Chapter Eight
Breach of Contract (Express)
Brian W. Shaffer, Michael R. Libor,
and Jonathan D. Wall
8.01Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
8.02General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
8.03 Design Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
8.04 Error in Design Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
8.05 Performance Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
8.06 Failure to Comply with Performance Specifications. . . . . . . . . . . . . . . . . . . 136
8.07No Implied Warranty of Performance Specifications. . . . . . . . . . . . . . . . . . . 137
8.08 Performance Specifications and Impossibility. . . . . . . . . . . . . . . . . . . . . . . . 138
8.09 Contractor Can Assume Risk of Impossibility . . . . . . . . . . . . . . . . . . . . . . . . 140
8.10 Design versus Performance Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . 141
8.11 Plaintiff’s Departure/Deviation from the Contract Terms . . . . . . . . . . . . . . . 143
8.12Material Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
8.13 Anticipatory Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147
8.14 Substantial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
8.15 Delay as a Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
8.16 Acceleration as a Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
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Chapter 8: Breach of Contract (Express)
8.01 Introduction
Chapter Eight is dedicated to issues that affect the jury’s ultimate determination as to whether a party has met its obligations under its contract.
This chapter begins with a general instruction that explains the concept of
breach and revisits the notion, addressed in earlier chapters, of express and
implied contractual obligations. The instructions contained in this chapter
also emphasize the importance of the nature of the contract specifications
and how to determine whether a contractor adhered to them. Whether there
has been a breach of contract can often depend, for instance, on whether the
specifications are “design specifications,” which prescribe the manner and
method of construction and leave the contractor with very little discretion
as to the products, systems, or designs to be incorporated into the work,
or “performance specifications,” which require the contractor to achieve
a specified standard by whatever means the contractor chooses consistent
with the other contract documents—obligating not the method but the
result. The jury must also determine whether the contractor followed the
plans and specifications in all material respects.
Materiality is a central concept to any discussion concerning breach of
contract, and this chapter addresses how to determine whether a contract
term is material and the consequences flowing from a material breach. Since
breach of contract claims may also be based on the manner, extent, and
timing of performance, this chapter also discusses owners’ delay claims,
contractors’ acceleration claims, and anticipatory breach.
8.02 General
A party breaches a contract when it fails, without legal excuse, to adhere to
a material promise that is a part of the contract. A party may breach either
an express or an implied provision of the contract.
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The plaintiff bears the burden to prove by a preponderance of the evidence that the defendant breached the contract. The plaintiff must prove
each of the following elements:
(1) A contract existed.
(2) The plaintiff performed its obligations under the contract (or was
excused from performing under the contract).
(3) The defendant breached a material provision of the contract.
(4) The defendant’s failure to perform damaged the plaintiff.
Comment
This statement, along with the accompanying burdens of proof, is a standard jury instruction in contract cases. See, e.g., Reichert v. Gen. Ins. Co.
of Am., 442 P.2d 377, 381 (Cal. 1968); P.T. & L. Constr. Co. v. N.J. Dep’t
of Transp., 531 A.2d 1330, 1335–36 (N.J. 1987); see also Restatement
(Second) of Contracts § 235 (1981) (explaining when nonperformance
is justified); California Civil Jury Instructions (BAJI) §§ 10.56 (express
or implied contracts), 10.82 (failure of consideration), 10.85 (essential elements of breach).
The failure, without legal justification, to adhere to a promise that forms
part of a contract constitutes a breach of that contract. See Lincoln Nat’l
Corp. v. Takecare Inc., No. C 97-02193 CW, 1998 WL 281290, at *3 (N.D.
Cal. May 11, 1998). However, a contract will not be enforced if its formation or performance is prohibited by statute or municipal ordinance or is
otherwise contrary to public policy. See C.R. Klewin Ne. LLC v. City of
Bridgeport, 919 A.2d 1002, 1026–27 (Conn. 2007); King v. Moorehead,
495 S.W.2d 65, 78 (Mo. Ct. App. 1973); In re Baby M, 537 A.2d 1227,
1243–44 (N.J. 1988); Naseef v. Cord Inc., 216 A.2d 413, 417 (N.J. Super.
Ct.), aff’d, 225 A.2d 343 (N.J. 1966); 17 C.J.S. Contracts § 208.
Generally, in order to prevail on a breach of contract claim, a plaintiff
must establish four elements: (1) the existence of a valid contract, (2) the
plaintiff’s performance or excuse for nonperformance, (3) the defendant’s
unjustified or unexcused failure to perform (i.e., breach), and (4) damage
to the plaintiff. See Taub v. Hous. Pipeline Co., 75 S.W.3d 606, 615 (Tex.
Ct. App. 2002); Lincoln Nat’l Corp., 1998 WL 281290, at *3; Tockstein
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v. Spoeneman, No. 4:07CV00020, 2008 WL 1805372, at *2 (E.D. Mo.
Apr. 17, 2008). The purpose of damages in a breach of contract case is to
return the parties to the positions they would have been in had the breach
not occurred. See Pittsburgh Constr. Co. v. Griffith, 834 A.2d 572, 580
(Pa. Super. Ct. 2003).
8.03 Design Specifications
Design specifications are a contract document that describes in detail the
materials or products the contractor must install and the manner and
method in which the contractor must perform the construction work. When
design specifications are used and are part of the contract documents, the
owner implicitly warrants to the contractor that the methods and materials so designated will produce an acceptable result. The contractor must
follow the design specifications as one would follow a road map. The contractor is allowed to rely on the accuracy of information and instructions
contained in the design specifications, and the contractor will not be liable
to the owner for loss or damage that results solely from insufficiencies or
defects in such information, plans, and specifications.
