Construction Lender Liability


Does a subcontractor have rights against a construction lender?

Yes.  The Third District Court of Appeal held that a subcontractor may have a good-faith basis to allege a claim for equitable lien against a lender’s undisbursed construction loan proceeds.  In RC Aluminum Industries v. Regions Bank, the Third District reversed an order dismissing a complaint by a subcontractor against a lender to impose an equitable lien and for unjust enrichment.  The court held that the facts may show that the lender exercised affirmative deception on the subcontractor to keep it on the job; therefore the basis for an equitable lien may rest upon material misrepresentation, fraud, mistake, or unjust enrichment.

127 So. 3d 881 (Fla. 3d DCA 2013).


Construction Warranty – Material Supplier v. Manufacturer

Who Does a Condominium Association Have a Construction Warranty Claim Against for a Defective Product?

Answer: The Supplier and not the Manufacturer Pursuant to Florida’s Statutory Warranty Provision Section 718.203.

In Port Marina Condominium Association v. Roof Services, Inc. et al., a condominium developer entered into an agreement with Best Roofing to install a roof on a boat storage building.  The developer entered into a separate contract with GAF Materials to guaranty a roof product called TOPCOAT.  After construction leaks appeared in the roof of the boat storage building.  A dispute arose as to whether Best Roofing was responsible for improper application of the TOPCOAT or whether GAF was responsible for the failure of the product itself.

The Condo Association sued the developer, Best Roofing and GAF under Florida’s Condominium Warranty Statute (section 718.203, Florida Statutes).  GAF moved to dismiss the complaint alleging that it was the product manufacturer and not a supplier of the TOPCOAT and therefore the Condominium Warranty Statute did not apply to GAF.  The court looked to general definitions to determine whether GAF was a supplier or a manufacturer.  The court defined supplier as “a persona engaged directly or indirectly, in teh business of making a product available to consumers” and defined manufacturer as “a person or entity engaged in producing or assembling new products.”  Since the Condo Association’s complaint failed to allege that GAF was a supplier or that it furnished, sold, or delivered anything for the project, it was proper to dismiss the complaint against GAF under the Condominium Warranty Statute.

119 So. 3d 1288 (Fla. 4th DCA 2013)

Construction Lien Errors

Construction Lien Errors & Omissions

In Premier Finishes, Inc. v. Maggirias, Florida’s Second District Court of Appeal reversed the trial court’s order which discharged a claim of lien because the trial court failed to find any prejudice to the owner due to the defective lien.

Premier Finishes, under the Fictitious name of PFI Construction, entered into a construction contract with the Soulos Family Trust.  Maggirias, the trustee of the Soulos Family Trust terminated Premier Finishes and failed to pay the outstanding balance due.  Premier Finishes recorded a claim of lien on the property and then sued to foreclose the lien.

Maggirias filed a motion to dismiss alleging the lien was filed by Premier Finishes but the contract was entered into by PFI Construction.  The trial court granted the motion to dismiss finding that since the contract was in the name of PFI Construction and there was no alleged or proven contract in the name of Premier Finishes, then Premier Finishes could not lien the Project.

On appeal, the Second District reversed.  The Second District reasoned that “it is true that a construction lien can only arise when a valid contract exists between the parties.”  Additionally, a contract entered into by a fictitious name is valid and enforceable.  The court went on to address section 713.08(4)(a) which allows a contractor to enforce a claim of lien even if there are errors in the lien, as long as the owner has not been adversely affected by such omission or error.  In this case, the trial court made no finding of prejudice or that it was adversely affected, therefore the Second District quashed the trial court’s order discharging the lien.

Bid Protest Standing

When does a contractor have standing to sue under 42 U.S.C. section 1983 based on a bid protest?
Answer: When the contractor has an entitlement under statute, ordinance, or regulation to the award of the contract.

In Grace & Naeem Uddin, Inc. v. North Broward Hospital District, Grace sued the Hospital District for deprivation of Plaintiff’s property interest in the award of a construction project without due process of law. The Hospital District released a Formal Request for Quotation (RFQ) for the Homeless Grant Project. Grace submitted its bid of $1,909,175. Another contractor, MBR, submitted its bid of $1,951,903. Grace was determined to be the lowest bidder and MBR was second. However, the Hospital District began negotiations with MBR on the project. Grace went through the administrative process, filing a Notice of Dispute which was denied, and Notice of Appeal which was also denied.
Grace sued the Hospital District in federal court under section 1983. Grace alleged that section 255.20, Florida Statutes, requires that Hospital District award the contract to the lowest qualified and responsive bidder, and that Grace was the low bidder, was qualified, and was responsive.

