April 2007 - Home Builders Association of Virginia

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co u n s el' s co r n erMaking amends:A project owner’s recourse forincomplete or defective work by S. Miles DumvilleIt is virtually unheard of for a majorproject to be built without some workbeing done incorrectly or left undone.There are legal avenues a project ownermay pursue when faced with significantincomplete or defective work.For obvious reasons, the owner wouldprefer the original contractor or subcontractorcomplete or correct defective or incompletework. The owner will usually save time andmoney if the original contractor agrees tomake the corrections. The contractor willlikewise prefer to do the work because itis usually less costly to self perform thework than to reimburse the owner forhaving it done by a third party.The rub comes when the contractorwalks off the job or otherwise refuses todo the corrective work. Can an ownerobtain a court order (called a mandatoryinjunction) to make the contractor returnand do the work? Not likely.First of all, where contracts for personalservices such as performing constructionwork are involved, injunctive relief is typicallynot available. This is because judgesdon’t like to be put in the position ofoverseeing the work of providers of specializedservices.Also, where money damages are availableto compensate the owner for costsor losses suffered as a result of defectiveor incomplete work, injunctive relief willtypically not be granted. An exception mightbe where the contractor is really more ofa supplier providing specified materials orequipment for the project. If the contractorhas the materials or equipment inits possession, but improperly refuses todeliver them, a judge might be willing toorder the delivery.I’m aware of one Virginia case in whichthe court issued an affirmative order requiringwork to be completed. This casedidn’t involve a contractor, but rather ahomeowner who was constructing a customresidence.For various reasons work stoppedand the residence sat in an incompletecondition for an extended period. Finally,the subdivision’s homeowners associationbrought a suit to require the owners tocomplete the project in accordance withthe plans approved by the association’sArchitectural Control Committee. Afterhearing the evidence, the court orderedthe owners to complete the project andset a deadline for completion. Windsor onthe James Homeowners Association Inc. vs.Fenyes (Circuit Court of Henrico County, CaseNo. CH-98-001493-00).Since injunctive relief is usually not available,the most common course of actionfor an owner is to hire a third party tocomplete the work and to seek to recoveras legal damages the costs from the originalcontractor.According to the Supreme Court ofVirginia: “If the defect is remediable from apractical standpoint, recovery generally willbe based on the market price of completingor correcting the performance, and this willgenerally be shown by the cost of gettingthe work done or completed by anotherperson.” Green vs. Burkholder, 208 Va. 768,771, 160 S.E.2d 765, 767 (1968).The fact that a contractor is clearly liablefor defective work does not, however,give the owner carte blanc to spend asmuch as he pleases to have correctionsmade. The legal concept of “mitigation ofdamages” requires an owner to take reasonablesteps to have the work completedor corrected.If the corrective work could reasonablyhave been done at a lower cost than whatthe owner paid, the recovery may be limitedto that smaller amount. The burdenis, however, on the defaulting contractorto show the work could have been donefor a lower price.There are cases where recovery ofthe costs to complete unfinished work,or remedy defective work, cannot berecovered. In some instances damages willbe measured by the difference betweenthe value of the defective structure andthe estimated value of the structure if ithad been properly completed. See Green,208 Va. at 771.This rule comes into play where completionor repair would involve “unreasonableeconomic waste.” If the court determinesthe costs of repair or completion aregreatly in excessof any value todumvillebe added to theproperty by the corrective work, the owneris only entitled to the “difference in valuebetween the product contracted for andthe one produced.”As one Virginia court put it, if the costsof repairs are “grossly and unfairly out ofproportion to the good to be attained,”the “value rule” applies and the ownermay not recover the cost of repair orcompletion. Steffan vs. Freemason Assocs.Inc., 61 Va. Cir. 247, 248 (2003).A case decided by the Supreme Courtof Virginia in 1987 illustrates the point. SeeLochaven Co. vs. Master Pools by Schertle Inc.,233 Va. 537, 357 S.E.2d 534 (1987).In Lochaven, the defendant failed tobuild a pool of the depth required bythe parties’ contract. The owner presentedevidence that it would cost $21,500 toreconstruct the pool at the correct depth.The court stated an owner is entitled torecover the costs to correct defectivework “unless the cost to repair would begrossly disproportionate to the results tobe obtained, or would involve unreasonableeconomic waste.”The court also said costs of correctivework will not be awarded “in caseswhere the property must be