by Michael G. Tanner
You’re feeling pretty good about yourself. Your biggest case for your best client is finally over. It was complicated and hard-fought. Your client, Scorched Earth, Inc.1 (which has provided most of your billings for the last several years), is a major builder of commercial projects and found itself embroiled in a nasty dispute with a project owner, Dissatisfied Corp., which went from bad to worse. First, the foundation of the project, Shangri-La, began to crack, then problems appeared in the electrical system, and later still the HVAC system wouldn’t work properly. The problems seemed endless and the general counsel of Scorched Earth was at her wit’s end and turned to you for help.
The trial was in its third week when you came up with a solution that worked for everybody and, even though Ms. General didn’t particularly like the deal, she agreed that it made good business sense, in this case, for Scorched Earth to buy its peace, provided there were no more claims.
The settlement documents were signed and funds and releases were exchanged. And now, after a badly needed vacation, and a few days to get your desk back in order, you’re in your office, happily working on your next project. Your secretary then interrupts your reverie and says that Ms. General is on the phone and that she sounds upset. With a slight tightness in your throat, you pick up the phone and try to sound like your usual confident self. “Another demand letter from Dissatisfied,” she says. “More problems at Shangri-La; this time a fire in the storage room which they say was caused by a faulty breaker box we installed. They say they didn’t know about the box when we settled and that the fire is our problem. I’m faxing the letter to you right now; let me know what we should do.” “That’s ridiculous,” you snap. “We have a release. We’ll get right on it.” You instantly call Mr. Associate, who assisted you in the trial against Dissatisfied, to get down to your office—NOW. This has got to be wrong, you reflect. We used our standard release. You bring out a copy and read it again:
Each party hereto acknowledges, for themselves, their heirs, successors, assigns, officers, and directors, as appropriate, the full remise, release, acquittal and discharge of each and one another, of any claim or cause of action presently existing, whether known or unknown, including, but not necessarily limited to this lawsuit.
Mr. Associate enters your office and you explain the situation. “Research this and see me first thing in the morning,” you tell him. You’re starting to feel better. The release, you again notice, has very broad language and Mr. Associate is a crack researcher; he’ll find the cases you need and if Dissatisfied dares to file suit, you’ll move for summary judgment and be a hero all over again— twice on the same project!
Next morning you’re in early, feeling good, but a bit nervous, waiting for Mr. Associate to see you. Finally, he walks into your office and you notice first the creases in his forehead. “You’re probably not going to like this,” he starts out. “The law seemed clear, but there’s this new case . . . .”
Sound far-fetched? In a residential construction setting, this was the situation addressed in the April 1998 decision of the First District Court of Appeal in Floyd v. Homes Beautiful Constr. Co., 23 Fla. L. Weekly D1119 (Fla. 1st DCA April 27, 1998). The facts of the case are these: In 1982, Homes Beautiful constructed and sold a residence to Mr. and Mrs. Floyd. Soon after construction was completed, cracks appeared in the foundation and in 1986 the Floyds filed suit against Homes Beautiful alleging that the residence was “negligently constructed in an unworkmanlike and defective manner contrary to the applicable building code for the City of Jacksonville, Florida and minimum industry standards for home construction . . . .” The suit also alleged that Homes Beautiful had breached its “implied warranties of fitness and habitability” by constructing the residence on soil which allowed it to “settle.” After six years of litigation, including two declaratory judgment actions, a verdict against Homes Beautiful and an appeal, the Floyds, Homes Beautiful, and an insurance carrier entered into a settlement agreement in November 1992 which included a release using the language of the above fictional Shangri-La release. All seemed well until 13 months later when the residence was destroyed by fire while the Floyds were away on vacation.
As a result of the fire, the Floyds again filed suit against Homes Beautiful, again alleging faulty workmanship in the construction of the residence. This time the Floyds alleged that Homes Beautiful had improperly located an electrical fuse box next to a clothes dryer vent when it constructed the residence in 1982. The Floyds alleged that over time the dryer vent permitted moisture to accumulate in the area of the fuse box, eventually causing the wiring in the box to short-circuit, igniting the fire in 1993.
Homes Beautiful promptly moved for summary judgment on the basis of its 1992 release and the trial court granted the motion, finding the release language to be unambiguous and that, as a matter of law, it released “any of the Floyds’ claims against Homes Beautiful arising from the construction of the residence, including negligent installation of the dryer vent.”2 In opposing the summary judgment, the Floyds argued that the release could not include the alleged dryer vent defect, which was undiscovered at the time the release was signed in 1992 and did not become known until after the fire in 1993.
