Tag Archives: Breach of Contract

Construction Terms Glossary with Missouri References

This is a basic glossary of commonly used terms in the construction world. The descriptions and definitions were not meant to be comprehensive but rather a summation of a number of fairly complex terms and concepts.

The Missouri law cited throughout this article may not be the most up-to-date information available. It is always advised to consult with an attorney or keycite the referenced case(s) or laws to confirm that the law is in fact authoritative.

This article was strictly intended to be a resource for Missouri contractors and the general public who are interested in learning more about construction law in Missouri.

1.     All-Risk Builders’ Risk Insurance

All-Risk Builders’ Risk Insurance is a type of insurance that is designed to account for a number of occurrences that cause damage to the building, usually including machinery, equipment, materials, supplies, and fixtures that are appurtenant to the structure. This usually does not include insurance coverage defective work (but oftentimes will for ensuing damages).

When referring to all-risk insurance, there’s a “general understanding…that ‘recovery under an ‘all-risk’ policy will, as a rule, be allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage.’” Missouri Commercial Inv. Co. v. Employers Mut. Cas. Co., 680 S.W.2d 397, 400 (Mo. Ct. App. 1984)(citing 13A G. Couch, Cyclopedia of Insurance Law § 48:141 at 139 (R. Anderson 2d ed. 1982). See also : Annot., 88 A.L.R.2d 1122, 1125 (1963)).

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2.     Arbitration

A form of alternative dispute resolution that is used as a vehicle for resolving disputes on a construction project or with a construction contract (though not specifically limited to construction disputes), in which an arbitrator is chosen and decides the matter. Often times the evidentiary and procedural standards are more lenient in an arbitration as compared to a case that is litigated through the court system. This also typically saves the parties money as the case is expedited and does not typically demand the heavy motion and discovery process involved in a formal court proceeding.

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3.      Architect

An architect is a person who is licensed by the Missouri Division of Professional registration (in Missouri) to practice architecture. Typically, to qualify for the licensing application, an architect must have a degree in Architecture from a school or university that is accredited by the National Architecture Accrediting Board.

The architect usually facilitates the completion of the project by performing an evaluation of the project requirements and communicating with the general contractor to ensure that the work is performed in compliance with the specifications.

The architect is also usually in the best position to communicate with the general contractor regarding such matters as the architect is often responsible for preparing the specifications and designs.

On certain projects the architect will also be involved with evaluating pay applications or working with the owner or its representative to ensure that proper payment is made.

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4.     At-Will Employment

A type of employment in which an employer can terminate the employee at any time. The employer does not have to have reason for the termination.  Equally, the employee does not have an obligation to stay with the company and can leave at any time.

In most cases, when engaged in an employment-at-will relationship, the employer can terminate the employee for virtually any reason.

However, in Missouri there are certain safeguards. The Missouri Human Rights Act, section 213.055, states: It shall be an unlawful employment practice: “For an employer, because of the race, color, religion, national origin, sex, ancestry, age or disability of any individual: (a) To fail or refuse to hire or to discharge any individual…” R.S.Mo. § 213.055.

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5.     Bid

A formal offer to a general contractor or the owner to perform certain work set forth in the contract, its terms and conditions, specifications, and any other documents incorporated therein.

On a construction project, the bid would typically require the bidder to furnish all labor, materials, and other necessaries on the project and reach substantial completion in the time prescribed in the contract documents.

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6.     Bid Bond

A bid bond is a type of bond the ensures that the contractor will perform the specified work at the bid price. Once the contractor secures the job by entering into a contract with the owner, the contractor and surety are absolved from duties to satisfy the contractor’s inability to carry out the bid. At that time, the contractor is typically required to purchase a payment and performance bond, which would be the party responsible for making payment in the event of any subsequent failure to carry out the terms and conditions of the contract.

Bid bonds are required on a number of public projects in Missouri. For example, in Missouri the statute requires 10% down or requires a bid bond “[w]henever it shall be ordered by the county commission, township board or district commissioner, as the case may be, that any road, bridge or culvert in the county be constructed, reconstructed or improved or repaired by contract, and the engineer’s estimated cost thereof exceeds the sum of five hundred dollars…”

The specific statute is R.S.Mo. § 229.050, and with respect to the aforedescribed requirements of 10% or a bid bond, states the following, in pertinent part:

“All bids shall be accompanied by a certified check equal to ten percent of the engineer’s estimate of cost, payable to the county treasurer, to the use of the county, township or road district, as the case may be, or a bidder’s bond executed by some surety company authorized to do business in this state or other good and sufficient surety in a like sum shall be given, as a guarantee on the part of the bidder that if his bid be accepted he will, within ten days after receipt of notice of such acceptance, enter into contract and bond to do the work advertised, and in case of default forfeit and pay sum of ten percent of the engineer’s estimate of cost.” R.S.Mo. § 229.050.3

In the State ex rel. Missouri State Highway Comm’n v. Hensel Phelps Const. Co., the Missouri Supreme Court case cited a California case to express its rationale in determining that a contractor can rescind a bid and be relieved from the obligation to perform on the project:

There is a difference between mere mechanical or clerical errors made in tabulating or transposing figures and errors in judgment, as, for example, underestimating the cost of labor and materials. (Emphasis added) The distinction between the two types of errors is recognized in the cases allowing rescission and in the procedures provided by the state and federal governments for relieving contractors from mistakes in bids on public work. (Citations omitted) Generally, relief is refused for error in judgment and allowed only for clerical or mathematical mistakes. (Citations omitted) Where a person is denied relief because of an error in judgment, the agreement which is enforced is the one he intended to make, whereas if he is denied relief from a clerical error, he is forced to perform an agreement he had no intention of making. State ex rel. Missouri State Highway Comm’n v. Hensel Phelps Const. Co., 634 S.W.2d 168, 171 (Mo. 1982)(citing M. F. Kemper Construction Co. v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7 (1951).

