Mike Judet's South Florida home was severely damaged by lightning in 2016. He accepted an offer from Cano, Inc. of West Palm Beach to make the repairs. The contract price was $300,000, payable in $30,000 installments. Cano started work. Judet made the first three payments, $90,000. Then Judet discovered a problem.
Cano hadn’t bothered to take out a permit on either the plumbing or electrical work. Cano and Judet couldn’t agree on what had to happen next. So Judet stopped paying and terminated the agreement. Cano slapped a $40,000 lien on the project and sued for breach of contract. Judet’s counterclaim alleged breach of contract, asked for discharge of the lien and restitution of the amount paid in excess of the value of work completed.
Writing a good contract should be easy. (More on that later.) Mopping up after a busted contract can be a hot mess. In the case of Judet and Cano, two sets of attorneys and Florida courts needed five years to tie up the loose ends.
The trial court found that Cano committed the first material breach of contract by failing to obtain the required permits. That made Cano liable for contract damages. But what were the damages?
When a contractor breaches a contract, the owner should recover any additional cost of getting another contractor to finish the job. That’s black letter contract law: When there’s a breach of contract, courts try to restore the injured party to where he would have been if the contract had been performed. That’s called “benefit of the bargain” damages.
In this case, black letter law produced an absurd result. Follow me through on the math.
The contract price was $300,000. Judet’s expert testified at trial that the cost to complete Cano’s work was only $160,000. So, a reasonable cost for the job was the $90,000 Judet had already paid plus the additional $160,000. That’s only $250,000, $50,000 less than what Judet had agreed to pay. By Cano’s reasoning, the breach of contract saved Judet $50,000. Cano’s counsel insisted the court should not award Judet any damages!
Counsel for Judet didn’t agree. At trial, Judet’s expert witness testified that work Cano performed was worth $49,150. By Judet’s reasoning, Cano owed Judet a refund of $40,850, the difference between the value of Cano’s work and the $90,000 already paid.
Who was right? If the contract breach by Cano saved Judet $50,000, did Cano have any right to a partial refund on the $90,000 already paid?
The trial court judged Judet’s expert witness to be credible, both on the value of work completed ($49,150) and the cost to complete the job ($160,000). That made sense. Judet’s expert witness was the contractor who agreed to complete the job for $160,000. Based on that reasoning, the trial court awarded Judet $40,850. Cano appealed.
The appellate court affirmed the trial court decision. Here’s why. If there’s a total breach of contract, as in this case, the court has two options on damages. The first is to award benefit of the bargain damages. That would have yielded Judet nothing. The other choice was to treat the contract as void from the beginning – put the injured party back where he was before signing the agreement. On that basis, Judet was entitled to a $40,850 refund.
I agree with the appellate court decision (Cano, Inc. v. Judet, 9/22/2021). But I can’t resist a few observations:
- Five years in court! The legal bills were probably more than the cost of construction.
- This type of dispute could be settled in arbitration in months, not years.
- A few extra minutes spent drafting this contract would have saved five years of litigation.
It’s easy to protect yourself from disputes like this. For example, any of the following written into the contract could have kept both Judet and Cano out of court:
- Mandatory arbitration.
- Specific language on what happens if the contract is terminated.
- If either party to the contract sues, the losing party pays legal fees of both sides.
To avoid problems like Cano v. Judet, have a look at Construction Contract Writer. The trial version is free.