Q: I have a contract with a builder. The certificate of occupancy has been issued and the builder claims I now must pay everything due under the contract. The problem is there are defects in construction, some of them major, that I want fixed before I make final payment. Who wins this argument?
A: The answer will depend on the wording of your contract. Unless the language is clear beyond argument, you may have to wait to hear how the judge interprets it. The recent case of Hand v.Grow Construction, Inc. is a good example of how the court will settle your dispute.
In the Hand case, builder and owner entered a construction contract. Under the contract, the builder had a duty to construct a building free from defects and the owner had a duty to pay, at closing, a specified price for the building and real property on which it was built plus any options or exceeded allowances.
The contract included the following provisions:
1. IMPROVEMENTS. SELLER AGREES TO PROVIDE THE LABOR SERVICES AND MATERIALS NECESSARY TO COMPLETE THE IMPROVEMENTS TO THE PROPERTY IN A WORKMANLIKE MANNER FREE FROM DEFECTS …
11. CLOSING DATE. THIS TRANSACTION SHALL BE CLOSED AND SELLER SHALL DELIVER TITLE TO THE PROPERTY WITHIN TEN DAYS AFTER THE ISSUANCE OF A CERTIFICATE OF OCCUPANCY FOR THE IMPROVEMENTS TO BE MADE BY SELLER.
A closing date was set, both parties appeared, but the sale was not concluded. Hands sued the builder claiming the builder breached the contract by failing to provide a building free from defects. The builder counter-sued, claiming that the Hands breached the contract by failure to pay the entire purchase price after issuance of a certificate of occupancy. The builder admitted that there was at least one defect in the building, but claimed the Hands had an obligation to close once a certificate of occupancy was issued, without regard to any defects in construction.
The trial court agreed with the builder. It held that the Hands’ obligation to close arose upon issuance of the certificate of occupancy and that the obligation was not dependent upon the building being free of defects. Judgment was entered for the builder and the Hands appealed.
On appeal, the court explained that whenever possible, a contract must be construed according to its plain language. It further explained that the court must consider specific language in context of the entire contract. Different clauses in a contract are to be considered to be dependent on each other unless a contrary intention appears.
The court went on to discuss two cases. In one case, a buyer refused to close because the improvements they contracted for had many defects. In that case, the court concluded that the final completion of the improvements was an essential part of the builder’s obligation creating an obligation to pay of the buyers. Because the improvements were defective, they were not complete even if a certificate of occupancy was issued.
The court recited another case in which the decision was in favor of the builder. In that case, the contract provided that the issuance of a certificate of occupancy will conclusively establish completion of the residence and the purchaser’s unconditional obligation to close. The contract also provided that the seller may not be able to obtain all or part of the extras prior to closing, but in no event shall a buyer hold back funds at closing or object to final closing with full disbursement to the seller.
The court applied the two cases to the Hand case. The court concluded that, although paragraph eleven clearly and unambiguously set a date for closing, it did not clearly and unambiguously state that the Hands’ duty to pay was independent of any other duties in the contract. The court held that the obligation to pay was dependent upon the builder providing a defect-free building under Section 5 of the contract and reversed the trial court decision.
The Hand case emphasizes the importance of careful drafting and review of contract language. Before signing a contract, you are well advised to consult with an experienced attorney. If a dispute arises, legal advice can be critical.
The specific facts of your situation and the language in your contract will determine the outcome of your case. You should discuss these matters with an attorney of your choice at the earliest possible time.
William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. William G. Morris, e-mail: firstname.lastname@example.org or by fax, (239) 642-0722.