The Court in State ex rel. Missouri State Highway Comm’n v. Hensel Phelps Const. Co. stating that “[i]f a contractor is allowed to rescind its bid, the bid bond would be cancelled. Certainly, the state may not require forfeiture of the bid bond either as a penalty or liquidated damages if the contractor has no legal obligation to fulfill its bid.” State ex rel. Missouri State Highway Comm’n v. Hensel Phelps Const. Co., 634 S.W.2d 168, 171 (Mo. 1982).

The Court went on to perform an analysis to determine whether the contractor had a right to rescind its bid. The Missouri Supreme Court ultimately deferred to the decision reached by the jury, which was in favor of the Missouri commission.  The ultimate legal holding by the Missouri Supreme Court was that the contractor could not rescind the contract based on a unilateral mistake and therefore could not avoid forfeiting the bid bond to the Commission.

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7.     Bid Documents

The bid documents is a general term used to describe the bid package prepared by a contractor in an effort to secure a construction contract.

Some of the documents that may be included in the bid documents include, but are not limited to:

  • An invitation to bid
  • Bid sheets
  • Bidder’s Questionnaire regarding experience
  • Proof of Financial Responsibility or ability to obtain adequate insurance/bonding
  • Bid instructions
  • Bid Schedule
  • Contract
  • Specifications incorporated into the contract
  • Addenda
  • Any documentation incorporated into the contract
  • Any documentation that would modify amount of time or price of project

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8.    Bid Peddling

Bid peddling is when a subcontractor, who was not the lowest bidder after the first round of bidding, offers a lower bid price to secure the award of the contract from the general contractor.

Bid peddling is when subcontractors will offer to perform the work for a lower amount contractor a lower amount than their original bid to secure the award of the contract from the general contractor. Usually the general contractor may entertain these subsequent bids to create cost savings for the general contractor, but bid peddling, in some cases, can also save the general contractor money.

Bid peddling is a practice that is not encouraged and could subject those implementing such practices to potential liability. Accordingly, it is good practice to simply move onto the next project and avoid interference or some type of tortious interference claim against you.

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9.    Bid Rigging

Bid rigging occurs when contractors conspire by submitting their bids in a manner aimed at driving up or rigging the bid to increase the amount that the lowest bidder submits and is thereby awarded. This type of behavior is unethical in that it is conspiring with other contractors to manipulate the system.

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10.  Bid Shopping

Bid Shopping is when the general contractor receives the first round of bids and takes those bids to the other bidding subcontractors to leverage lower bids from those subcontractors. In extreme circumstances, a contractor or subcontractor may try to create a bidding war between the other bidders to drive down the price by creating a competitive dynamic between them.

“Bid shopping occurs when a general contractor solicits estimates from specialty contractors to compute his lump sum bid and then, after being awarded the contract, again canvasses the specialty contractors in an effort to obtain prices lower than those previously given. This practice may deprive the specialty contractors who strove to be the first round low bidders from receiving the work after the wheeling and dealing in the second round. Moreover, the general contractor realizes savings rather than the owner, unless the general contractor lowered his initial bid anticipating that he could procure the specialty work at less than the estimated prices. Further, fierce competition in the second round may result in underbidding by the specialty contractors and consequent shoddy work as they attempt to keep costs within their bid.” Nash, Jr. and Love, Jr., Innovations in Federal Construction Contracting, 45 Geo. Wash. L. Rev. 309, 315 (1977).

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11. Boilerplate Provisions

Boilerplate provisions are what the average person might refer to as the fine print. Boilerplate provisions are those provisions which appear to be “form” provisions that are typical in most contracts.  Oftentimes boilerplate provisions are found at the end of the project.

If you’d like to learn more about boilerplate provisions, you should read this short article discussing terms that should be in every contract.

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12. Breach of Contract

“To recover for breach of contract [in Missouri], a plaintiff must plead the following elements: (1) the existence of an enforceable contract between the parties to the action; (2) mutual obligations arising under its terms; (3) the party being sued failed to perform obligations imposed by the contract; and (4) the party seeking recovery was thereby damaged.” Jackson v. Williams, Robinson, White & Rigler, P.C., 230 S.W.3d 345, 348 (Mo. Ct. App. 2007) (citing Superior Ins. Co. v. Universal Underwriters Ins. Co., 62 S.W.3d 110, 118 (Mo.App. S.D.2001)).

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13. Certificate of Inspection

In the vast majority of municipalities in St. Louis, Missouri a certificate of inspection must be obtained prior to occupying or renting a structure.

The St. Louis municipal code makes it an ordinance violation if a certificate of inspection is not obtained prior to occupying or renting:

“It shall be unlawful for any person, firm, partnership, corporation, or any other legal entity to occupy or permit the occupancy for any purpose or collect the rent of any occupied dwelling unit when a complete change of occupancy has occurred without first securing a Certificate of Inspection for said dwelling unit.”

