OHIO. Breach of Contract. Breach of Contract

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1 Big 10 Construction & Surety Law CLE OHIO Construction Contracting Without Borders Peter W. Hahn Dinsmore & Shohl, LLP Columbus, Ohio Breach of Contract Claims by Contractor Standard No different from standard commercial breach of contract claims. Most claims are for non-payment but Ohio has adopted the Spearin Doctrine A contractor has a right to expect complete, accurate, and buildable plans from the owner and may recover its damages resulting from the owner's failure to meet this obligation. Dugan & Meyers Constr. Co. v. Ohio Dep't of Admin. Servs., 2007-Ohio Ohio s Fairness in Contracting Act: No damages for delay clauses void. R.C (C)(1) Measure of Damages Nothing unique. Contractor entitled to be placed in the position it would have been in but for the breach. Breach of Contract Claims by Owner Standard Must prove material breach. Contractors must perform work in a workmanlike manner. Privity usually required. Original owner: contract claim. Subsequent owner: negligence claim. Right-to-Cure: Residential only. Measure of Damages Cost to complete or repair, less balance of contract sum. But if economically wasteful, then difference in market value. 1

2 Breach of Contract Forum Selection All disputes concerning Ohio construction projects must be litigated in Ohio, subject to the laws of Ohio, regardless of the choice of law provision or forum selection clause in the contract. These statutory requirements cannot be waived. R.C (D)(1). Any litigation or arbitration must take place in the county where the project is located unless agreed upon by the parties. R.C (D)(2) Negligence Original owner has contract claim for unworkmanlike construction; a subsequent owner has a negligence claim. Breach of a duty not found in the contract might give rise to a negligence claim. Those not in privity may have negligence claim but Ohio recognizes the economic-loss rule, which prevents plaintiffs from recovering in tort for purely economic damages. Plaintiff must prove physical injury to persons or property. Exception: where sufficient connection or nexus exists to create a substitute for privity between the parties. Warranties Express Warranties Implied Warranties Workmanlike manner Spearin Doctrine (owner s implied warranty that the plans are accurate) Habitability Residential only. Cannot be waived. 2

3 Indemnity Express Indemnity Most construction contracts have these. Implied Indemnity Exists only where one party is vicariously liable in tort for the acts of the responsible party; the party seeking indemnification must be passively, not actively, negligent. Anti-Indemnification Any construction contract provision requiring indemnification for another's own negligence is void. This rule applies whether the other s negligence is sole or concurrent. Risk of liability remains with the negligent party or parties as if such an indemnity provision never existed. Insurance In Ohio, CGL policies do not cover defective construction that damages only the work itself. Westfield Ins. Co. v. Custom Agri Sys., 133 Ohio St. 3d 476 (Ohio 2012). Theory is that defective workmanship is not an accident or occurrence. What if the CGL policy has an exclusion for claims of defective workmanship, but an exception for defective work of subcontractor? (Still not an occurrence?) Claims for Changes Generally, where a contract contains plain and unambiguous provisions for requests for compensation for changes in the work, the parties will be held to the terms contained therein. But. Ohio courts have interpreted notice provisions in public and private contracts differently. Private: Where a contractor failed to provide contractual notice of change, contract was strictly construed Public: Finding that owner had constructive notice of the conditions encountered by the contractor, and such notice was enough to overcome contractual notice requirements. 3

4 Differing Site Conditions Ohio recognizes both types: Type I When the actual site conditions differ from the conditions indicated in the contract. Type II When the actual site conditions differ from conditions normally encountered in work of the character provided for in the contract. Delays No Damages for Delay Clauses Void and unenforceable as against public policy if the cause of the delay is the act or failure to act of the owner or someone for whom the owner is responsible. Liquidated Damages Enforceable if intended by the parties to give reasonable compensation for damages. Cannot impose manifestly inequitable and unrealistic amounts as determined at the time the contract was formed. Public Projects: liquidated damages are required by statute. Statutes of Limitations and Repose Statute of Limitations Breach of Contract Pre-9/28/2012: balance of time remaining on 15-year period or 9/28/2020, whichever occurs first Post-9/28/2012: 8 years Negligence: 4 years (for claims related to real property) Statute of Repose 10 years after substantial completion Applies only to claims for bodily injury, injury to property, and wrongful death arising out of defective and unsafe condition. 4

5 Payment Issues & Remedies Pay-When-Paid / Pay-If-Paid No magic words but condition precedent can t hurt. Does not affect lien rights. Prompt Payment Act Each tier 10 days 18% interest Attorneys fees (discretionary) Exception: disputed liens or claims and retainage not yet due Payment Issues & Remedies Mechanics Liens Private Projects Who has lien rights Materials suppliers, laborers, subcontractors, contractors, construction managers Architects, engineers, and surveyors: only for work performed on site under a separate contract. Notice of Commencement Notice of Furnishing (21-day look-back) Affidavit of Lien 60 days residential 75 days commercial 120 days oil and gas production Payment Issues Mechanics Liens Private Projects Disposition of Mechanics Lien Bond-off Foreclosure 6-year expiration 5

6 Payment Issues & Remedies Mechanics Liens Public Projects Nature of lien Who has claim rights Subcontractors, material suppliers, and laborers Not prime contractors Notice of Commencement Notice of Furnishing (21-day look-back) Perfection of Claim 120 days Reaction to Claim Dispute; escrow Discharge of Claim Payment Issues & Remedies Public sector bond claimants must have served Notice of Furnishing. Exception - contracts under $30,000. Mechanics liens are not precluded by a contingent payment clause. Payment Issues & Remedies Waiver of Liens Lien rights may be waived prospectively or retroactively. Waiver must be supported by consideration to be enforceable. Can GC waive lien rights of its sub? 6

7 Questions? Peter W. Hahn, Esq. Columbus ^ peter.hahn@dinsmore.com 7