substantiallydemolished before it can be brought intocompliance with the contract provision orin cases where the cost of compliance isgrossly disproportionate to the benefit to beachieved.” The court applied these principlesto conclude the owner in the Lochaven casecould not recover the costs to bring thepool into compliance with the contract.First, rebuilding the pool would requireits substantial destruction. Second, the onlybenefit to be obtained was a diving boardcould be used with the pool. Thus, theplaintiff was not entitled to the costs ofrebuilding the pool, but rather could onlyrecover the difference in the value of theproperty with a pool constructed in accordancewith the contract specificationsand the value of the property with thepool as actually constructed.Again, however, if a contractor attempts32 Virginia Builder April 2007
to avoid paying the costs of correction or completion, it islikely the court will require the contractor to prove thosecosts greatly outweigh any increase in the value of theproperty that would be obtained by correcting or completingthe work. In most cases, this will be a difficult burdenfor the contractor.An owner also may be able to recover other monetarydamages resulting from defective work in addition to thecosts of correction or the reduced value of the property. Forexample, in the case of commercial or rental property, theowner may be able to recover income losses resulting frombeing unable to use the building when originally anticipated.Likewise costs associated with utilizing an alternativestructure or facility while repairs are completed may berecovered. Thus, if a warehouse is not completed on time,requiring the owner to rent alternative storage facilities, therental costs are probably recoverable.Also, there have been cases in which owners have beenable to recover amounts representing increased constructionloan interest or other financing costs resulting fromdelays in the completion of a project. See Roanoke HospitalAssociation vs. Doyle & Russell Inc., 215 Va. 796, 214 S.E.2d155 (1975).Recovery of these types of damages may depend uponwhether the court finds they are “direct” or “consequential”damages. The Supreme Court of Virginia distinguished thesetwo types of damages in the Roanoke Hospital case:Direct damages are those which arise ‘naturally’ or ‘ordinarily’from a breach of contract; they are damages which, inthe ordinary course of human experience, can be expectedto result from a breach. Consequential damages are thosewhich arise from the intervention of ‘special circumstances’not ordinarily predictable. If damages are determined to bedirect, they are compensable. If damages are determinedto be consequential, they are compensable only if it isdetermined that the special circumstances were within the‘contemplation’ of both contracting parties.As a general rule, contemplation must exist at the timethe contract was executed.In Roanoke Hospital, the Supreme Court of Virginiaruled additional construction loan interest that had to bepaid because of delay in completing the project could berecovered as a direct damage, but additional interest costsresulting from market increases in the applicable rate ofinterest during the period of delay were consequential damagesthat could be recovered only if it was shown that thepossibility of such increases was within the contemplationof the parties at the time of contracting.As the foregoing illustrates, the particular facts of anygiven case can greatly affect an owner’s rights and the legalstrategies that must be employed when an owner is facedwith a contractor who refuses to complete a project orcorrect defective work.(S. Miles Dumville of Reed Smith LLP has more than 30 yearsof experience in the state and federal courts throughout Virginiaand in other jurisdictions at both the trial and appellate level.He represents business entities in dispute resolution proceedings,as well as financial institutions and other lenders in licensingproceedings and enforcement actions. He can be reached at[804] 344-3430 or mdumville@reedsmith.com.) VAB No magazinereaches morebuildingindustrydecisionmakersthanVirginiaBuilder. Build-PACneeds youCelebrating more than 50 years of service to housing in VirginiaVirginia Builder delivers to advertisers the largestnumber of building industry decision-makers inthe state. Mailed nine times a year, themagazine, which is the official publicationof the Home Builders AssociationClear choicesClasses in sessionApril 1-3 at UVAPRSRT STDUS POSTAGEPAIDPERMIT 278MORRISTOWN TNof Virginia, goes directly to more than8,000 company owners and high-levelexecutives. No other state associationmagazine can deliver your messagepackaged in such an attractivelydesigned and well-written format.This magazine contains “mustknow” news for professionalsinvolved in Virginia’s buildingindustry.To learn more about howVirginia Builder can help yourbusiness grow and to receive a copy ofVirginia Builder and a media kit, call MicheleWeatherly at 888-364-5272.JUNE 2007 ISSUEFEATURES: FOUNDATIONS, HURRICANE-RESISTANT PRODUCTSRESERVATION DEADLINE: APRIL 25, 2007
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April 2007 - Home Builders Association of Virginia

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