Who is responsible for obtaining the certificate of inspection in St. Louis City?

“It is the responsibility of the owner or grantee to secure a Certificate of Inspection. It shall be the responsibility of the owner or the owner’s agent and/or the tenant to provide access to all applicable areas subject to inspections as provided in this chapter.”

St. Louis City Municipal Code – 25.56.040 – Certificate of Inspection requirements.

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14. Certificate of Occupancy

A certificate of occupancy is issued by a building inspector when the structure satisfies the necessary code requirements for the locality. The certificate of occupancy is typically required prior to allowing individuals to legally reside or utilize such structure.

In Creve Coeur, Missouri, there are a number of requirements prior to obtaining a temporary certificate of occupancy. The City of Creve Coeur as well as the fire department are required to issue the partial certificate of occupancy, requiring the following to be satisfied:

  • St. Louis County mechanical, electrical, plumbing and heath inspections or specific approval of each of these inspectors to allow temporary occupancy
  • Emergency egress lights and exit signs
  • Emergency operation of elevators
  • Egress doors on hold open devices
  • Egress doors utilizing special locking arrangements and/or access-control devices
  • Any atrium smoke-control or removal system
  • Fire protective signaling system
  • Smoke and HVAC detectors
  • Fire sprinkler system
  • Any other fire suppression system
  • All fire resistance rated fire separation assemblies
  • All components comprising of means of egress
  • All other building construction per all building permits
  • Emergency generators

The above requirements are merely the requirements necessary to qualify for a temporary in certificate of occupancy in the Creve Coeur area. Each municipality has its own requirements to qualify for such certificate.

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15. Certificate of Substantial Completion

A certificate of substantial completion is a certificate issued by the architect designating the project as substantially complete. Substantial completion can assume a wide array of meanings depending on the contractual language and the nature of the project being performed.

However, the typically accepted, case law definition of substantial completion in Missouri is the following:

“[A] building is substantially complete so as to entitle the contractor to the full contract price when it has reached the state of its construction so that it can be put to the use for which it was intended.” L.L. Lewis Const., L.L.C. v. Adrian, 142 S.W.3d 255, 260 (Mo. Ct. App. 2004).

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16. Code of Federal Regulations (CFR)

The Code of Federal Regulations often assists in fleshing out the specifics of many federal statutes as well as its own standalone rules.

The Code of Federal Regulations are divided into 50 general titles which are each broad categories. Each of these broad categories are updated once a year on a staggered basis.

A number of OSHA regulations are set forth in the Code of Federal Regulations. Additionally, the Code of Federal Regulations has a vast number of regulations governing the Housing and Urban Development as well as the construction of manufactured homes and the safety standards related thereto.

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17. Code of State Regulations (CSR)

The Missouri Code of State Regulations contain a number of regulations that articulate many Missouri statutes and establish a framework of rules to assist in the administration of various matters within the state.

One specific example of a regulation that is commonplace in many government funded construction projects is Division 30 of the Rule of the Office of Administration. Chapter 5 of said Division creates Minority Business Enterprises (MBEs) and Women Business Enterprises (WBEs). Various governmental funding programs use tax credits and other incentives to promote the use of MBEs and WBEs on publicly funded projects.

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18. Change Order

A change order is a modification to the contract. Typically a change order is written and signed by the owner and architect (if an architect is on the project).  However, in Missouri, an oral change order is typically enforceable so long as the contractor and owner have mutually agreed upon the terms.  In the event that they did not, then the contractor may still have recourse by virtue of its equitable remedies such as quantum meruit and unjust enrichment.

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19. Clean Air Act

The Clean Air Act regulates air emissions and is set forth under

42 U.S.C. §7401 et seq. “The Clean Air Act (the Act) was enacted by the United States Congress on December 17, 1963. With the Clean Air Amendments of 1970, Congress enacted a comprehensive national program that made the federal government partners with the states in the fight against air pollution, requiring the Environmental Protection Agency (the EPA) Administrator to promulgate national ambient air quality standards (NAAQS) for certain pollutants.” Friends of Agric. for Reform of Missouri Envtl. Regulations v. Zimmerman, 51 S.W.3d 64, 66 (Mo. Ct. App. 2001)(citing General Motors Corp. v. U.S., 496 U.S. 530, 532–33, 110 S.Ct. 2528, 2530, 110 L.Ed.2d 480 (1990)).

Generally, the Federal Clean Air Act preempts the Missouri air conservation commission from enacting laws that have already been covered by U.S. Congress in the Federal Clean Air Act. “The Commission continues to have rulemaking authority to regulate Missouri air quality in all ways, and in all areas, not covered by the federal Clean Air Act.” Friends of Agric. for Reform of Missouri Envtl. Regulations v. Zimmerman, 51 S.W.3d 64, 80 (Mo. Ct. App. 2001).

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20. Clean Water Act

The Clean Water Act regulates the discharge of contaminants and pollutants into stormwater and wastewater systems in the United States. The Clean Water Act is set forth under 33 U.S.C.A. §§ 1251 et seq. (1981).

Missouri has its own parallel law called the Missouri Clean Water Law, which is set forth under R.S.Mo. § 644.006 et seq.

