentioned in contract with terms and conditions for compensation against additional working hours. This will save and benefit the workers in case if Homeowner is asking additional work from contract.

1. Argue both sides of each case.

Argue RRI Side: The Homeowner should pay the amount for first phase of project as it was successfully completed on time. Homeowner should also pay the HELP fee as they have hired on behalf of Homeowners. The posts issues was from Homeowner side and RRI is not responsible for this.

Argue Homeowner Side for RRI contract: RRI clarified that they will work as per standards practice so determining the strength of post is also their responsibility and Homeowners are not liable to pay this cost.

Argue SCI Side: The Homeowners hided the history of posts. We have worked with the information shared with us.

Argue Homeowner Side for SCI contract: SCI has not examined the posts strength properly and gave the wrong statements. Because of this we were not able to do our Bowl function and faced insult in public.

2. Define the damages, if any, and quantify where possible.

Intangible Damage: Harry’s boss was unethical and he acted very badly in public. This was damage on Harry’s image. Because of contractual issue in home, harry loosed his professional job.   

Tangible Damage: Harry lost his money and time. The contractual breach is responsible for this damage.

3. What would be the court's final verdict?

Homeowners Vs RRI: Homeowners should pay the money for the first phase installation to RRI. The RRI should also be paid for HELP’s fee. IF RRI will be hired again, the Homeowners should pay them 10% extra of actual contact.

Homeowners Vs SCI: SCI is to reconstruct the man cave as soon as possible. The Homeowner will not pay a extra cost for this wok.

Homeowners Vs Elvis: Harry should be retained on job because the Elvis’s behavior for him was not ethical. If Homeowners wants, he can file a Defamation case against Elvis.