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 reliefDamages- 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Can contract be rescinded?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 recoverableAccrues 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