The policy of the Missouri Clean Water Act is set forth under R.S.Mo. § 644.011 and states the following, in pertinent part:

“it is hereby declared to be the public policy of this state to conserve the waters of the state and to protect, maintain, and improve the quality thereof for public water supplies and for domestic, agricultural, industrial, recreational and other legitimate beneficial uses and for the propagation of wildlife, fish and aquatic life; to provide that no waste be discharged into any waters of the state without first receiving the necessary treatment or other corrective action to protect the legitimate beneficial uses of such waters and meet the requirements of the Federal Water Pollution Control Act…” R.S.Mo. § 644.011

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21. Commercial General Liability Insurance (CGL)

Commercial General Liability Insurance is a type of insurance that typically covers bodily injury and damage caused to property. The Missouri Court of Appeals describes the intent of Commercial General Liability Insurance policies: “to protect against the unpredictable and potentially unlimited liability that can result from accidentally causing injury to other persons or their property.” Am. States Ins. Co. v. Mathis, 974 S.W.2d 647, 649 (Mo. Ct. App. 1998)(citing Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 78 (Mo. banc 1998)).

The Court of Appeals goes further to make a distinction, indicating what commercial general liability insurance policies are not:

A commercial general liability policy is not intended to protect business owners against every risk of operating a business. Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 78 (Mo. banc 1998)).

“Business risks are those risks that are the ‘normal, frequent, or predictable consequences of doing business, and which business management can and should control and manage.’ ” Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 78 (Mo. banc 1998)(quoting James T. Hendrick & James P. Wiezel, The New Commercial General Liability Forms—An Introduction and Critique, 36 F ed’n Ins. & Corp. Couns. Q. 319, 322 (Summer 1986)).

“It is not the function of the CGL policy to guarantee the technical competence and integrity of business management. The CGL policy does not serve as a performance bond, nor does it serve as a warranty of goods or services. It does not ordinarily contemplate coverage for losses which are a normal, frequent or predictable consequence of the business operations. Nor does it contemplate ordinary business expense, or injury and damage to others which results by intent or indifference.” Hendrick & Wiezel, supra, at 322 n. 6 (quoting George H. Tinker, Comprehensive General Liability Insurance—Perspective and Overview, 25 Fed. Ins. Couns. Q. 217, 224 ((Spring 1975)). Am. States Ins. Co. v. Mathis, 974 S.W.2d 647, 649 (Mo. Ct. App. 1998).

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22. Completed Operations Liability Insurance

Completed Operations Liability insurance is a type of insurance coverage for an employer or construction company that protects said entity from liability that arises out of injury or damage that occurs after the operations are completed. Typically operations are considered “completed” under completed operations liability insurance policies once the employer or construction company completes the work in accordance with that set out in the contract.

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23. Completion Bond

In Missouri a completion bond is used interchangeably with a performance bond. A performance bond is often required on construction projects to ensure the completion of the performance of the contractors.

For example, if a subcontractor hired by the general contractor goes bankrupt, the general contractor can call on the surety who issued the performance bond to pay for the new subcontractor to come in and complete the work.

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24. Contract

A contract is typically composed of an exchange of promises between parties which is supported by legal consideration. A contract usually contains a promise, offer, and acceptance. Consideration is sometimes referred to as a bargained-for exchange.

Contracts in Missouri are enforceable whether they are oral or written.

However, it is always good practice to reduce the terms of an agreement to writing. It helps to avoid future confusion and reflects the true terms of the contract.

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25. Corporation

A corporation is an entity that is created pursuant to statute that is recognized as a legal entity. Corporations are governed by Chapter 351 of the Missouri Revised Statutes. Corporations differ from limited liability companies in that corporations (when referring to c-corporations) are double-taxed.  Corporations usually act as a shell or veil for the shareholders and officers unless certain acts are employed which would be ultra vires (acts outside the scope of the authority granted to agents of the corporation).

In Missouri, a corporation is treated as a separate legal entity from the shareholders who make up the ownership of the corporation. Thus, a corporation’s actions will not typically subject the shareholders to civil liability unless those actions are criminal or ultra vires, as noted above.

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26. Cost Proposal

A cost proposal is a document that is submitted by a contractor or subcontractor to the owner or general contractor for approval or denial of a certain scope of work on the project.  The cost proposal contains the projected costs that the subcontractor or contractor is requesting for that portion of the work.

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27. Critical Path Method (CPM)

The United States Court of Claims defined the critical path method as:

Essentially, the critical path method is an efficient way of organizing and scheduling a complex project which consists of numerous interrelated separate small projects. Each subproject is identified and classified as to the duration and precedence of the work. (E.g., one could not carpet an area until the flooring is down and the flooring cannot be completed until the underlying electrical and telephone conduits are installed.) The data is then analyzed, usually by computer, to determine the most efficient schedule for the entire project. Many subprojects may be performed at any time within a given period without any effect on the completion of the entire project. However, some items of work are given no leeway and must be performed on schedule; otherwise, the entire project will be delayed. These latter items of work are on the “critical path.” A delay, or acceleration, of work along the critical path will affect the entire project.

Haney v. United States, 676 F.2d 584, 595 (Ct. Cl. 1982).

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28. Davis-Bacon Act

The Davis-Bacon Act is a federal law that governs construction projects that are federally funded or assisted and requires the local prevailing wage to be paid to the workers on the project.

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29. Design/Build Contract

A design/build contract is a contract where the owner hires a general contractor to provide a team of workers to carry out the entirety of the project. In order to carry out these projects, the general contractors are responsible for providing engineers, architects, and other construction professionals to carry out the various tasks required on the project.

