McGee Construction v. Neshobe Develop.

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NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
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                                No. 89-551


McGee Construction Company                   Supreme Court

                                             On Appeal from
     v.                                      Rutland Superior Court

Neshobe Development, Inc.                    February Term, 1991


Arthur J. O'Dea, J.

John J. Kennelly of Carroll, George & Pratt, Rutland, for plaintiff-
  cross-appellant

Timothy L. Taylor, William H. Meub and Katherine P. Mosenthal of Keyser,
  Crowley & Meub, P.C., Rutland, for defendant-appellant


PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


     ALLEN, C.J.   This action arises out of a contract dispute between Hugh
McGee Construction Co. (McGee) and Neshobe Development, Inc. (Neshobe).
Neshobe appeals from a jury verdict finding it to be the breaching party and
awarding McGee damages in the amount of $20,000.  McGee cross-appeals from
the trial court's denial of its V.R.C.P. 65.1 motion for enforcement of a
separate judgment on stipulation against the security provided by Neshobe.
On Neshobe's appeal we affirm Neshobe's liability and reverse and remand on
damages.  On McGee's cross-appeal we reverse.
     In 1987, Neshobe undertook a condominium development project in
Brandon, Vermont.  The project was to proceed in three phases.  McGee was
hired to do the excavation, trenching, roadwork, and other sitework on Phase
I on a cost-plus basis.  The work on Phase I was completed in the summer of
1987.  A balance of $15,000 remained outstanding on the Phase I contract
after its completion.
     On August 30, 1988, McGee and Neshobe entered into a contract for Phase
II of the project, under which McGee was to do work similar to that
performed on Phase I.  Phase II was split into part 1 and part 2, each
consisting of six units.  The work on part 1 was to commence on September 1,
1988, and be substantially completed by October 1, 1988.  Work on part 2
would begin when sales of the units dictated, and be completed within four
weeks.  The Phase II contract between McGee and Neshobe was for a fixed sum
of $76,000, $38,000 being allocated to each part.
     McGee began its work on part 1, consisting of a duplex and a quad, on
or about September 1.  Soon thereafter it ran into unscheduled delays
occasioned by Birch Hill Construction Co. (Birch Hill), the contractor
responsible for the concrete work on Phase II.  Birch Hill delayed work
while waiting for the delivery of some additional concrete forms that it had
ordered.  There was also trouble with the setting of some footings, and one
of the walls set by Birch Hill had to be torn down because it was defective.
McGee was not able to backfill the duplex until October 3, and at that point
it had not yet been able to begin its work on the quad's walls because Birch
Hill was still working on the footings.  While it was a subject of dispute
at trial, McGee testified through its principal, Hugh McGee, that it had
been unable to do much of the roadwork, utility trenching, and other
sitework because of the disruption in its schedule caused by the concrete
delays.
     On or about October 7, Hugh McGee went to the office of Rick Kaminski,
President of Birch Hill and Vice President of Neshobe, to express his
concerns about the delay.  Kaminski told him that a meeting with the
principals of Neshobe would be scheduled for the 10th, and that if McGee had
requests, to make them specific.  The substance of the October 10 meeting is
captured in the minutes of the meeting prepared by Neshobe, which both
parties agree are accurate.

          At 7:25 am H. McGee enters the meeting and was asked by
          R. Kaminski to state his case and his reasons for
          calling the meeting in his own words.  He states, he had
          stated that he cannot operate under the existing
          contract and will no longer proceed under the terms and
          conditions of that contract.  R. Kaminski from Neshobe
          indicated that he is bound legally and morally by that
          contract and a new contract will not be allowed.
          Although, Change Orders will be allowed in reference to
          time extensions.  H. McGee insisted that he will not
          continue under the terms of that contract and R.
          Kaminski stated, if he will not honor the terms and
          conditions of the contract (suggested) that H. McGee
          remove his equipment from the site and (suggested) that
          perhaps we will be better off having another contractor
          finish the project.  H. McGee indicated that was
          acceptable to him and that would be exactly what he
          would do, remove his equipment from the site.