8.04 Error in Design Specifications
The contractor claims that it is entitled to additional time or money (or it is
not liable to the owner for a failure of the project work to meet the owner’s
expectations) because there were errors or omissions in the design specifications. If you find that there were design specifications that relate to the issue
in dispute, the owner provided an implied warranty to the contractor that
the plans and specifications were accurate and that they were suitable for
their intended use. An owner breaches the first warranty when the actual
condition of the site is not as the owner has stated, and an owner can breach
the second warranty when a contractor accurately follows the plans and
specifications to completion yet, even so, fails to produce a finished project suitable for its intended purpose or satisfactory to the owner. In both
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of the above-listed situations, a contractor may hold the owner liable for
the added expense required to complete the project due to the inadequate
plans and specifications. The contractor, however, must still show good
faith, and if the contractor has notice that the plans and specifications are
defective, it must notify the owner promptly in order to preserve its claims.
The contractor must demonstrate the following:
(1) There was an error or omission in the design specifications.
(2) The contractor followed the design specifications.
(3) The error or omission caused the contractor to incur additional
cost or require additional time to perform the work.
If the contractor complied with the design specifications and the defect or
deficiency in the work was a result of an error or omission in the design
specifications, the contractor is entitled to additional time or money (or is
not liable to the owner for loss or damage that results solely from insufficiencies or defects in such information, plans, and design specifications).
However, even if there was an error or omission in the design specifications, the contractor is not entitled to recover unless it actually relied on
the error or omission.
Comment
Where a contract is found to contain design specifications, the owner implicitly warrants that the methods and materials so designated will produce an
acceptable result. See United States v. Spearin, 248 U.S. 132, 137 (1918);
Caddell Constr. Co. v. United States, 78 Fed. Cl. 406, 412 (2007); M.A.
Mortenson Co. v. United States, 40 Fed. Cl. 389, 417 (1998); see also
supra Chapter Four. This implied warranty of constructability is known
as the Spearin doctrine. Martin K. Eby Constr. Co. v. Jacksonville Transp.
Auth., 436 F. Supp. 2d 1276, 1308 (M.D. Fla. 2005), aff’d, 178 F. App’x
894 (11th Cir. 2006).
“[I]f plans and specifications are so deficient or defective that a contractor
encounters conditions different from those as represented or reasonably to
be anticipated, he should be entitled to recover for extra costs incurred in
dealing with those different conditions.” R.C. Tolman Constr. Co. v. Myton
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Water Ass’n, 563 P.2d 780, 782 (Utah 1977) (adopting United States v.
Spearin) (denying request for differing site condition claim on water-pipeline project). Only if design specifications are “so substantially deficient or
unworkable as to constitute a breach of the contract” may the contractor
recover. See Wunderlich Contracting Co. v. United States, 173 Ct. Cl. 180,
191 (1965).
“The test for recovery based on inaccurate specifications is whether the
contractor was misled by these errors in the specifications.” Robins Maint.
Inc. v. United States, 265 F.3d 1254, 1257 (Fed. Cir. 2001). The government’s
implied warranty of its specifications is generally voided if the contractor
does not follow the specifications. Mega Constr. Co. v. United States, 29
Fed. Cl. 396, 418 (1993) (citing Al Johnson Constr. Co. v. United States,
854 F.2d 467, 469–70 (Fed. Cir. 1988)); see also Gulf W. Precision Eng’g
Co. v. United States, 211 Cl. Ct. 207, 217–18 (1976); Sterling Millwrights
Inc. v. United States, 26 Cl. Ct. 49, 88 (1992); Travelers Cas. & Sur. of Am.
v. United States, 74 Fed. Cl. 75, 89–90 (2006).
Contract documents usually contain clauses under which the contractor
warrants its construction materials against defects. An owner will argue
that the contractor’s express warranty against material defects overrides the
owner’s implied warranty of design specifications when the specified product fails. Both warranties may be equally effective. In Trustees of Indiana
University v. Aetna Casualty & Surety Co., 920 F.2d 429, 431–32 (7th Cir.
1990), abrogated on other grounds by Watson v. Amedco Steel Inc., 29 F.3d
274 (7th Cir. 1994), the owner’s specifications called for the use of “courthouse blend” bricks, which spalled and failed after two years because they
were too porous. The jury found that the owner was responsible because
the contractor’s warranty that the work would be free of defects did not
trump the defective design specification. Id. at 436–37. In Rhone Poulenc
Rorer Pharmaceuticals Inc. v. Newman Glass Works, 112 F.3d 695, 697–98
(3d Cir. 1997), however, a court applying Pennsylvania law held that the
contractor’s express warranties, including that the work would be “free
from faults and defects,” overrode the owner’s implied warranty of design
under the Spearin doctrine because the parties had thereby explicitly allocated that risk to the subcontractor.
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8.05 Performance Specifications
Performance specifications are contract provisions that set forth some objective standard, outcome, or function that the completed work must achieve.
Performance specifications require the contractor to exercise its skill and
judgment to select the means, methods, and/or equipment necessary for the
completed work to achieve the specified performance standards. If the contract’s provisions required the contractor to select the materials, products,
and means necessary to achieve the specified standards, outcome, or function, you should find that these provisions are performance specifications.
Comment
The definition in this instruction complies with the formulation articulated
in many cases, including in the Court of Federal Claims. See, e.g., Travelers
Cas. & Sur. of Am. v. United States, 74 Fed. Cl. 75, 89 (2006) (“[W]here the
specifications set forth simply an objective or standard and leave the means
of attaining that end to the contractor, they are ‘performance [specifications].’”); J.L. Simmons Co. v. United States, 412 F.2d 1360, 1362 (Ct. Cl.
1969) (“[T]ypical ‘performance’ type specifications set forth an objective or
standard to be achieved, and the successful bidder is expected to exercise his
ingenuity in achieving that objective or standard of performance, selecting
the means and assuming a corresponding responsibility for that selection.”);
Martin K. Eby Constr. Co. v. Jacksonville Transp. Auth., 436 F. Supp. 2d
1276, 1308 n.47 (M.D. Fla. 2005) (“Performance specifications . . . specify
the results to be obtained, and leave it to the contractor to determine how
to achieve those results.” (internal quotations and citation omitted)), aff’d,
178 F. App’x 894 (11th Cir. 2006); see also Intercont’l Mfg. Co. v. United
States, 4 Cl. Ct. 591, 596 (1984) (“The manufacturing format which [the
contractor] decided upon was of its own choosing . . . . The risks attendant
to the choice of manufacturing steps remained with the contractor.”); cf.