In Missouri, pursuant to the Metropolitan sewer district statute, R.S.Mo. § 249.425, a design-build contract is defined as: “a contract between a sewer district and a designbuild contractor to furnish the architecture, engineering, and related design services, and the labor, materials, and other construction services required for a specific construction project.” . R.S.Mo. § 249.425 (2011).

Pursuant to R.S.Mo. § 67.5070, wastewater or water treatment projects, a design-build contract is defined as “any contract that furnishes architecture or engineering services and construction services either directly or through subcontracts.” R.S.Mo. § 67.5070 (2016).

Under Missouri Statutes, Chapter 327, Architects, Engineers, Land Surveyors and Landscape Architects, a design-build contract is defined as “a contract between the owner, owner’s agent, tenant, or other party and a design-build contractor to furnish the architecture, engineering, and related design services, and the labor, materials, and other construction services required for a specific public or private construction project.” R.S.Mo. § 327.465 (2002).

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7 Most Common Claims in Missouri Real Estate Litigation

Are you looking to buy or sell a home? Are you a real estate agent assisting someone with purchasing or selling a home?

Are you prepared to go to court after the closing?

Given the complexity of Missouri real estate laws and the inordinate amount of issues that can arise, buyers, sellers, and real estate agents face a real threat of becoming a party to litigation after participating in Missouri real estate transactions.  Even those parties who comply with all laws and regulations face exposure to litigation merely by virtue of their involvement in the transaction.

This guilt-by-association-esque approach may not seem right, but it is an unfortunate reality when something goes awry in a real estate transaction.  While there is no guarantee that you will not be named as a defendant in a lawsuit, there are certain things that can be done to greatly reduce the probability of winding up in litigation.

Based on my experience litigating these cases, the 7 most commonly alleged claims involving Missouri real estate transactions are set forth in this article.  The prudent real estate agent, homebuyer and/or home seller will educate themselves regarding these claims to know the potential pitfalls, so they are in a better position to avoid exposure to liability and the unpleasantries that accompany a lawsuit.

The table of contents on this page enumerates the 7 claims that are most common when litigating real estate transactions.  Each claim is discussed more fully under its respective heading.

1. Fraud

The elements of a fraud claim in Missouri are: “(1) a representation;  (2) its falsity;  (3) its materiality;  (4) the speaker’s knowledge of its falsity;  (5) the speaker’s intent that it should be acted on by the person and in the manner reasonably contemplated;  (6) the hearer’s ignorance of the falsity of the representation;  (7) the hearer’s reliance on the representation being true;  (8) his right to rely thereon;  and, (9) the hearer’s consequent and proximately caused injury.”  Droz v. Trump, 965 S.W.2d 436 (Mo. App.W.D., 1998); see also Green Acres Enterprises, Inc. v. Nitsche, 636 S.W.2d 149, 153 (Mo.App.1982); Hanrahan v. Nashua Corp., 752 S.W.2d 878, 883 (Mo. Ct. App. 1988).

Fraud is a term used in everyday speak.  We know the meaning, but most people don’t know the 9 elements in Missouri that make up a fraud claim.  While these are merely technical elements in Missouri law, in laymen’s terms, fraud is synonymous with lying.  Thus, even if you don’t choose to memorize the above elements, just remember that if you don’t lie, you probably won’t find yourself on the other end of a fraud claim (no guarantees, but it should greatly reduce the probability).

Statute of Limitations

  • 5 year or 15 year Statute of Limitations (depending on tolling)—S.Mo. § 516.120(5)

R.S.Mo. § 516.120(5) states: “[a]n action for relief on the ground of fraud, the cause of action in such case to be deemed not to have accrued until the discovery by the aggrieved party, at any time within ten years, of the facts constituting the fraud.”

“[T]he cause of action does not accrue from discovery of the fraud. If ten years elapse without discovery of the fraudulent acts, the statute of limitations begins to run and after five years the cause of action is barred, even if the fraud has not yet been discovered. Id. at 798. This means that the latest a fraud claim may be brought is 15 years after the fraud occurred.” State ex rel. Stifel, Nicolaus & Co., Inc. v. Clymer, 522 S.W.2d 793, 798 (Mo. banc 1975).

Thus, an action for fraud accrues not when the damage occurs or can be ascertained, but when “facts constituting the fraud are discovered.” Schwartz v. Lawson, 797 S.W.2d 828, 832 (Mo.App.1990). The statute of limitations begins to run at the time a cause of action in fraud accrues, which is when plaintiff “discovered or in the exercise of due diligence, should have discovered the fraud.” Gilmore v. Chicago Title Insurance Co., 926 S.W.2d 695, 698 (Mo.App.1996)(citing Burr v. National Life & Accident Insurance Co., 667 S.W.2d 5, 7 (Mo.App.1984)). “The plaintiff maintains the duty to make inquiry to discover the facts surrounding fraud. Where the means of discovery exist, the plaintiff will be deemed to have known of the fraud so as to begin the running of the statute.” Burr v. National Life & Acc. Ins. Co., 667 S.W.2d 5 (Mo. App.W.D., 1984).

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2. Violations of the Missouri Merchandising Practices Act

The Missouri Merchandising Practices Act is an act designed to protect consumers by leveling the playing field and incentivizing attorneys to take such cases where consumers are harmed.  In order to incentivize attorneys to take these cases, the Missouri legislature included the potential for recovery of attorney’s fees and punitive damages if violations of the Act are found.

