Construction Engineering 380 Termination

Termination for breach was covered in depth earlier Can also have termination for convenience by owner –Owner must pay costs to point of notification plus overhead –Owner typically can’t give work to others after terminating

Termination Termination for mutual convenience or when neither party is responsible is also allowed given certain circumstances are present –Mutual convenience is “uncontracting”, so same requirements for contracting must be present –Neither party responsible usually requires a dramatic triggering effect (9/11)

Termination Must send notice of termination as spelled out in the contract, then material and equipment ownership transfer occurs, final payment claims are submitted, and termination dispute arguments (if any) are entered

Bankruptcy Federal and state jurisdictions Case turned over to trustee when a company or individual can no longer make debt payments (simplified case) Company filing the bankruptcy is debtor (they owe) Companies owed money are creditors Trustee marshals and/or liquidates non-exempt assets to pay off creditors

Bankruptcy Types of bankruptcy –Chapter 7- debt liquidation Unsecured debts discharged (creditor- no security) Law is specific about what debts can be discharged If business files Ch 7, debts are never discharged Ch. 7 usually means the company is going out of business Secured debts- underlying asset can be sold to make good on the debt (or a portion thereof) Exempt assets are listed in law

Bankruptcy Chapter 11- business reorganization –Create breathing room to allow company to get back on its feet –Debtor continues to operate as debtor-in- possession –Can be forced into involuntary chapter 7 if they fall behind reorganization plan for credit –K-Mart example

Bankruptcy Chapter 13- individual reorganization –Individual chooses to pay only a portion of unsecured debts and discharge balance –Complicated process for determination –No adverse affect on credit rating & availability –Credit card companies don’t like it

Bankruptcy Automatic stay- creditors cannot attempt to collect or harm the debtor (refuse to sell) Failure to abide by a stay is contemptible act with fines and imprisonment Mechanic’s liens- perfection of lien is allowed, but not enforcement Executory contracts- parties continue to have duties and obligations to each other in spite of bankruptcy. Construction contracts are usually considered executory

Bankruptcy Fraudulent transfer and preference- trustee can nullify money transfers made up to one year prior to filing Transfers off-shore or to family members can be fraudulent Preferential payment can be nullified as well Payment for which additional value is not received are deemed preferential (did not need to pay, or paid earlier than necessary)

Bankruptcy Construction bankruptcy actions –Forced return of payment if fraudulent or preferential –Liens may be filed –Contract enforcement shifts to trustee of creditor group, no longer dealing with owner –Retainage becomes an asset of bankruptcy- contractor must “stand-in-line” with other creditors

Bankruptcy Involuntary bankruptcy- person or business forced to declare chapter 7 or 11. Involuntary declaration in an attempt to control debtor actions by creditors Usually used when assets are being moved between companies DCT example