The Floyds appealed the summary judgment to the First DCA. On appeal the principal issues raised by the Floyds were whether the release language was ambiguous as to its application to alleged defects which were undiscovered at the time that the release was executed, and whether the dryer vent claim had “matured” and, therefore, “existed” in 1992, the fire not having occurred until 1993.
In April 1998 the First DCA issued its decision holding that it was “not apparent from the four corners of the release what ‘claims’ the parties intended to release. For example, it is not apparent whether the modifying language ‘presently existing’ bars a cause of action relating to a defect in existence at the time of execution of the release, but unknown to the parties; or rather, whether that modifying language limits the release to causes of action fully accrued at the time of execution.”3 The court also held that a question of fact existed as to when the cause of action accrued. Concluding, the court held that because of the “existence of disputed issues of fact relating to the intent and scope of the release” the matter was reversed and remanded to the trial court for further proceedings.4 Thus, a comprehensive release that Homes Beautiful had obtained a decade after completion of construction of the residence has not yet protected it from continuing construction-related claims, and will not do so, according to the First DCA, without further proof of the intent of the parties.
The Homes Beautiful decision seems anomalous next to other release decisions, most of which seek to construe release language, whenever possible, in a manner which brings finality to litigation.5 In doing so, the Florida courts have applied established principles of contract interpretation to the interpretation of releases. First, release language, like any other contractual language, must be accorded its “natural meaning or the meaning most commonly understood in relation to the subject matter and circumstances, and reasonable construction is preferred to one that is unreasonable.”6 Second, the language must be interpreted in a manner “consistent with reason, probability, and the practical aspect of the transaction between the parties.”7 Third, the court should examine the entire instrument and construe it as a whole, and not construe detached sections of it.8 Finally, when words having a definite legal meaning and effect are knowingly used in a written instrument, the parties are presumed to have intended such words to have their proper legal meaning, in the absence of a contrary intention expressed in the instrument itself.9
Substantially equivalent language to that used in the Homes Beautiful release has been considered by other courts and held to release all possible claims, including those unknown but subsequently discovered. For example, in Bellefonte Ins. Co. v. Queen, 431 So. 2d 1039 (Fla. 4th DCA 1983), rev. denied, 440 So. 2d 353 (Fla. 1983), the court construed language releasing the Martin County school board from claims arising from a school bus accident in which a child was killed. The release in Bellefonte included, in pertinent part, the following language:
[W]e do hereby release acquit and discharge the School Board of Martin County, Florida, and successors and subsidiaries, of and from all claims and demands, actions and causes of action, damages, costs, loss of services, expenses and compensation on account of or in any way growing out of the injuries to and subsequent death of Albert James Queen, Jr., and any and all known and unknown, foreseen and unforeseen damages, and the consequences thereof, resulting from an accident occurring on or about January 9, 1980 . . . .
The parents of the deceased child claimed that this language was intended to release the school board only from negligence in the actual operation of the school bus, but not from its negligence in failing to supervise and safeguard their child while crossing the street. Construing the release as a matter of law, the trial judge agreed with the parents and permitted their suit to proceed.10
Reversing, the Fourth DCA held that the release language unambiguously released all claims against the school board from the accident, including those not specifically identified. As the court stated: “When [the] language is clear and unambiguous, the courts cannot indulge in construction or interpretation of its plain meaning.”11
Likewise, in Hardage Enterprises, Inc. v. Fidesys Corp., N.V., 570 So. 2d 436 (Fla. 5th DCA 1990), the court considered the scope of a release arising from a construction project. After the project was completed, a dispute arose between the owner and the construction manager/general contractor concerning alleged construction deficiencies. The dispute was submitted to arbitration and while the arbitration was proceeding, the parties settled and entered into a mutual release. At the time of the release, the general contractor had completed all construction work on the project. The release in Hardage provided that: “[E]ach of the parties . . . releases and forever discharges the other . . . of and from any and all claims, demands, damages, actions, causes of action, or suits in equity, of whatsoever kind or nature . . . whether now known or not known . . . .” (Emphasis added.)
Subsequent to the settlement and execution of the release, the project owner filed a declaratory judgment action seeking an interpretation of the release, claiming that the construction manager/general contractor had been negligent in its management of the project and that the negligence of the general contractor/construction manager in this capacity “was never addressed or intended to be addressed by the parties in connection with the release.” The owner contended that it did not become aware of the negligence of the construction manager until after the release was signed. The trial court concluded that the release language did not “clearly and unequivocally” release the construction manager from the negligent management claims. The Fifth DCA reversed, finding the language of the release to be “clear and unequivocal” and noting that the release had been entered into “after the construction management agreement had been completed.”12
Like the releases in Bellefonte and Hardage, the Homes Beautiful release specifically included claims “known or unknown” and the Floyds had alleged that the dryer vent was unknown before 1993. Like the release in Hardage, the Homes Beautiful release also was contained within a comprehensive settlement agreement arising from a completed construction project. The only material difference between the Homes Beautiful release and the releases in Bellefonte and Hardage is the additional phrase “presently existing” in the Homes Beautiful language; the First DCA largely based its holding on this, which is especially curious in that the Floyds specifically claimed that the dryer vent was present, albeit “not reasonably discoverable” at all times after the residence was built.
