In the construction world, many of us lawyers talk about what is known as a material breach in order to support a termination of the contract. In other words, the event that supports the claim for default or termination or breach of contract must be a material one or one that goes to the heart of the contract matter. Sometimes, the question comes down to whether an aesthetic or cosmetic defect constitutes a proper ground for termination.
Cosmetic damages. In the recent case of Brenner v. Zaleski (PDF), the court upheld the owners’ decision to terminate the contractor for default for, among other reasons, the existence of numerous cosmetic defects. The case involved the construction of a new wooden loft in a condominium. During performance, the owners informed the contractor that they were concerned about certain cosmetic flaws in the work. The contractor became very aggressive during one of the conversations with the owner, who ultimately decided to terminate the contractor for default.
Trial court. After the termination, the owners hired an engineer who found a structural flaw in the contractor’s work. The owners sued the contractor for breach of contract. The trial court held that the contractor was terminated prematurely, finding that the primary reason the owners terminated the contract was because of the aggressive tone of the contractor during their conversations. The court also held that the contractor was not given an opportunity to cure or repair the defects.
Appellate court. The owners ultimately prevailed on appeal, where the appellate court ruled that “[t]here is no obligation on the part of the owner to allow a contractor, who has breached his undertaking by the performance of an unskilled and unsuitable job, additional time or opportunity to rectify his work.” The appellate court also found that although the owners did not appreciate the contractor’s aggressive behavior, this did not preclude the quality of the contractor’s work from being an additional reason for his termination.
So what? There are so many construction law issues in this case that can provide guidance to contractors—whether working on a new residential home, a large commercial development, or a significant transportation project. Here are a few:
- The contract always matters. In any dispute, the court or arbitrator will look to the parties’ contract to determine the obligations, rights and damages available to the parties. In the case of a termination, the contract expressly addresses the circumstances when the contract can be terminated for the convenience of the owner or for the default of the contractor.
- Material breach always matters. The “materiality” of the breach is important for so many reasons. First, generally you must prove a material breach in order to recover damages. Next, the court or arbitrator will often look to which party committed the first material breach in deciding whether to enforce various provisions of the contract. Finally, as a contractor, you will have only a limited number of circumstances to terminate a contract with an owner (i.e., non-payment, interference or owner-related delays, non-delivery of owner-provided materials), all of which mush be material to your performance.
- Cosmetic defects sometimes matter. While probably not the traditional rule, the decision in Brenner demonstrates that cosmetic defects can support a claim for termination for default. While I do not believe the court would have reached the same result without some proof of a structural defect, the decision focused on the “quality of the work” of the contractor which was challenged by the owners.