Construction Engineering 380
Termination
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-inpossession
– 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 bankruptcycontractor 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