Construction Bonds and Arbitration

A large percentage of construction contracts require arbitration if there is a dispute between the owner, general contractor and/or a subcontractor.  At the same time, many general contractors have payment and performance bonds in place for the construction project which do not have mandatory arbitration provisions.  If the owner or subcontractor seeks to call on the payment or performance bond, must the parties resolve the bond claim in arbitration? At the most basic legal level, arbitration is only available with the consent of the parties to the dispute.  Therefore, a court cannot compel a reluctant party to arbitrate a dispute absent a clear agreement requiring arbitration.  Typically, this agreement takes the form of a written contract between the parties to the dispute, whether signed before or after the dispute originated.  Bond claims, however, take a somewhat different form.

Consider the usual scenario for a construction bond.  A contractor enters into a contract with a bonding company for two purposes: (1) to ensure the contractor’s performance of the construction job to the owner of the property (a performance bond); and (2) to ensure payment to  subcontractors (a payment bond).  If a subcontractor is not paid for their work, they are permitted to pursue an action against the bonding company for payment as a “a third party beneficiary”.  If the subcontractor is successful in their claim, then the bonding company will pay the claim and pursue the prime contractor for the amount paid.  Notice that the subcontractor is permitted to claim against the bonding company despite the fact that the subcontractor’s agreement is with the prime contractor, not the bonding company. Most bonding agreements contain language that specifies how an individual or an entity becomes a “claimant” to the bond. 

Parking Spaces... Assigning Equals Licensing

Before you start assigning your tenants parking spaces, be sure you are not excluding anyone. In a recent Fairfax Circuit Court case a judge struck down an assignment of parking spaces to non-garage owning association members. The garage owning members took the association to court, which found that the association was not propounding a rule, but in fact it was giving a license to its non-garaged owners. Because the lots were assigned only to some owners and not others, those owners with the assigned spots were able to exclude the other owners from the use of those spots in the common area. This exclusion is the essence of a license. The Court concluded that the community association did not have the authority to issue a license to its owners and ruled in favor of the excluded owners.

One would expect this ruling to apply in many other parking assignment situations.

The above is not meant to replace legal counsel: if you'd like to speak to one of the attorneys at Gross & Romanick, call us today at 703-273-1400 or fill out our online Information Request form.

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Liquidated Damages

Liquidated Damages is a dollar amount stipulated in a contract which the parties agree is a reasonable estimation of the damages that would be owed to one party in the event of a breach by the other party. Companies often rely on liquidated damages clauses to assure performance of the contract.

Since the amount of damages is often difficult to ascertain when there is a breach, a liquidated damages provision attempts to fix the amount. Even if the parties agree to a liquidated damages clause, the Court will only award the actual damages suffered if they can be ascertained. In theory, the clause also saves litigation time and legal fees.

WHEN VALID: The Commonwealth of Virginia recognizes liquidated damages clauses in contracts as valid under the following conditions: (1) The figure must be a reasonable amount contemplated at the time of contract to be the probable loss to the non-breaching party in the event of a breach; (2) The amount cannot be punishing or punitive damages, grossly in excess of the actual damages; and (3) The damages must not be susceptible of a definite measurement.

The Court examines the conditions at different times of the contracting parties' relationship. When looking at the first and third conditions, the court examines them from the time of the contract. The second is examined at the time of breach.

ACTION ADVICE: In order to improve the likelihood of enforcement of a liquidated damages provision, a contract clause should state that the opposing party waives their right to contest the enforceability of the liquidated damages clause. In Gordonsville Energy v. PEPCO (1999) the Virginia Supreme Court upheld such a waiver of rights provision.

INTERESTING NOTE: Virginia § 6.1-330.63 allows credit card companies to charge any amount of liquidated damages as late fees.

This brief article is only meant to provide a very broad overview and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick if you need information about your specific situation.

Success At Fairfax County Juvenile Court

A recent client was very pleased with Gross & Romanick for the handling of 2 charges against his son in Fairfax County Juvenile Court. The charges were underage possession of alcohol and petty larceny. (Gross & Romanick attorney Ashely Dean was able to obtain a dismissal of both charges.) The father wrote to Gross & Romanick to say:

"Indeed a very good result. If we need legal help in the future, we certainly will call you. Also, if we hear of anyone else needing assistance we will recommend you, and would be glad to give a recommendation at your request."

If you or a loved one need legal representation, contact the attorneys at Gross & Romanick today.