In determining the amount to which a contractor is entitled when a project is not completed, the analysis is often based upon the owner’s alleged damages. The most basic statement of breach of contract damages is that the amount awarded should put the injured party in the position that they would have been in if the contract had been fully performed.
For a breach of a construction contract involving defective or unfinished construction, damages are measured by computing either (i) the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste; or (ii) the difference between the value that the product contracted for would have had and the value of the performance that has been received by the plaintiff, if construction and completion in accordance with the contract would involve unreasonable economic waste.
Levesque v. D & M Builders, Inc., 170 Conn. 177, 180-181 (Conn. 1976). In the case where a court only allows the owner to recover the property’s diminution in value, the court recognizes that the owner may not be put back in the exact same position it would have been in had the contract been properly performed, but this second option is an equitable remedy that is based upon the owner ending up in relatively the same financial situation. Id. at 183. Nonetheless, the important point for this discussion is that both options, which are premised on the contractor breaching the contract, still allow a contractor to receive payment after performing incomplete or even defective work. The payment that the contractor receives is determined by how much the unpaid contract balance exceeds the completion cost or the property’s diminution in value. However, that is not the case when the contractor abandons a contract for the improvement to real property.
If a contract for the improvement to real property is abandoned, a promise to pay for benefits received will not be implied. Kelley v. Hance, 108 Conn. 186, 189 (Conn. 1928)(holding “[w]here work has been done upon one’s land, the benefit cannot well be returned, and an acceptance of the benefit cannot be implied from the mere retention of possession of the land.”). Thus, the general rule for the breach of a construction contract discussed above that entitles a contractor to some payment even when the contractor’s work was not completed or was defective, does not apply. Levesque v. D & M Builders, Inc., supra. Therefore, a contractor that abandons a contract for the improvement to real property may not receive any payment.
The question is whether this rule makes sense, and like anything else in law, the answer is that it depends. In Kelley v. Hance, the work the contractor was supposed to perform was the construction of a concrete sidewalk and curbing, but the contractor abandoned the project after completing the excavation. As a result, the owner did receive some work for which it probably should have been required to pay. Assuming that the excavation work had been done to the proper grade (and there was no indication in the decision that it was not), the completion contractor would not need to perform this work and, therefore, would not have charged the owner for it. Conversely, if the concrete sidewalk and curb were completed but were not poured to the correct elevation or with the wrong pitch, then the completed work would need to be replaced.
When an owner is left with a defective improvement to real property, such as a defective sidewalk, there are a number of reasons why an owner may not be able to have such work corrected immediately. In addition to the cost of the work, there may be a further impact to the owner’s business that must be avoided for a certain period of time. Therefore, an owner may be forced to retain both the land and defective work, which would be a situation where a rule that does not require the owner to pay the contractor anything would be correct.
Where the decision in Kelley v. Hance does not make sense is its limitation to work pertaining to real property. There are certainly improvements to structures that are not readily able to be returned. A project requiring the replacement of structural members could result in defective work that is no more capable of being returned than a concrete sidewalk. Of course, a project for the improvement of a structure may include the installation of mechanical equipment that is easily replaced if the equipment is defective. Therefore, the rule set forth in Kelley v. Hance may make more sense if the court evaluates the work in question on a case-by-case basis.
My general advice is that you should always complete your contract work, if possible, no matter what the owner has done. You can always fight about the money that is due after the work is complete. However, if you do not finish the work, you will have to prove you were right to leave the project, and then you will be in a fight about the value of the uncompleted work, and, based upon Kelley v. Hance, you may also be in a situation where the court decides that you are not entitled to any payment at all.
Of course, if the owner breaches the contract, finishing the work may not be possible or you may not have the financial capacity to do so. As discussed elsewhere in this blog, an owner’s failure to make a progress payment when due is a breach of the contract that excuses a contractor’s further performance. However, the owner will typically set forth some excuse for not making payment that will cloud the issues. Thus, the hard part is knowing if you are entitled to stop work under the unique circumstances of your situation.
If you should ever have a question about whether to complete a project before making a claim, please give me a call at (203) 640-8825.
Scott Orenstein