Martin Constr., Inc. v. United States, 102 Fed. Cl. 562, 576 (2011) (finding
that Government contract specification requiring “North Dakota Type 7
Aggregate or [its] equivalent” constituted a design specification because it
severely limited the contractor’s discretion in choosing materials). As one
court noted, “Contractors given performance specifications are encouraged
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to be resourceful and to use their own expertise and ingenuity to complete
the job on time. The Corps wanted Daewoo’s ‘creativity and flexibility’ in
handling the difficult conditions that they would find on Palau.” Daewoo
Eng’g & Constr. Co. v. United States, 73 Fed. Cl. 547, 568 (2006), aff’d,
557 F.3d 1332 (Fed. Cir. 2009).
8.06 Failure to Comply with Performance Specifications
In this case, the owner claims that the contractor breached the contract
because the work did not comply with the contract’s performance specifications. It is the owner’s burden to prove by a preponderance of the evidence
that the contract provisions are performance specifications and that the
contractor breached those specifications.
Comment
The definition in this instruction complies with the formulation articulated
in many cases in the Court of Federal Claims (and its predecessors), including in Daewoo Engineering and Construction Co. v. United States, 73 Fed.
Cl. 547, 567 (2006), aff’d, 557 F.3d 1332 (Fed. Cir. 2009). A performance
specification basically promises a particular result or defines the intended
outcome of the work. It is a warranty by the contractor that the work, or
a certain portion thereof, will be performed as specified. It sets forth the
standard the completed work is to achieve. Performance specifications “set
forth an objective or standard to be achieved, and the successful bidder is
expected to exercise his ingenuity in achieving that objective or standard of
performance, selecting the means and assuming a corresponding responsibility for that selection.” J.L. Simmons Co. v. United States, 412 F.2d 1360,
1362 (Ct. Cl. 1969).
Performance specifications place the burden on the contractor to achieve
some objectively measurable standard in executing the contract. See Blinderman Constr. Co. v. United States, 39 Fed. Cl. 529, 566–67 (1997), aff’d,
178 F.3d 1307 (Fed. Cir. 1998). As one court noted, “Contractors given
performance specifications are encouraged to be resourceful and to use
their own expertise and ingenuity to complete the job on time. The Corps
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wanted Daewoo’s ‘creativity and flexibility’ in handling the difficult conditions that they would find on Palau.” Daewoo Eng’g & Constr. Co., 73
Fed. Cl. at 568.
For example, in George Sollitt Construction Co. v. United States, 64
Fed. Cl. 229, 297 (2005), the government awarded a contract for the renovation of two buildings that required the contractor to install a chiller in
one building but only specified a particular cooling capacity, not a specific
chiller model. The court described it as a “typical performance specification” because the government specified “only the result.” Id. The contractor
assumes the risk that his selection will prove unsuccessful. Id. There is no
warranty by the owner that the specifications are sufficient to achieve a
desirable result. See John Massman Contracting Co. v. United States, 23
Cl. Ct. 24, 32 (1991).
8.07 No Implied Warranty of Performance Specifications
Unlike a design specification, there are no implied warranties of a performance specification.
Comment
The implied warranty of adequacy of design specifications from the Spearin
doctrine does not extend to performance specifications. Rather, performance specifications “merely set forth an objective without specifying the
method of obtaining the objective.” White v. Edsall Constr. Co., 296 F.3d
1081, 1084 (Fed. Cir. 2002). It is also well established that a contractor
cannot prevail by showing that the specifications were less detailed than
the contractor would have preferred. The courts and boards of contract
appeals have repeatedly rejected the notion that the government is liable
for difficulties encountered by a contractor because performance specifications supplied by the government were insufficiently detailed to enable the
contractor to perform the contract in an efficient or profitable manner. See,
e.g., Sylvania Elec. Prods. v. United States, 458 F.2d 994, 998–1000 (Ct. Cl.
1972); Shuey Aircraft Inc. v. United States, 3 Cl. Ct. 243, 244–45 (1983);
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Nw. Marine, Inc., ASBCA No. 43502, 94-1 BCA ¶ 26,521, at 131,998–99;
Serv. Eng’g Co., ASBCA No. 40273, 92-3 BCA ¶ 25,122, at 125,240–41.
With performance specifications, no “road map” exists except the one
devised by the contractor, so no recovery is possible for the contractor
under the Spearin doctrine of implied warranty of adequacy of design.
Aleutian Constructors v. United States, 24 Cl. Ct. 372, 381 (1991); Penguin Indus. v. United States, 530 F.2d 935, 937 (Ct. Cl. 1976). In Austin
Co. v. United States, 314 F.2d 518, 518 (Ct. Cl. 1963), cert. denied, 375
U.S. 830 (1963), the contractor built an electronic navigation system for
the Navy. The contractor claimed that the specifications proposed by the
government were impossible to perform and persuaded the government to
change the specifications based on the promise that, by following the new
proposed specifications, the contractor could exceed the government’s initial performance specifications. Id. at 518–19. After three years of trying
to satisfy the new performance specifications, the contractor failed to produce a conforming product and filed a claim for its costs, alleging it was
unable to perform due to matters beyond its control. Id. at 519. The Court
of Claims held that, by suggesting the means, the contractor assumed the
risk of impossibility and, like the government, the contractor was responsible for the designs it produced. Id. at 520–21.
8.08 Performance Specifications and Impossibility
In this case, the contractor contends that it could not meet the performance
specifications provided by the owner because they were “impossible” to
achieve. The owner is responsible for making sure the performance specifications provided are possible to achieve. If the contractor can demonstrate
that it is not possible to achieve the performance specifications, you must
find for the contractor.
The contractor has an obligation to inform the owner as soon as it learns
that the performance specifications are impossible to achieve. If the contractor fails to inform the owner and continues to work, the contractor cannot
recover against the owner for impossibility.
