Termination and Damage
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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
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Determination of materiality is
subjective
Damages are primary relief granted by
court
Damages- sum of money to
compensate for loss/injury (nonpersonal) resulting from breach
Relief- what the “winner” gets because
of the breach
Termination and Damage
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Types of relief
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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
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Relief applies to all Liability Issues
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Can contract be rescinded?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 actsinvoluntarily assumed)
Termination and Damage
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Damages related to:
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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-consumingrequires extensive documentation
Termination and Damage
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Non-recoverable costs under contract
liability
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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
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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
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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
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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
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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
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Loss of efficiency is an impact damage
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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
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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
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Costs- set of recoverable damages
items
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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
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Interest costs are recoverable
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Accrues from date the damage occurred
Pre-judgment accrual is interest from
damage to decision
Post-judgment 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
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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
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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
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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 languagecontract stipulation a priori as liquidated
damages or limited damages clause
Termination and Damage
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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
Attempts to limit, control, or specify the
amount of the damages in the original
contract (usually an amount a day)
Termination and Damage
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Must be limited in application or it is
considered exculpatory.
Prone to arbitrary and capricious
enforcement
No damage for delay clause is similar to
liquidated damage issue.
“No damage” and “liquidated damage”
clauses are hard to enforce