Generally, consumers are not equipped to foot an expensive litigation bill, but with the potential for attorney’s fees, some attorneys are more inclined to take the case on a contingency basis (that mean’s that the client only pays attorney’s fees if the client succeeds).  This attorney’s fees possibility heightens the recovery potential and gives the consumer more leverage.

“Section 407.020 of the Missouri Revised Statutes, commonly known as the “Missouri Merchandising Practices Act,” provides that, ‘[t]he act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice, or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce … is declared to be an unlawful practice.’ The scope of the MPA is broad. Section 407.025 provides a civil cause of action to consumers who purchase goods or services and suffer damages due to any of the aforesaid unlawful practices.In re McClelland, 06-41720, 2008 WL 5157685 (Bankr. W.D. Mo. June 20, 2008).

One case simplifies the foregoing paragraph in a succinct manner, “[i]n a private lawsuit for violation of the Missouri Merchandising Practices Act (MMPA), plaintiffs must demonstrate that they:

  • (1) purchased merchandise…from defendants;
  • (2) for personal, family, or household purposes; and
  • (3) suffered an ascertainable loss of money or property;
  • (4) as a result of an act declared unlawful under the Merchandising Practices Act.”

Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d 758, 773 (Mo. banc 2007); Edmonds v. Hough, 344 S.W.3d 219 (Mo. App.2011)(spacing and emphasis added).

The following is a more descriptive breakdown of each element necessary to satisfy the Missouri Merchandising Practices Act (“MMPA”).

(1) purchased merchandise…from defendants

R.S.Mo. § 407.010 (4) defines merchandise as the following: “any objects, wares, goods, commodities, intangibles, real estate or services.”

Based on the definition alone, the first element of the MMPA is satisfied because real estate is considered merchandise. Accordingly, the first element is satisfied by virtue of the type of transaction. Due to the long reach of the MMPA, there is potential that the legislature may amend the MMPA to narrow it.  Particularly with the Republican administration in 2017, there is a chance that the MMPA could be greatly limited.

However, at this point, it is difficult to say whether that limitation would involve the definitions section or would limit the reach of the MMPA as to whom it applies (i.e., only merchants).

It should be noted, though, that because the aim of the MMPA is to protect consumers, and because the MMPA allows buyers of residential real estate (typically consumers) to bring an MMPA claim against sellers of residential real estate (oftentimes consumers), the leverage contained in R.S.Mo. § 407.025, which potentially allows for the recovery of attorney’s fees and punitives, not only works for consumers, but also works against them.

The contrary argument to this policy stance is that most real estate contracts that are drafted by sophisticated parties (which are most contracts used by real estate agents and brokerage firms these days) contain a clause which awards attorney’s fees to the prevailing party.  However, the distinction lies in the vast reach of the violative acts (which are discussed below under element 4 of the MMPA) versus the requirements that the party prevail on the breach of contract claim.  To capitalize on the attorney’s fees provision in the real estate contract, the prevailing party would, presumably, have to prevail on the breach of contract claim.  Because the prevailing party would have to prove breach, this would require a greater burden than merely proving that the party violated an act under the MMPA.

The opposing side would then argue that the safeguard under the MMPA is that the judge ultimately decides whether attorney’s fees are awarded at the conclusion of the case.  Thus, if the court believes in equity that attorney’s fees are warranted, then reasonable fees will be awarded.

A contractual provision providing for the award of attorney’s fees, does not allow for such flexibility.  In any event, the foregoing discussion merely elucidates the advantages and disadvantages of modifying the extent that the MMPA applies to real estate transactions, the application to transactions in which a consumer is the seller, and how attorney’s fees may affect/undermine the legislature’s intent.

(2) for personal, family, or household purposes

This element is very factually based.  If the purpose of the transaction is personal and will be used as the buyer’s principal residence, then it satisfies this element.  If the purchase of the property is to be used as rental property, there is a legitimate question as to whether this element is satisfied.

There is a high probability that the court will find that this element is not satisfied for rental property because it is for commercial purposes and is not used for personal, family or household purposes.

(3) suffered an ascertainable loss of money or property

As it pertains to the MMPA, the Missouri Court of Appeals stated that “[t]he defrauded party should be awarded the difference between the actual value of the property and the value if it had been as represented, measuring the damages at the time of the transaction.” Schoenlein v. Routt Homes, Inc., 260 S.W.3d 852 (Mo. App., 2008).

(4) as a result of an act declared unlawful under the Merchandising Practices Act

The following are the unlawful acts seen most frequently in the real estate context:

a) Misrepresentation

A misrepresentation is defined as “an assertion that is not in accord with the facts”

When proving a misrepresentation pursuant to the MMPA, a plaintiff does not need to prove

  • Reliance,
  • Knowledge that the assertion is misleading/false, or
  • Any culpable mental state. 15 CSR 60-9.070

b) Half-Truth

A half-truth in its simplest form is defined as a situation where a party “[o]mit[s] to state a material fact necessary in order to make statements made…not misleading.” 15 CSR 60-9.090

c) Omission of a Material Fact

An omission of a material fact is defined as “any failure by a person to disclose material facts known to him/her, or upon reasonable inquiry would be known to him/her.” 15 CSR 60-9.110 (3)

When proving an omission of a material fact pursuant to the MMPA, a Plaintiff does not need to prove:

  • Reliance, or
  • Intent. 15 CSR 60-9.110 (4)

d) Unfair Practice

An unfair practice is any practice that:

1A. Offends any public policy as it has been established by

  • Constitution
  • Statutes
  • MO Common law
  • Federal Trade Commission & interpretive decisions

or

1B. Is unethical, oppressive, or unscrupulous           

and

2. Presents risk or causes substantial injury to consumers

15 CSR 60-8.020

Statute of Limitations

  • 5 Year Statute of Limitations—S.Mo. § 516.120(2)

“The statute of limitations [for violations of the MMPA] begins to accrue when the Plaintiff has

[1] knowledge of the wrong and at least nominal damage, or

[2] knowledge that puts plaintiff on notice to inquire further.”