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Comment
A claim of defective design specifications is founded on the implied warranty
that design specifications, if followed, will lead to a successful product. No
such warranty arises with respect to performance specifications. J.A. Maurer
Inc. v. United States, 485 F.2d 588, 594–95 (Ct. Cl. 1973). On the other hand,
“[w]hen performance specifications are involved and the contractor is not
constrained by Government-imposed design requirements, the contractor’s
basis for relief is impossibility or commercial impracticability.” 2 Ralph
C. Nash Jr. & John Cibinic Jr., Federal Procurement Law 1023 (3d
ed. 1980). The relevant consideration with respect to performance specifications is whether the plaintiff can demonstrate that the defendant should
bear the risk that the specifications may be impossible to achieve. Oak Adec
Inc. v. United States, 24 Cl. Ct. 502, 507 (1991); see also Columbia Eng’g
Corp., ASBCA No. 32139, 89-2 BCA ¶ 21,689 (distinguishing doctrine of
commercial impracticability or impossibility applicable to performance
specifications from implied warranty of specifications applicable to design
specifications); Frank J. Baltz & Daniel S. Herzfeld, Impracticable Specifications, 34 Procurement Law 3, 5 (1999) (“Generally, a contractor should
use the doctrine of commercial impracticability when the appeal involves
‘performance specifications,’ but should use the Spearin doctrine when the
appeal involves ‘design specifications.’”); AAB Joint Venture v. United States,
75 Fed. Cl. 414, 429 (2007). The party that drafts the specifications normally bears the risk that the specifications will be impossible to perform.
J.A. Maurer, 485 F.2d at 594–95.
When a contractor determines that it is impossible to achieve a performance specification, the contractor has an obligation to report the
impossibility to the owner. The contractor cannot simply continue to perform assuming the owner will waive or modify portions of the requirement.
To be deemed to have acted in a reasonable manner, the contractor must
immediately report an impossibility to the owner and consult with the
owner as to alternate courses of action. “Any adjustment by the Contractor
without such a determination shall be at his own risk and expense.” Regan
Constr. Co. v. United States, 231 Ct. Cl. 937, 943 (1982).
For example, when a contractor ordered the only available model of an
air-handling unit that could meet the owner’s performance requirement but
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did not meet the owner’s space requirement, the contractor was responsible for the additional cost arising from the noncompliant unit. Id. at
943–44. The contractor had an obligation to promptly report the spaceversus-performance issue to the owner. Id. “Furnishing a unit which met
the performance characteristics but not the space requirements, without
consultation with [the owner], [the contractor] deprived [the owner] of the
opportunity of initiating appropriate action and it, therefore, assumed the
risk of any increased costs which might result.” Id. at 943; see also Highway Prod. Inc. v. United States, 530 F.2d 911, 919–20 (Ct. Cl. 1976); Space
Corp. v. United States, 470 F.2d 536, 538 (Ct. Cl. 1972).
8.09 Contractor Can Assume Risk of Impossibility
In this case, the owner contends that the contractor assumed the risk that the
performance specifications may be impossible to achieve. While the general
rule is that the owner is responsible for making sure that the performance
specifications are possible to achieve, if the owner can demonstrate that
the contractor participated in drafting the performance specifications, you
may determine that the contractor assumed the risk that the performance
specifications might be impossible to achieve.
Comment
In contrast to the general rule, a contractor’s participation in the drafting
of performance specifications can operate to shift the risk of impossibility
to the contractor. Bethlehem Corp. v. United States, 462 F.2d 1400, 1404
(Ct. Cl. 1972); Oak Adec Inc. v. United States, 24 Cl. Ct. 502, 507 (1991).
In Oak Adec, the government alleged that by assisting in the development and preparation of the Guide Spec, Oak Adec participated to such
a degree in the drafting of the specifications that it assumed the risk of
impossibility. 24 Cl. Ct. at 507. “Adec attended four industry fora held
by the Government to discuss drafts of the Guide Spec. After each forum,
the Guide Spec was revised, and copies of the latest draft were sent to the
industry participants. Adec commented in writing on each of the proposed
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drafts, and was characterized by Government personnel as an active participant in the process.” Id. at 508.
In Bethlehem, the government contacted several contractors, including
the plaintiff, for consultation on the development of an environmental test
chamber. 462 F.2d at 1401. During the course of the ensuing discussions,
the plaintiff assured the government that it was possible to build a test
chamber meeting the government’s proposed specifications. Id. at 1401–02.
The Bethlehem court held that these assurances, coupled with the fact that
the plaintiff was an expert in the field, constituted an assumption of the
risk of impossibility. Id. at 1404.
8.10 Design versus Performance Specifications
As explained in other instructions, there are two types of specifications that a
contractor may be required to follow: design specifications and performance
specifications. Here, you will be asked to determine whether certain specifications constitute “design” or “performance” specifications. In making
your determination, please remember that an element of work can contain
both design and performance features.
If the owner selected the materials and products and required the contractor to follow a certain procedure to complete the work, you must determine
that the provision is not a performance specification. You may consider the
following factors:
(1) Did the owner provide the form and dimensions of the work and
show how the work was to be built and installed, leaving the contractor with little discretion in performance? This would suggest it is
a design specification.
(2) Did the contract provide that the details of the installation were
to be left largely to the experience and expertise of the contractor and
its agents, in accordance with the contractually required performance
standards? This would suggest it is a performance specification.
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Comment
When the owner has provided design specifications and the contractor persuades the owner to change them in accordance with the contractor’s ideas
of how the owner’s purpose might be better achieved, a court will treat
such a persuasion as if the contract contained performance standards and
relieve the owner of its warranty of the design specifications. See Aleutian
Constructors v. United States, 24 Cl. Ct. 372, 378 (1991).
The well-settled understanding of design specifications—as opposed
to performance specifications—is explained in the cited cases. See, e.g.,
Fireman’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598, 652 (2010); ThermoCor Inc. v. United States, 35 Fed. Cl. 480, 491 (1996); Dillingham Constr.
NA v. United States, 33 Fed. Cl. 495, 500–01 (1995), aff’d, 91 F.3d 167
(1996); Maguire Co. v. Herbert Constr. Co., 945 F. Supp. 72, 75 (S.D.N.Y.