Most difficult, though, is to harmonize the Homes Beautiful decision with the holding of the Fourth DCA in Braemer Isle Condominium Ass’n, Inc. v. Boca Hi, Inc., 632 So. 2d 707 (Fla. 4th DCA 1994). In Braemer Isle, a condominium association sued over “construction defects.” The litigation settled and the association released all defendants from “all claims” (including “known and unknown” claims as to some defendants and “all future claims” as to others). The association later filed a second suit alleging construction defects discovered after execution of the releases; the association claimed that the newly complained-of defects were “not discoverable at the time it settled its prior lawsuit and executed the releases.” The trial court granted summary judgment enforcing the releases as to all defendants and the district court affirmed, observing that a release which “clearly reflects the intent to release a party from any and all liabilities in connection with a construction project should be honored.”13
The Homes Beautiful case seems on all fours with Braemer Isle inasmuch as the project owner attempted to assert latent or allegedly “undiscovered” defects and the releases in both cases covered claims “known and/or unknown.” Indeed, in one respect the Homes Beautiful release language is broader than the language in Braemer Isle, which was limited to the particular construction project; the Homes Beautiful release is not so limited. The First DCA’s opinion seeks to distinguish Braemer Isle, observing that the Homes Beautiful release “does not specifically mention ‘future’ claims, which distinguishes the instant case from [Braemer Isle].”14 The opinion seems incorrect on this as the releases enforced in Braemer Isle likewise did not mention “future” claims as to one group of defendants but instead, as to those defendants, released claims “both known and unknown,” as did the release in Homes Beautiful. The Homes Beautiful opinion does not address this point.
An equally curious aspect of the Homes Beautiful opinion is its holding that a question of fact existed as to when the cause of action sued on by the Floyds “accrued.”15 In their appeal the Floyds contended that no claim or cause of action based on the dryer vent (allegedly installed in 1982) existed in November 1992 when the release was executed, because the fire that destroyed their residence did not occur until December 1993; they argued that their claim did not “mature” until they discovered it through the 1993 fire. Certainly, this was incorrect. The law is clear that a purchaser of a structure has a claim against the seller/developer for the cost of correcting construction defects or, if correction is not possible or would involve economic waste, the diminished market value,16 and that the claim is measured as of the date of delivery of the structure to the purchaser.17 Of course, if the purchaser’s claim is measured on the date that the structure is delivered, it must also exist at that time even if it is undiscovered or “unknown.”18 This was precisely the result in Braemer Isle which enforced a release of “both known and unknown” claims against defects which were “not discoverable” when the release was signed.19
Thus, from the moment that the Floyds took possession of their residence in 1982, through the time that they executed the release in 1992, they had a claim, albeit undiscovered, for repair or replacement of the offending dryer vent, if it was in fact defective; the Floyds’ damages simply changed when the fire occurred and, therefore, as a matter of law, they had a “claim” or a “cause of action” based on the dryer vent when the release was executed in 1992.
