Legal Question in Construction Law in California

I have a few questions on a case. So a few days ago we received a letter from my customer that they are Terminating the contract with us. Which is good news for us because this can't go on like this, we finished the job 99% and they still haven't paid us as we verbally agreed with them in our last meeting. They actually called all our sub-contractors and told them that they will pay them separately for the work that was and will be done by them. My questions are;

1. If they have terminated the contract with us, does that mean that we are no longer obligated with them and that our warranty for the work is voided?

2. Since they have terminated the contract without any reason, can they go to court/arbitration? or can try to get money from our insurance later on for some construction damages? if terminated it means they cannot do anything or they can still do everything?

3. They still owe us a certain amount of money, since they terminated the contract, can we still put a lien on there property for a non payment and request our money back?

Our main concern right is that, they have terminated the contract. They will start looking for other contractors to finish the project, of course they will get higher prices because nobody wants to finish up a project after someone. Then they will either send us a bill for some kind of damages, try to take it from our insurance or go to court or arbitration in order to try to get money out of it. So we want to know ahead of time what our options are before they attack us.

4. Do we need to make some kind of termination agreement or does there agreement cancel everything?

5. What if they finish the project without consulting with us and then we would come after them later from our owed balance? Is that a good idea?

Basically I want to know if we are safe and clear after there termination or not?

Thanks,


Asked on 1/21/13, 11:09 am

1 Answer from Attorneys

1. No

2. Yes

3. Yes

4. It would be MUCH better to do an agreed termination. You should also notify them that paying your subcontractors directly is a tortious interference with your contract rights with your subs, and point out to them that if they do it without a termination agreement that allows for it, you can sue them for intentional tort damages as well as any breach of contract claims you may have.

5. A termination agreement is a much better idea. If they will not negotiate a termination agreement you should not wait until the job is finished to assert your legal rights. Many contractor rights are waived if not asserted in a VERY short time after they leave the project, whether it is complete or not.

Basically - no, you are neither safe nor clear in any way shape or form just because they terminate, and your rights will be gone long before theirs are unless you have a good termination agreement prepared or at least reviewed by a very knowledgeable construction attorney.

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Answered on 1/21/13, 11:26 am


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