1996); McCree & Co. v. State, 91 N.W.2d 713, 724 (Minn. 1958); see also
REDM Corp. v. United States, 428 F.2d 1304, 1308–09 (Ct. Cl. 1970)
(causation proven where alteration in specifications solved production difficulties despite contractor’s inability to pinpoint defect); Brantley Constr.
Co., ASBCA No. 27604, 84-3 BCA ¶ 17,532, at 87,317 (citing Ordnance
Research Inc. v. United States, 609 F.2d 462, 479–80 (Ct. Cl. 1979) (causation proven where “an alteration in the specifications solve[d] the difficulty”
in production process)); Celesco Indus. Inc., ASBCA No. 21928, 81-2 BCA
¶ 15,260, at 75,548–49 (contractor has burden to show “causal connection between the defective . . . specification and [performance] failures”).
A contract may contain design specifications, performance specifications,
or some mixture of both. Blake Constr. Co. v. United States, 987 F.2d 743,
746 (Fed. Cir. 1993). A contract will be found to contain design specifications if the contract specifies what type of materials should be used by
identifying acceptable suppliers and materials. See Rhone Poulenc Rorer
Pharm. Inc. v. Newman Glass Works, 112 F.3d 695, 701–02 (3d Cir. 1997);
Lake Union Drydock Co. v. United States, No. C05-2146RSL, 2007 WL
2984707, at *9 (W.D. Wash. Oct. 10, 2007). Only a contract with design
specifications generates the implied warranty of constructability. Daewoo
Eng’g & Constr. Co. v. United States, 73 Fed. Cl. 547, 567 (2006), aff’d,
557 F.3d 1332 (Fed. Cir. 2009). The key to the outcome in most cases is the
amount of discretion the contract documents afford the contractor to select
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materials and methods to perform or accomplish the work. See Fireman’s
Fund Ins. Co., 92 Fed. Cl. at 643; Dillingham Constr. NA v. United States,
33 Fed. Cl. 495, 500 (1995). When the owner exercises extraordinary control over the development, production, and performance of the work, the
contractor may not be responsible for deficiencies or defects in the final
product. See Hayward Baker Inc. v. C.O. Falter Constr. Corp., 104 A.D.3d
1253, 1254–55 (N.Y. App. Div. 2013); C.J. Langenfelder & Son Inc. v. Pa.
Dep’t of Transp., 404 A.2d 745, 751 (Pa. Commw. Ct. 1979); Pa. Dep’t of
Transp. v. W.P. Dickerson & Son Inc., 400 A.2d 930, 932 (Pa. Commw. Ct.
1979). If the contractor fails to adhere to the contract terms or specifications, however, the contractor is responsible for defects or problems in the
construction, even if the owner exercised control over some aspects of the
work. Stabler Constr. Inc. v. Pa. Dep’t of Transp., 692 A.2d 1150, 1152–53
(Pa. Commw. Ct. 1997).
The mere fact that a specification cannot be followed precisely does not,
by itself, indicate that it is a performance specification rather than a design
specification. See PCL Constr. Servs. Inc. v. United States, 47 Fed. Cl. 745,
796 (2000); Blake Constr., 987 F.2d at 746.
Even if a specification includes a performance component, such as a
performance acceptance test, unless the contractor is required to exercise
discretion to perform the work, obligation to complete a performance test,
alone, may not shift the responsibility for the adequacy of the design to
the contractor. See W.H. Lyman Constr. Co. v. Gurnee, 403 N.E.2d 1325,
1332 (Ill. App. Ct. 1980); Fruin-Colnon Corp. v. Niagara Frontier Transp.
Auth., 180 A.D.2d 222, 230–32 (N.Y. App. Div. 1992); Chantilly Constr.
Corp. v. Va. Dep’t of Highways & Transp., 369 S.E.2d 438, 444–45 (Va.
Ct. App. 1988).
8.11 Plaintiff’s Departure/Deviation
from the Contract Terms
Before the contractor can recover anything beyond pay for work actually
performed in this case, the contractor must show that it has performed
or offered to perform the contract so far as it placed obligations on the
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contractor and so far as the contractor could perform the obligations within
such physical limitations as may have existed.
If there has been any material failure on the contractor’s part to perform
or offer to perform the obligations of the contract, such failure on the contractor’s part will deprive the contractor of any right to recover on account
of breach of contract. The contractor cannot recover in this action if there
was an intentional departure in a substantial manner from the plans and
specifications, although the completed work and materials furnished are
equal in value to those specified and the owner made no objections to the
work as performed, unless the contractor proves that the owner consented
and agreed to the departures from the plans and specifications and changes
in the completed work.
Comment
This instruction follows the general rule that a party that has breached the
contract without excuse may not recover damages for the other party’s
breach of the contract. See, e.g., Hoopla Sports & Entm’t Inc. v. Nike Inc.,
947 F. Supp. 347, 357 (N.D. Ill. 1996); Tagare v. NYNEX Network Sys. Co.,
921 F. Supp. 1146, 1149 (S.D.N.Y. 1996); Paragon Gen. Contractors Inc.
v. Larco Constr. Inc., 227 S.W.3d 876, 882 (Tex. App. 2007). Its phrasing
is modeled after basic breach of contract instructions. See Restatement
(Second) of Contracts §§ 237 (effect of a failure to render performance
on opposing party’s duties), 241 (circumstances significant in determining
whether a failure is material); see also California Civil Jury Instructions (BAJI) § 10.85 (essential elements of breach).
Frequently, in construction cases, both parties have breached their agreement. See Wellmore Coal Corp. v. Patrick Petrol. Corp. of Mich., 808 F. Supp.
529, 537–38 (W.D. Va. 1992); Willbros Eng’rs Inc. v. Mastec N. Am. Inc.,
No. 03-CV-436-TCK-PJC, 2006 WL 1698968, at *7 (N.D. Okla. June 9,
2006). The question then becomes one of the materiality of the respective
breaches. See infra Chapter Eight, Part Twelve.