The Hospital District filed a motion to dismiss. The issue was whether Grace had a property interest in a benefit. The court held that Florida law provides that a property interest may be created by a statute or ordinance that supports a claim of entitlement. In this case, the Hospital District had no discretion to select the second lowest bid. Section 255.20 provides three options: (1) reject all bids and rebid the project; (2) elect not to proceed with the project; or (3) award the contract to the lowest qualified and responsive bidder. Therefore the court denied the motion to dismiss and allowed Grace’s complaint to stand.

Construction Lien Transferred to Bond Venue

In Kelsey Construction, Inc. V. Travelers Casualty and Surety Company of America, 120 So. 3d 77 (Fla. 4th DCA 2013), the Fourth District held that where a subcontractor’s claim of lien was transferred to a bond, pursuant to section 713.24, the proper venue for such dispute is the county where the claim of lien was recorded.
Attaway Electric recorded two liens against two Winn-Dixie projects in Broward County. The general contractor, Kelsey, transferred the liens to bonds, pursuant to section 713.24, Florida Statutes. Attaway sued Kelsey for breaches of the contracts, and sued Kelsey and Travelers on the lien transfer bonds. Kelsey and Travelers moved to transfer venue to Orange County in accordance with the contracts’ forum selection provisions. The trial court transferred the case to Orange County.
On appeal, the Fourth District reversed holding that section 713.24 requires that “[a]ny party having an interest in such security or the property from which the lien was transferred may at any time, and any number of times, file a complaint in chancery in the circuit court of the county where such security is deposited.” The statute prevailed over the contractual venue provision. Accordingly, the Fourth District vacated the order transferring the action to Orange County.

Unlicensed Contracting

Can an Unlicensed Contractor Use the Other Party’s Knowledge as a Defense to Enforcement of the Contract?
No. The Florida Supreme Court just ruled in Earth Trades, Inc. v. T&G Corporation that the other party’s knowledge that a contractor or subcontractor is not properly licensed to perform the construction work of the contract is legally insufficient to establish the defense that the parties stand in pari delicto or in equal fault.

T&G was the general contractor on a parking garage project and entered into a subcontract with Earth Trades to perform site work on the project. Earth Trades was not licensed to perform this site work. A dispute arose and Earth Trades sued T&G for breach of contract. T&G filed a counterclaim against Earth Trades for breach of contract. T&G argued that since Earth Trades was unlicensed that its breach of contract claims were barred as a matter of law under section 489.128, Florida Statutes. Earth Trades countered that T&G was also barred from enforcing the contract because the parties were in pari delicto because T&G was aware Earth Trades was not properly licensed. The in pari delicto defense is based on the principle that the plaintiff who participated in the wrongdoing may not recover damages resulting from the wrongdoing.

The Supreme Court held that the in pari delicto defense did not preclude T&G from enforcing the contract. The Court held that the unlicensed contractor and the party that hired the unlicensed contractor were not at equal fault as required by this defense. The unlicensed contractor is commiting a crime for which the first offense is a first-degree misdemeanor and the second is a third-degree felony. The party who hires an unlicensed contractor is subject to a cease and desist notice and a fine of up to $5,000. Additionally, the legislature made it clear that section 489.128 only punishes the unlicensed contractor and states that only the unlicensed contractor may not enforce its contract or lien rights.

Vacant and Unoccupied – Insurance Claim

Property insurers often reject claims based on the vacant and unoccupied provisions in the policy.  Often times the insurance company breaches its contract when it improperly rejects claims based on these provisions. 

In Independent Fire Insurance Comnpany v. Butler, 362 So. 2d 980 (Fla. 1st DCA 1978), the First District Court of Appeal defined the terms “vacancy” and “occupancy”.  The term vacancy as used in these policies applies to inanimate objects.  Therefore, a court will look to furniture or furnishings located in the property to determine whether the property is vacant.  The term “occupied” referse to a dwelling which is in actual use by human beings.  It is not essential that someone sleep in a dwelling in order to render it occupied.  Occupancy is largely a matter of intent.  A court will look to the nature and character of the building, the purposes for which it is designed, an the uses contemplated by the parties as expressed in the insurance contract.

If your insurance company denied a claim based on the vacant and unoccupied policy provision, you may have a right to recover based on these definitions.

Contractual Indemnification

The First District Court of Appeal issued an opinion on section 725.06, Florida Statutes. Section 725.06 prohibits and limits certain indemnification provisions in construction contracts. In Griswold Ready Mix Concrete v. Reddick et al. (Apr. 12, 2012), the First District acknowledged that 725.06 applies even if the contract at issue does not involve the project owner. The statute applies to all construction related contracts among any combination of the following: owner, architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman. If you are involved in construction, you should review your indemnification provisions very carefully to ensure that they are enforceable.