Wrongful termination of a construction contract can leave every working party on a project in a bad spot. The owner who terminated the contract likely has significant sums of money tied up in the now defunct project. Contractors who paid out of pocket for labor and materials with the expectation that they would be reimbursed later could be crushed by nonpayment. This, in turn, would affect materials suppliers and subcontractors, too. In other words, when a contract is suddenly terminated without explanation, nobody wins.
Typically, your contract will contain a clause explaining what will happen in the event that the contract is terminated, but if the termination doesn’t follow these guidelines, it may be deemed “wrongful”, which means a Jacksonville construction lawyer can help you recover your financial losses through a claim for damages. In this brief article, the experienced construction lawyers at Cotney Construction Law will discuss everything contractors should know about contract termination in the construction industry.
Types of Termination
When a contract is terminated before the terms and conditions have been met, all obligations between the various contracted parties cease to exist. Therefore, as soon as an owner declares that the contract has been terminated, you should stop working immediately to cut your losses. There are two main types of termination:
- Termination for Cause: also referred to as termination for default. Termination for cause occurs when the contract is breached because certain terms of the contract were not satisfied. If a termination is deemed to be “for cause”, it must then be determined whether or not the breach qualifies as a material breach.
- Termination for Convenience: there doesn’t need to be a reason supporting a termination for convenience. Generally, a clause in the contract would permit one or more parties to terminate the contract for reasons of convenience. This is a dangerous clause for contractors, which is why a Jacksonville construction attorney should review your contracts prior to signing. When you are contracted for provisions of labor or materials, you plan to see the project through to the end. You don’t want a flighty owner to call off a project for no reason, so it’s best to avoid contracts that permit this type of termination.
Breaking Down Wrongful Termination
Termination for cause doesn’t qualify as wrongful termination since there must have been a breach of contract. However, termination for convenience or any other reason could qualify as a wrongful termination. Some scenarios that meet the criteria for a wrongful termination include:
- There is no clause regarding termination of contractual obligations in the contract.
- Under the general principles of contract law or the terms of the contract, the reason for termination cannot be supported or justified.
- The procedural requirements stipulated in the contract are not followed.
When it comes to wrongful termination, you don’t want to be the party responsible for breaching the contract. Partner with a Jacksonville construction litigation attorney to ensure that your contracts are airtight and transparent, so you can avoid paying out of pocket for a contract that was terminated without legitimate cause.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.