Some jurisdictions, particularly in the context of construction cases, have
moved away from the strict rule denying any recovery to the first party to
breach. In Erlich v. Hendrick Construction Co., 225 S.E.2d 665, 669–70
(Va. 1976), for example, the traditional “no recovery” rule enunciated in
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cases such as Hurley v. Bennett, 176 S.E. 171, 175 (Va. 1934) (“The party
who commits the first breach of a contract [based upon mutual promises
of the parties] is not entitled to enforce it, or to maintain an action thereon,
against the other party for his subsequent failure to perform.”), was inapplicable when the parties asserted offsetting claims against each other. The
Erlich court reasoned, “The more recent . . . cases . . . indicate a relaxation
of the rigid rule . . . especially . . . where the contractor and owner assert
offsetting claims against each other, or where the departures from the contract do not involve real instances of bad faith.” 225 S.E.2d at 670 (quoting
Kirk Reid Co. v. Fine, 139 S.E.2d 829, 836 (Va. 1965)).
In any event, the owner is entitled to insist on strict compliance with contract specifications. See Mabus v. Gen. Dynamics C4 Sys. Inc., 633 F.3d 1356,
1365–66 (Fed. Cir. 2011); Madigan v. Hobin Lumber Co., 986 F.2d 1401,
1403–04 (Fed. Cir. 1993); Peters v. United States, 694 F.2d 687, 698 (Fed. Cir.
1982); Troise v. United States, 21 Cl. Ct. 48, 61 (1990); Red Circle Corp. v.
United States, 398 F.2d 836, 839 (Ct. Cl. 1968); see also Smith v. Packard,
27 S.E. 586, 588 (Va. 1897). The fact that a specified contract requirement
is burdensome and serves no apparent purpose does not relieve the contractor from the duty of performing the work in the agreed-upon manner.
See WRB Corp. v. United States, 183 Ct. Cl. 409, 446 (1968); Reynolds
Tile & Terrazzo Corp., ASBCA No. 20362, 76-2 BCA ¶ 12,004. “A contractor that knowingly disregards contract requirements in favor of its own
judgment does so at its own peril. ‘Regardless of the technical soundness
of the [g]overnment’s requirements, a contractor must comply with them
and cannot substitute its own views for that of the government.’” Hannon
Elec. Co. v. United States, 31 Fed. Cl. 135, 147 (1994) (quoting Maxwell
Dynamometer Co. v. United States, 386 F.2d 855, 868 (Ct. Cl. 1967)), aff’d,
52 F.3d 343 (Fed. Cir. 1995); see also Johnson Controls Inc. v. United States,
671 F.2d 1312, 1321 (Ct. Cl. 1982) (“[I]f a contractor embarks on a ruinous course, it is a journey . . . taken with eyes wide open.”).
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8.12 Material Breach
In order to recover damages for a breach of contract, the plaintiff must
show that the defendant committed a “material breach.” A material breach
is a breach that affects the fundamental purpose of the contract. A failure
to perform some minor part of a contractual duty is not a material breach.
Whether the breach was material is a question of fact for you to decide.
In determining whether the breach in this case was material, you should
consider all of the circumstances surrounding the breach, including:
(1) the extent to which the plaintiff will be deprived of the benefit it
reasonably expected;
(2) the extent to which the plaintiff can be adequately compensated
for the part of that benefit of which it will be deprived;
(3) the extent to which the defendant will suffer forfeiture;
(4) the likelihood that the defendant will fix its failure, taking into
account all the circumstances, including any reasonable assurances;
and
(5) the extent to which the defendant acted in accordance with the
standards of good faith and fair dealing.
Comment
While parties to a contract must strictly comply with its terms, a nonbreaching party can recover damages only for a material breach. See In re
Krueger, 192 F.3d 733, 742 (7th Cir. 1999) (stating that courts will award
damages for material, but not de minimis, breaches). A material breach
of contract allows the aggrieved party to cancel the contract and recover
damages for the breach. See Miller v. Mills Constr. Inc., 352 F.3d 1166,
1171–72 (8th Cir. 2003); United States ex rel. Va. Beach Mech. Servs. Inc.
v. SAMCO Constr. Co., 39 F. Supp. 2d 661, 670 (E.D. Va. 1999); Mustang
Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004). To
constitute a material breach of contract, the breach must change or defeat
the essence of the contract. See Mobil Oil Exploration & Producing Se. Inc.
v. United States, 530 U.S. 604, 630 (2000); Tentinger v. McPheters, 977
P.2d 234, 236 (Idaho Ct. App. 1999).
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Courts across the country routinely use the five-factor analysis set forth
in the Restatement (Second) of Contracts to determine whether a
breach is material. See Restatement (Second) of Contracts § 241; see,
e.g., In re Cent. States Mech. Inc., No. 09-12542, 2011 WL 1637991, at *26
(Bankr. D. Kan. Apr. 29, 2011), aff’d, No. 11-1129-JTM, 2012 WL 3896940
(D. Kan. Sept. 7, 2012); United States ex rel. Greenmoor Inc. v. Travelers
Cas. & Sur. Co. of Am., No. 06-cv-0234, 2009 WL 4730233, at *49 (W.D.
Pa. Dec. 4, 2009); see also Roberts Contracting Co. v. Valentine-Wooten
Rd. Pub. Facility Bd., 320 S.W.3d 1, 7–8 (Ark. Ct. App. 2009); Associated
Builders Inc. v. Coggins, 722 A.2d 1278, 1281 & n.1 (Me. 1999).
8.13 Anticipatory Breach
An “anticipatory breach” is a breach of contract that occurs when one party
intends to breach the contract in the future. An anticipatory breach occurs
when a party clearly asserts, by word or action, that it will not perform a
future material obligation or duty that is required by the contract. Upon
an anticipatory breach by one party, the other party can stop performing
under the contract and sue for damages.
Whether an anticipatory breach occurred is a question of fact for you
to decide.
To find that the [owner/contractor] committed an anticipatory breach,
you must determine by a preponderance of the evidence whether the [owner/
contractor] made positive statements or took actions that distinctly and
unquestionably communicated to the other party that it no longer planned
to perform its contractual obligations.