 Ball v. Friese Constr. Co., 348 S.W.3d 172 (Mo. App., 2011)(emphasis and spacing added).

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3. Breach of Contract

“The essential elements of a breach of contract action include: (1) the existence and terms of a contract; (2) that plaintiff performed or tendered performance pursuant to the contract; (3) breach of the contract by the defendant; and (4) damages suffered by the plaintiff.” Martha’s Hands, LLC v. Rothman, 328 S.W.3d 474, 479 (Mo. Ct. App. 2010)(citing Keveney v. Mo. Military Acad., 304 S.W.3d 98, 104 (Mo. banc 2010)).

A breach of contract in a real estate scenario can be the seller or buyer suing the opposing party (buyer or seller) on the basis that their actions constituted a breach of contract.  In a similar vein, the buyer or seller may sue their real estate agent or the brokerage firm, usually, whichever entity/person was named on the buyer or seller’s agency agreement.

While the agent has statutory duties s/he must carry out, the agency contract often incorporates a number of said duties as well as its own independent duties (typically).  Violation of the statutory duties incorporated into the contract could be the basis for the breach of contract claim.  In the event the MMPA claim is not sufficient or groundless against the real estate agent, the breach of contract claim might be the only avenue of recovery.

Statute of Limitations

  • 5 Year Statute of Limitations—S.Mo. § 516.120(1)

“The statute of limitations begins to run “after the causes of action shall have accrued.” § 516.100. But a “cause of action shall not be deemed to accrue when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment.” Id. A cause of action is capable of ascertainment “‘when a reasonable person would have been put on notice that an injury and substantial damages may have occurred and would have undertaken to ascertain the extent of the damages.'” State ex relOld Dominion Freight LineIncvDally, 369 S.W.3d 773, 778 (Mo. App. S.D. 2012) (quoting Powel vChaminade CollPreparatoryInc., 197 S.W.3d 576, 584 (Mo. banc 2006)). “‘At that point, the damages would be sustained and capable of ascertainment as an objective matter.'” Id. (quoting Powel, 197 S.W.3d at 584-85).” N. Farms, Inc. v. Jenkins (Mo. App., 2015).

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4. Breach of Fiduciary Duty

The agent’s statutory duties include the duty of care and loyalty, which are the essence of a fiduciary duty.

To establish a claim for breach of a fiduciary duty, a plaintiff must prove: (1) the existence of a fiduciary duty between the plaintiff and the defending party; (2) “‘that the defending party breached the duty'”; and (3) “‘that the breach caused the [plaintiff] to suffer harm.'” Henry v. Farmers Ins. Co., 444 S.W.3d 471 (Mo. App., 2014)(citing W. Blue Print Co. v. Roberts, 367 S.W.3d 7, 15 (Mo. banc 2012)).

“Whether a fiduciary duty exists is a question of law, while the breach of that duty is for the trier of fact to decide.” W. Blue Print Co. v. Roberts, 367 S.W.3d 7, 33 IER Cases 1397 (Mo., 2012).

It should be noted that the seller does not have a fiduciary duty to the buyer, and the buyer does not have a fiduciary duty to the seller.  Thus, these would not be valid claims against the other party.  These claims should be reserved to be alleged solely against the real estate agents and/or brokerage firms, depending on whether the situation lends to such claim.

Statute of Limitations

  • 5 Year Statute of Limitations—R.S.Mo. § 516.120(4); N. Farms, Inc. v. Jenkins (Mo. App., 2015).

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5. Negligent Misrepresentation

The elements of negligent misrepresentation are: “(1) speaker supplied information in the course of his business or because of some other pecuniary interest; (2) due to speaker’s failure to exercise reasonable care or competence in obtaining or communicating this information, the information was false; (3) speaker intentionally provided the information for the guidance of a limited group of persons in a particular business transaction; (4) listener justifiably relied on the information; and (5) that as a result of listener’s reliance on the statement, he/she suffered a pecuniary loss.” White v. Bowman, 304 SW 3d 141 (Mo. App., 2009).

A negligent misrepresentation claim is the hedge for a fraudulent misrepresentation claim.  In real estate litigation, usually a negligent misrepresentation claim is brought against the seller (if it deals with misrepresentation) and the seller’s agent and/or the listing agent, again, depending on what the facts the case indicate.

Statute of Limitations

  • 5 Year Statute of Limitations—R.S.Mo. § 516.120(4); Branstad v. Kinstler, 166 S.W.3d 134 (Mo, 2005).

