Termination and Damage Termination of contract is rare- requires a material breach (not partial breach) Partial breach is insignificant failure to perform Material breach invoked if one party terminates for partial breach (paint color is wrong) Only material breach results in court award of damages

Termination and Damage Determination of materiality is subjective Damages are primary relief granted by court Damages- sum of money to compensate for loss/injury (non-personal) resulting from breach Relief- what the “winner” gets because of the breach

Termination and Damage Types of relief- Damages- money Injunctive relief- court order to (not) do something. Common tactic to halt a practice until a full determination can be made (Minnesota Twins) Specific performance- order to comply with terms. Similar to injunction- ordered to complete some task or responsibility related to the breach (labor terms)

Termination and Damage Relief applies to all Liability Issues Can contract be rescinded? Is there a differing condition resulting in impossibility? Has there been a breach of contract? What are the damages granted to offset the liability (other than tort acts- involuntarily assumed)

Termination and Damage Damages related to: Cost of material needed to fix mistake Cost of labor needed to fix mistake Cost of equipment needed to fix mistake Attorney’s fees (sometime jurisdictions) Lost profit Preponderance standard of evidence (civil vs. crim) Proving damage is difficult and time-consuming- requires extensive documentation

Termination and Damage Non-recoverable costs under contract liability Medical expenses Pain and suffering Punitive damages These require tort resulting from involuntary assumption of a liability. Contract damages involve voluntary assumption of liability

Termination and Damage Actual versus contract damages Actual- all damages suffered by anyone related to the breach (never awarded by courts) Sometimes called “but-for” claims. All costs that would not have been incurred but for the breach Job A scheduled complete on May 1. PM is supposed to switch to job B on May 2, but job A is delayed by a breach. Company hires a temp to start job B- temp costs are actual damages, but unrecoverable

Termination and Damage Contract (foreseeable) damages Portion of the actual damages that court awards Only entitlement of contract parties Reasonable 3rd party could envision damages as of the date contract was entered into (could not have known about job B when contract for job A was signed). Used for rental income, additional costs, market delays, etc.

Termination and Damage Must present a logical argument for damages (principles from Ch 3 and FIRPA structure) Must be within reasonable conduct standard and assume typical methods of construction (e.g. extreme weather, war, demands for unreasonable conduct or unusual methods do not count)

Termination and Damage Home office overhead is recoverable Eichleay formula (from the Eichleay case) Use a pro rata billing formula over designated time period to recover home office overhead Impact damages such as storage, calling employees or canceling move is recoverable (indirect but foreseeable costs)

Termination and Damage Loss of efficiency is an impact damage Lack of timely and continuous material supply Erroneous prefabrication (bolt holes) Excess change orders Refusal to grant extension (have to hire deeper into labor pool- getting people that have probably been laid off for a reason)

Termination and Damage Attorney’s fees are sometimes recoverable British rule- fees are an element of damages Federal rule- judge’s discretion on merit American rule (most state courts)- not considered damages unless by prior contract provision Texas rule- by statute, attorney fees are an element of damages in any contract (oral or written) without need of special provision

Termination and Damage Costs- set of recoverable damages items Court filing fees Fees for serving complaint Fees for serving subpoena Jury fees (selection and per diem) Witness fees Costs of deposition and interrogatories

Termination and Damage Interest costs are recoverable- Accrues from date the damage occurred Pre-judgement accrual is interest from damage to decision Post-judgement accrual is from decision to payment (not compounded, can affect appeal decision) Can get to be a big number if case lingers under appeal for several years

Termination and Damage Mitigation of damages Damaged party must take all reasonable steps to limit damages. Can’t take advantage or maximize the impact of the mistake (using most expensive capital equipment on claim) Cost rule- damaged party is entitled to amount required to repair the damage caused by the breach

Termination and Damage Value rule- damaged party is entitled to the diminution of value, not cost to repair (used when cost is larger than value and when cost to fix is very high, as on completed work) Value rule cannot be used to reward contractor for bad faith or deliberate breach. Court attempts to determine intent

Termination and Damage Total cost rule- calculation of damages based on total actual costs versus contract cost- difficult to prove without substantial documentation. Not tied to any specific work activity Limiting and controlling language- contract stipulation a priori as liquidated damages or limited damages clause

Termination and Damage Attempts to limit, control, or specify the amount of the damages in the original contract (usually an amount a day) Liquidated damages apply only to schedule issues- collected in lieu of contract damages. If liquidated damages are claimed, right to other schedule claims is forfeited. Unenforceable or unrelated to actual costs is deemed exculpatory

Termination and Damage No damage for delay clause is similar to liquidated damage issue. Must be limited in application or it is considered exculpatory. Prone to arbitrary and capricious enforcement “No damage” and “liquidated damage” clauses are hard to enforce