A mere request for a change in the terms of the contract or to cancel
the contract does not constitute an anticipatory breach. For example, an
anticipatory breach occurs when one party arbitrarily imposes additional
conditions not required by the contract and couples that demand with a
refusal to further perform unless the demand is met.
If you find that the [owner/contractor] has committed an anticipatory
breach, the [contractor/owner] is excused from performing its obligations
under the contract and may recover damages.
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Comment
An anticipatory breach arises when a party to a contract expressly or
impliedly repudiates performance of its contractual obligations before
they are due. See Howard S. Wright Constr. Co. v. BBIC Investors LLC,
38 Cal. Rptr. 3d 769, 780 (Ct. App. 2006); CKP Inc. v. GRS Constr. Co.,
821 P.2d 63, 74 (Wash. Ct. App. 1991). Under the Restatement (Second)
of Contracts § 250, a repudiation is (1) a statement by the promisor to
the promisee indicating that the promisor will commit a material breach
of the contract or (2) a voluntary, positive act that renders the promisor
unable to perform without such a breach. See also Mammoth Lakes Land
Acquisition LLC v. Town of Mammoth Lakes, 120 Cal. Rptr. 3d 797, 820
(Ct. App. 2010) (stating that express repudiation is positive refusal to perform terms of contract, whereas implied repudiation occurs when promisor
makes substantial performance of his promise impossible).
A repudiation must be distinct and unequivocal to support an action for
anticipatory breach; a mere expression of an inclination not to perform
by itself is not enough. See also Mammoth Lakes Land Acquisition LLC
v. Town of Mammoth Lakes, 120 Cal. Rptr. 3d 797, 820 (Ct. App. 2010)
(stating that express repudiation is positive refusal to perform terms of contract, whereas implied repudiation occurs when promisor makes substantial
performance of his promise impossible). In Aetna Casualty & Surety Co. v.
Aniero Concrete Co., 404 F.3d 566, 588 (2d Cir. 2005), the Second Circuit
held that the defendant did not commit an anticipatory breach by failing
to pay the plaintiff for work performed, as the failure to make timely payments did not “render performance impossible.”
When a party commits an anticipatory breach, the non-breaching party’s
duties under the contract are discharged, and it can maintain an action
for damages. See Millis Constr. Co. v. Fairfield Sapphire Valley Inc., 358
S.E.2d 566, 569 (N.C. Ct. App. 1987); McNeal v. Lebel, 953 A.2d 396,
400 (N.H. 2008).
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8.14 Substantial Performance
The law recognizes that a contractor is entitled to be paid for the work it
performs, even if the work fails to comply with the contract terms in minor
respects. If a party substantially performs the contract, the law states that
it would be unreasonable to deny the contractor payment just because the
work was not perfect in all aspects.
A contractor substantially performs when:
(1) the contractor has completed the project required by the owner in
substantially the form required by the contract, and
(2) any defects in performance are not so serious as to deprive the
owner of the intended use of the project.
The doctrine of substantial performance does not apply unless the contractor substantially completed the project.
If you find that the contractor substantially performed the contract, the
contractor is entitled to recover the contract price minus a fair allowance
for the deviations from the contract requirements.
Comment
The doctrine of substantial performance is generally applied in the context
of building and construction contracts. See Amundsen v. Phx. Home Life
Mut. Ins. Co., No. CV 94 0049137 S, 1995 Conn. Super. LEXIS 3418, at
*7–9 (Dec. 7, 1995).
A contractor in breach may nevertheless be entitled to recover damages
if it can establish that it substantially performed the contract. See Ramada
Dev. Co. v. Rauch, 644 F.2d 1097, 1105 (5th Cir. 1981); Ervin Constr. Co.
v. Van Orden, 874 P.2d 549, 552–53 (Idaho Ct. App. 1992), aff’d in part
and rev’d in part on other grounds, 874 P.2d 506 (Idaho 1993); Folk v.
Cent. Nat’l Bank & Trust Co. of Rockford, 567 N.E.2d 1, 5–6 (Ill. App.
Ct. 1991); Peterson Contractors Inc. v. Herd Producing Co., 811 So. 2d
130, 134 (La. Ct. App. 2002); Power-Matics Inc. v. Ligotti, 191 A.2d 483,
488 (N.J. Super. Ct. App. Div. 1963). Recovery for substantial performance
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is based on a theory of restitution or quantum meruit. See Cox v. Bishop,
772 S.W.2d 358, 360 (Ark. Ct. App. 1989).
The doctrine of substantial performance is often misapplied. It does not
relieve a contractor of its duty to comply with the contract’s terms nor compel the unwilling acceptance of tendered, nonconforming work. See Ballou
v. Basic Constr. Co., 407 F.2d 1137, 1140 (4th Cir. 1969); Kirk Reid Co.
v. Fine, 139 S.E.2d 829, 836 (Va. 1965). Rather, substantial performance
is an equitable principle that protects the contractor from forfeiture of all
payment due by limiting the owner’s remedy to an offset for the reasonable value attributable to the deviations from the contract’s requirements.
Willbros W. Afr. Inc. v. HFG Eng’g US Inc., No. H-08-2646, 2009 WL
411565, at *4 (S.D. Tex. Feb. 12, 2009). Principally, the doctrine of substantial performance
does not constitute a complete defense to liability for breach of contract, but is designed rather to prevent total forfeiture by a contracting
party who is guilty of only trivial breaches of contract. The doctrine
is essentially a rule of damages . . . [that] operates only to assure payment by a party who has obtained substantially what he bargained for.
Ballou, 407 F.2d at 1140 (citations omitted).
In some states, the parties may expressly contract for strict compliance,
thereby avoiding the application of the equitable doctrine of substantial
performance. See L&E Corp. v. Days Inns of Am. Inc., 992 F.2d 55, 57–58
(4th Cir. 1993) (interpreting Virginia law); Portsmouth Redevelopment &
Hous. Auth. v. BMI Apartments Assocs., 851 F. Supp. 775, 783 (E.D. Va.
1994); Winn v. Aleda Constr. Co., 315 S.E.2d 193, 195 (Va. 1984).