This result is supported by F.S. §95.11(3)(c), which directs that when a defect is latent, and, therefore, not readily discoverable, the period of limitation is extended until the defect is discovered or should have been discovered “with the exercise of due diligence.” This provision has been characterized as an “exception” to the statute of limitations20 and in the absence of such an exception, or a tolling provision, a claim will be lost if it is not timely asserted.21 Implicit in F.S. §95.11(3)(c) is that a claim based on an alleged latent defect exists before a triggering event (i.e., discovery or lack of due diligence) commences the period within which the claim must be asserted; the claim exists before the plaintiff is on notice of it and once notice occurs, the limitation period commences.22
Support for this is found in the case of Almand Constr. Co. v. Evans, 547 So. 2d 626, 628 (Fla. 1989), in which the homeowners filed suit against the home builder under various legal theories as a result of the settling of their home caused by construction on unsuitable fill. The builder defended, in part, on the basis that the homeowners were on notice of the existence of the alleged defects, which triggered the running of §95.11(3)(c). The Supreme Court ultimately agreed with the builder, holding that “[plaintiffs’] knowledge of the settling of the house and resultant structural damage, which they concede they had as early as 1978, was sufficient to put them on notice that they had, or might have had, a cause of action. This knowledge meets the discovery component of section 95.11(3)(c).”23
In short, under F.S. §95.11(3)(c), the limitation period on the Floyds’ claim could not run until the alleged defect was discovered and until that time, the claim was simply “unknown.” Nevertheless, the claim existed for purposes of being released and were this not so, the statutory exception to preserve the claim until its discovery would be unnecessary. Any other result would mean that undiscovered defects cannot be released until they become known, rendering a release of “unknown” claims meaningless. It is an established rule of construction that a document should not be interpreted in a manner which renders it meaningless.24
What’s the upshot of all of this? The First DCA did not hold that the Homes Beautiful release doesn’t include the alleged dryer vent defect, only that the court wasn’t sure without a more developed record. On remand the Homes Beautiful release should be construed to include the 1993 claim, given the circumstances in which it was negotiated and signed.25 Nevertheless, the objective of releases is to end litigation, including, of course, litigation over the intent and scope of the release itself. When preparing releases, practition-ers should take care to consider the objective of the release, make sure that the language includes all of the claims it is intended to release, and, in light of Homes Beautiful, make sure that the intent of the parties can be established either through language in the release itself or, if necessary, through the record of the settlement negotiations. q
1 “Scorched Earth, Inc.,” “Dissatisfied Corp.,” and the project “Shangri-La” are wholly imaginary and do not refer to any actual person or entity, past or present.
2 Homes Beautiful, 23 Fla. L. Weekly at D1119.
4 Id. at D1119–20.
5 The law of this state favors compromise and settlement as it is in the best interest of the state and the parties that there should be an end to litigation. Coe v. Diener, 159 So. 2d 269, 272 (Fla. 2d D.C.A. 1964).
6 Thompson v. C.H.B., Inc., 454 So. 2d 55, 56 (Fla. 4th D.C.A. 1984).
8 Cerniglia v. Cerniglia, 655 So. 2d 172, 174 (Fla. 3d D.C.A. 1995), aff’d, 679 So. 2d 1160 (Fla. 1996).
9 Wilcox v. Atkins, 213 So. 2d 879, 881 (Fla. 2d D.C.A. 1968).
10 Bellefonte, 431 So. 2d at 1040.
11 Id. at 1040.
12 Hardage, 570 So. 2d at 439.
13 Braemer Isle, 632 So. 2d at 707.
14 Homes Beautiful, 23 Fla. L. Weekly at D1119–20.
16 Grossman Holdings Ltd. v. Hourihan, 414 So. 2d 1037, 1039 (Fla. 1982).
17 Id. at 1040. See also Smith v. Mark Coleman Constr., Inc., 594 So. 2d 812, 814 (Fla. 2d D.C.A. 1992) (holding that the purchasers of a home have a claim against the builder for construction defects and that “[if] no such [economic] waste is involved, the cost of remedying the defect is the amount awarded as compensation for failure to render promised performance,” quoting Restatement (First) of Contracts §346(1)(a), comment (1932)).
18 See also 17A Am. Jur. 2d Contracts §747, at 762 (“A cause of action in contract accrues at the time of the breach or failure to do the thing agreed to, irrespective of any knowledge on the part of the plaintiff or of any actual injury it has occasioned him, but not until then . . . .”).
19 Braemer Isle, 632 So. 2d at 707.
20 Richardson v. Wilson, 490 So. 2d 1039, 1040 (Fla. 1st D.C.A. 1986).
21 35 Fla. Jur. 2d Limitations and Laches §1 (1996).
22 Fla. Stat. §95.11(3)(c).
23 See also Board of Trustees of Santa Fe Community College v. Caudill Rowlett Scott, Inc., 461 So. 2d 239, 242, 243–44 (Fla. 1st D.C.A. 1984), rev. denied, 472 So. 2d 1180 (Fla. 1985) (holding that “[c]ase law recognizes that the limitations period commences when the plaintiff has been given notice of the invasion of his legal rights, i.e., when he has been put on notice of his claim to a cause of action.”).
24 Herian v. Southeast Bank, N.A., 564 So. 2d 213, 214 (Fla. 4th D.C.A. 1990).
25 Because Homes Beautiful moved for summary judgment on the basis of the Floyds’ First Amended Complaint, and before answering, it conceded the existence and installation of the dryer vent for purposes of the summary judgment motion only. On remand the Floyds must prove the installation of the dryer vent, that Homes Beautiful was responsible for it, that it was defective, and that it proximately caused the 1993 fire, as the builder will contest each of these points.
Michael G. Tanner is a partner at Holland and Knight, L.L.P. and is chair-elect of the Trial Lawyers Section.
This article is submitted on behalf of the Trial Lawyers Section, Richard A. Gilbert, chair, and D. Keith Wickenden, editor.