1. 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

2. 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

3. Termination and Damage
Types of relief-
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)

4. 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Can contract be rescinded?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)

5. 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

6. 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

7. 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

8. 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.

9. 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)

10. 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)

11. 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)

12. 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

13. 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

14. Termination and Damage
Interest costs are recoverable-
Accrues 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

15. 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

16. 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

17. 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

18. 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

19. 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