The doctrine of substantial performance only applies when the project is
“substantially complete.” Ballou, 407 F.2d at 1140. “Substantial completion”
requires a high percentage of completion, such that the project is suitable
for occupancy or other intended use. See Highland Constr. Corp., GSBCA
No. 2470, 68-1 BCA ¶ 6996 (95 percent completion); Teegarden, 72 Interior Dec. 301 (IBCA 1965) (92 percent completion).
The burden of proving substantial performance is on the contractor.
See Blinderman Constr. Co. v. United States, 39 Fed. Cl. 529, 573 (1997),
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aff’d, 178 F.3d 1307 (Fed. Cir. 1998); Rick Miller Constr. v. Meseraull, 515
N.W.2d 723, 725 (Iowa Ct. App. 1994); Dallas Raceway Inc. v. Pavecon
Ltd., No. 05-10-00712-CV, 2011 WL 1679869, at *6 (Tex. App. May 5,
2011). When a contractor has substantially performed, the owner bears the
burden to prove the amount to be deducted because of defective work. See
Rick Miller Constr., 515 N.W.2d at 726; Globe Home Improvement Co. v.
Michnisky, 199 A. 393, 393–94 (N.J. 1938). Whether there is substantial
compliance is a question of fact, but what facts constitute substantial compliance or lack thereof is a question of law that should be defined for the jury.
8.15 Delay as a Breach of Contract
In this case, the owner seeks damages from the contractor based on the contractor’s failure to complete the contract on time. You have heard evidence
that the original contract between the parties required substantial completion of the work by [specify contractual completion date]. Thus, a delay or
late performance constitutes a material breach of the contract. The owner,
as the party claiming delay, has the burden to prove by a preponderance of
the evidence that the contractor caused the delay.
Comment
The burden of proving delay in achieving completion is generally on the
party claiming the delay as a breach. See Minmar Builders Inc., GSBCA No.
3430, 72-2 BCA ¶ 9599. In contemporary practice, this typically requires the
use of a critical path method schedule analysis to show a causal connection
between the agent alleged to have caused the delay and the complained-of
delay. Id.; see also Daewoo Eng’g & Constr. Co. v. United States, 73 Fed.
Cl. 547, 581 (2006), aff’d, 557 F.3d 1332 (Fed. Cir. 2009); Am. Sanitary
Sales Co. v. N.J. Treasury Dep’t, 429 A.2d 403, 405–06 (N.J. Super. Ct.
App. Div. 1981); see generally Jon M. Wickwire et al., Use of Critical Path
Method Techniques in Contract Claims, 18 Pub. Cont. L.J. 338 (1989);
but see Pathman Constr. Co., ASBCA No. 23392, 85-2 BCA ¶ 18,096 (“We
do not agree, however, that an unreliable [after-the-fact] schedule is better
than no schedule at all.”).
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Potential defenses to a delay-based breach of contract claim include
estoppel, see infra Chapter Fifteen; contract modification, see infra Chapter Fourteen; owner interference, see infra Chapter Fifteen; impossibility of
performance, see infra Chapter Fifteen; waiver of breach, see infra Chapters
Fourteen and Seventeen; and acts of God, see infra Chapter Fifteen.
8.16 Acceleration as a Breach of Contract
The contractor claims that the owner “accelerated” the contractor’s work.
“Acceleration” occurs when the owner shortens the time for the contractor
to perform the work either by reducing the available time or by refusing
to grant a request for a time extension. To recover the additional cost of
acceleration, the contractor must prove by a preponderance of the evidence
the following:
(1) The contractor encountered an excusable delay.
(2) The contractor promptly requested an extension of the contract
schedule using the proper procedure.
(3) The owner accelerated the contract by
(a) shortening the time period for the contractor to perform its
work and/or
(b) refusing to grant the contractor’s request for a time extension
when the contractor was entitled to additional time.
(4) The contractor incurred extra costs because of the owner’s
acceleration.
Comment
An owner’s acceleration also can constitute a constructive change to the
contract. Constructive acceleration occurs when a contractor encounters
either excusable or owner-caused delay or the owner increases the scope
of work through change orders, and the owner refuses to grant an appropriate extension of time, directing the contractor to adhere to the original
schedule. See Fraser Constr. Co. v. United States, 384 F.3d 1354, 1361
(Fed. Cir. 2004); Azure v. United States, 129 F.3d 136, *3 (Fed. Cir. 1997);
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Dep’t of Transp. v. Anjo Constr. Co., 666 A.2d 753, 757 (Pa. Commw. Ct.
1995). In this instance, it is necessary for the contractor to establish both
(1) a delay and (2) the excusable nature of the delay. See Envirotech Corp.
v. Tenn. Valley Auth., 715 F. Supp. 190, 192 (W.D. Ky. 1988). For example,
in Murdock and Sons Construction Inc. v. Goheen General Construction
Inc., 461 F.3d 837, 840–41 (7th Cir. 2006), the court rejected a contractor’s constructive acceleration claim because the contractor did not show
that the delay was excusable.
The contractor also must establish that its work was accelerated in
response to some express or implied order or directive from the owner.
See MES Inc. v. McHugh, 502 F. App’x 934, 937–38 (Fed. Cir. 2013). The
owner’s denial of a legitimate request for an extension of time is, in effect,
a directive to maintain the original schedule and may suffice. See Cont’l
Heller Corp., GSBCA No. 7140, 84-2 BCA ¶ 17,275 (finding constructive
acceleration when owner refused to grant extension of time after contractor’s delay was excluded because of flooding at excavation site). A contractor,
however, cannot recover increased performance costs if it accelerates merely
for its own convenience. McNutt Constr. Co., ENGBCA No. 4724, 85-3
BCA ¶ 18,397. Courts have enforced contract provisions requiring a contractor to submit written notice that it considers an owner’s directive to be
a constructive acceleration of the work as a condition precedent to bringing an acceleration claim. See, e.g., Johnson Controls Inc. v. Nat’l Valve &
Mfg. Co., 569 F. Supp. 758, 760–61 (E.D. Okla. 1983).
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