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Contract Disputes

Contractual claims are founded on enforceable promises. In order to be enforceable, the promises must be supported by valid consideration. In the context of construction contracts, consideration is typically satisfied by parties exchanging bargained for promises (i.e., a contractor agrees to perform some scope of work in exchange for the owner’s promise of payment of an agreed upon amount, along with other general terms and conditions). While most construction contracts are written, aside from the Statute of Frauds which bars certain oral contracts, there is no legal impediment to enforcement of an oral agreement. The challenge, however, is in establishing what the parties actually agreed to and whether there was a “meeting of the minds” on the essential terms. Whether a contract is oral or written, it is essential that the parties mutually agree upon the material terms. This does not mean that all details of an agreement must be fixed in order to have a binding agreement. Even though all the details are not definitely fixed, an agreement may be binding if the parties agree on the essential terms and seriously understand and intend the agreement to be binding on them. A subsequent difference as to the construction of the contract does not affect the validity of the contract or indicate the minds of the parties did not meet with respect thereto. But where there is no agreement on essential terms, an enforceable agreement does not exist. What is an “essential” term varies widely according to the nature and complexity of each transaction and is evaluated on a case-by-case basis. For example, the failure to sufficiently determine quality, quantity, or price may preclude the finding of an enforceable agreement. Moreover, one party cannot retain the option to perform under an agreement, as this would make the agreement illusory, and therefore, unenforceable.

Contract claims may be based on either express or implied obligations which create separate and distinct theories of recovery. Even when asserting an express contract claim, it is important to note that the law creates certain implied obligations which are tied to the parties’ express contractual obligations. One such implied obligation is the implied covenant of good faith, fair dealing, and commercial reasonableness. This implied covenant arises because a contract is an agreement whereby each party promises to perform their part of the bargain in good faith, and expects the other party to do the same. Thus, this implied covenant is designed to protect the contracting parties’ reasonable expectations. Good faith means honesty, in fact, in the conduct of contractual relations. In Florida, every contract contains an implied covenant of good faith and fair dealing, which requires the parties to follow standards of good faith and fair dealing designed to protect the parties’ reasonable contractual expectations.

The rights conferred by the implied covenant of good faith and fair dealing, may however, be limited. For example, there must first be a breach of an express contractual provision. The duty of good faith is not abstract and must relate to the performance of an express term of the contract. Where the contract has been fully performed or has expired, there can be no breach of the implied covenant of good faith. Furthermore, the implied obligation of good faith cannot be used to vary the terms of an express contract.  Moreover, where a contract gives a party substantial discretion to promote that party’s self-interest, the implied covenant of good faith serves as a “gap-filling default rule.” In filling the gaps, the implied covenant of good faith limits that party’s ability to act capriciously to contravene the reasonable contractual expectations of the other party.

There exist other implied contract claims such as quantum meruit which is based upon a contract implied in fact, and quasi-contract which is based upon a contract implied in law, both of which are based upon notions of equity and unjust enrichment of one party at the expense of another party. These claims are typically raised in the alternative to express contractual claims in the event it is determined that an express contract fails for lack of consideration of is otherwise unenforceable.  An in-depth discussion of these implied contract claims can be found in the case of Commerce P’ship 8098 Ltd. P’ship v. Equity Contracting Co., Inc., 695 So. 2d 383 (Fla. 4th DCA 1997).

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