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6. Negligence/Negligence Per Se

In a negligence action, the plaintiff must allege and prove facts which show: “1) the existence of a duty on the part of the defendant to protect plaintiffs from injury; 2) failure of defendant to perform that duty; and 3) injury to plaintiffs resulting from such failure.” Hill v. Gen. Motors Corp., 637 S.W.2d 382, 384 (Mo.App. E.D.1982) (citing Scheibel v. Hillis, 531 S.W.2d 285, 288 (Mo. banc 1976)). “The particular standard of care that society recognizes as applicable under a given set of facts is a question of law for the courts. Whether a defendant’s conduct falls short of the standard of care is a question of fact for the jury.” Harris v. Niehaus, 857 S.W.2d 222, 225 (Mo. banc 1993). Thompson v. Brown & Williamson Tobacco Corp., 207 S.W.3d 76 (Mo. App., 2006).

Negligence Per Se is a variation of negligence in which the duty is set by statute rather than by common law.  “Negligence per se arises when the legislature pronounces in a statute what the conduct of a reasonable person must be and the court adopts the statutory standard of care to define the standard of conduct of a reasonable person.” Dibrill v. Normandy Assoc. Inc., 383 S.W.3d 77, 84 (Mo.App. E.D.2012).

To prevail on a negligence per se claim, “the following four elements [must be] met: (1) There was, in fact, a violation of the statute; (2) The injured plaintiff was a member of the class of persons intended to be protected by the statute; (3) The injury complained of was of the kind the statute was designed to prevent; and (4) The violation of the statute was the proximate cause of the injury.” King v. Morgan, 873 S.W.2d 272, 275 (Mo.App. W.D. 1994).

“If a submissible case is made under a negligence per se cause of action, a plaintiff could recover if a jury concluded that a statute was violated and the violation was the proximate cause of the injury.” Sill v. Burlington N. R.R., 87 S.W.3d 386, 392 (Mo. Ct. App. 2002)(citing Vintila v. Drassen, 52 S.W.3d 28, 37 (Mo.App. S.D.2001). Thus, “if the [jury] instruction were based upon the theory of negligence per se, the jury would begin their inquiry with the question of proximate cause.” Id.

Statute of Limitations

  • 5 Year Statute of Limitations—R.S.Mo. § 516.120(2) & (4); Kueneke v. Jeggle, 658 S.W.2d 516 (Mo. App. E.D., 1983); Nuspl v. Missouri Medical Ins. Co., 842 S.W.2d 920 (Mo. App. E.D., 1992).

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7. Unjust Enrichment

Unjust enrichment is brought in a majority of lawsuits and usually acts as the catch-all claim.  Unjust enrichment is an equitable claim created in the law, which seeks to arrive at an outcome the represents principles of fairness.

Most diligent attorneys bring this claim in addition to the other relevant claims to ensure that the claimant can maintain his/her cause of action even if the court decides that no contract existed between the parties (or that there is no claim at law).

The elements of an unjust enrichment claim are: “the plaintiff must prove that (1) he conferred a benefit on the defendant; (2) the defendant appreciated the benefit; and (3) the defendant accepted and retained the benefit under inequitable and/or unjust circumstances.” Howard v. Turnbull, 316 S.W.3d 431, 436 (Mo. Ct. App. 2010); see also Hertz Corp. v. RAKS Hospitality, Inc., 196 S.W.3d 536, 543 (Mo.App. E.D.2006); Graves v. Berkowitz, 15 S.W.3d 59, 61 (Mo.App. W.D.2000). Even if a benefit is “conferred” and “appreciated,” if no injustice results from the defendant’s retention of the benefit, then no cause of action for unjust enrichment will lie. Howard v. Turnbull, 316 S.W.3d 431, 436 (Mo. Ct. App. 2010)(citing White v. Pruiett, 39 S.W.3d 857, 863 (Mo.App. W.D.2001)).

Statute of Limitations

  • 5 Year Statute of Limitations—R.S.Mo. § 516.120(1).

“Section 516.120(1) provides a five-year statute of limitations for ‘[a]ll actions upon contracts, obligations or liabilities, express or implied….’ An action for unjust enrichment is based on an implied or quasi-contractual obligation. Landmark Sys., Inc. v. Delmar Redev. Corp., 900 S.W.2d 258, 262 (Mo.App. E.D.1995). Such actions are subject to the five-year statute of limitations in Section 516.120(1). See Koppe v. Campbell, 318 S.W.3d 233, 240 (Mo.App. W.D.2010).” Royal Forest Condo. Owners’s Ass’n v. Kilgore, 416 S.W.3d 370 (Mo. App., 2013).

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Conclusion

Real estate transactions can give rise to various causes of action.  While there are no magic steps one can take to avoid a lawsuit, informing one’s self about the most common claims in Missouri real estate litigation may allow the reader to take preventative steps to reduce the possibility of litigation.

The following are the 7 most common claims that are brought in Missouri cases involving real estate matters:

  1. Fraud
  2. Violations of the Missouri Merchandising Practices Act
  3. Breach of Contract
  4. Breach of Fiduciary Duty
  5. Negligent Misrepresentation
  6. Negligence/Negligence Per Se
  7. Unjust Enrichment

While many of these claims are discussed above, one takeaway is that the truth almost always prevails. Thus, if there is some question as to the legality of certain actions, remember most people are best served by taking the higher road and erring on the side of disclosure or taking preventative measures and addressing all problems up front, rather than dealing with bigger issues after the fact.

If you have issues involving a real estate transaction or if you just have questions about a potential situation that could arise, please do not hesitate to contact our attorneys.  We’d be more than happy to assist you in any way that we can.

Please let us know real estate claims that you’ve dealt with and any feedback regarding the same in the comments section.

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