     Neshobe sent a letter to McGee later in the day, containing these
minutes and notifying McGee that if it was not on site on October 17, the
contract would be terminated.  A second letter to the same effect was sent
on the 12th.  McGee was not on site on October 17, and Neshobe hired a
replacement.  McGee received no payments under the Phase II contract.
     McGee subsequently brought suit, alleging breach of the Phase II
contract by delays attributable to Neshobe.  McGee also sought recovery of
the balance owed it on the Phase I contract.  Neshobe counterclaimed,
alleging that McGee's failure to be on site on October 17 and its failure to
abide by the contractual provisions for resolution of the dispute made McGee
the party in material breach of the contract.  During trial by jury, the
parties entered into a stipulation in favor of McGee on the Phase I
contract claim in the amount of $16,669.71.  At the close of trial the jury
found against Neshobe on its counterclaim, and returned a verdict in favor
of McGee in the amount of $20,000.  The court entered judgment on the jury
verdict and judgment on the stipulation separately.
     Following entry of judgment on the stipulation, McGee moved under
V.R.C.P. 65.1 to enforce that judgment against an irrevocable letter of
credit that Neshobe had used to provide security.  The court denied the
motion, holding that judgment on the stipulation had not yet become final
because of Neshobe's pending post-trial motions in opposition to the
judgment on the jury verdict.
     Neshobe has appealed from the judgment on the jury verdict, and McGee
has cross-appealed from the denial of its Rule 65.1 motion.  We will address
these appeals in turn.
                                    I.
     Neshobe contends that, by the terms of the contract, it was McGee's
cessation of work, not delays attributable to Neshobe, that materially
breached the contract.  Neshobe admits that it was responsible for many of
the delays which interfered with McGee's ability to  perform the contract
in a timely fashion.  Neshobe also concedes in its brief that "[h]ad the
contract not addressed delay, McGee could present a tenable argument that
the delays occasioned by Neshobe were a substantial breach of contract,
thereby justifying . . . a termination of the contract."  Neshobe points,
however, to provisions within the contract specifically addressing owner
delay and resolution of claims arising from such delay, and argues that
McGee's failure to comply with these provisions left McGee in material
breach of the contract.
     It is axiomatic that parties can define their contractual relationship
by the provisions employed in their contract.  Contracting parties can
define what will constitute a material breach of their contract.  See
Carter v. Sherburne Corp., 132 Vt. 88, 92, 315 A.2d 870, 873-74 (1974)
(inclusion of "time is of the essence" clause magnifies the significance of
delay); see also Burgess Construction Co. v. M. Morrin & Son, Co., 526 F.2d 108, 114 (10th Cir. 1975) ("unreasonable delay is a breach of an implied
obligation not to hinder or delay the other party's performance, in the
absence of a contract clause contemplating and excusing the delay"), cert.
denied, 429 U.S. 866 (1976).  They can determine the damages that are
recoverable in the event of a breach.  See Simpson Development Co. v.
Herrmann, ___ Vt. ___, ___, 583 A.2d 90, 91-93 (1990) (construing contract's
limitation-of-remedies provision); see also M.A. Lombard & Son, Co. v.
Public Bld'g Comm'n of Chicago, 101 Ill. App. 3d 514, 519, 428 N.E.2d 889,
891-92 (1981) ("if the contract expressly provides for delay or if the
right of recovery is expressly limited or precluded, then these provisions
will control").  Contracting parties can also provide for the dispute
resolution procedure to be followed in case of breach.  See R.E. Bean
Construction Co. v. Middlebury Assocs., 139 Vt. 200, 202, 428 A.2d 306, 308
(1980) (contract provided for arbitration of disputes).
     The contract between McGee and Neshobe expressly addressed McGee's
remedies for owner delay.  Paragraph 8.3 of the "General Conditions of the
Contract for Construction," incorporated by reference into the contract
signed by the parties, reads:

          8.3.1.  If the Contractor is delayed at any time in
          progress of the work by act or neglect of the Owner
          . . . or of a separate Contractor employed by the Owner
          . . . then the Contract Time shall be extended by Change
          order for such reasonable time as the Architect may
          determine.

          8.3.2.  Claims relating to time shall be made in
          accordance with the applicable provisions of Paragraph
          4.3.

          8.3.3.  This Paragraph 8.3 does not preclude recovery of
          damages for delay by either party under other provisions
          of the Contract Documents.

The avenue for recovery of delay damages under "other provisions of the
Contract Documents" was the bringing of a claim for additional cost in
accordance with the procedure set forth in ^ 4.3, entitled "Claims and
Disputes."  Claims were to be in writing, and were to be referred initially
to the architect.  The contract clearly provided within this section for
continuing contract performance.  Paragraph 4.3.4 reads:  "Pending final
resolution of a Claim including arbitration, unless otherwise agreed in
writing the Contractor shall proceed diligently with performance of the
Contract and the Owner shall continue to make payments in accordance with
the Contract Documents."
     Neshobe contends that McGee "walked off the job" without resorting to
this contractual claims procedure.  We agree that if this were the
undisputed evidence, McGee would be the party in material breach.  The above
contractual provisions represent a bargained-for procedure to be followed
when grounds for a claim exist.  The intent is that the claims be resolved
while the parties continue to perform under the contract, and that the mere
existence of a claim not constitute sufficient grounds for walking off the
job.  In construing similar contractual provisions, the court in Vermont
Marble Co. v. Baltimore Contractors, Inc., 520 F. Supp. 922, 928 (D.D.C.
1981), reasoned:
         These [contract] clauses were designed to provide and
         define the rights and obligations of the subcontractor
         and the contractor in the case of delays.  The meaning
         of these clauses would be grossly warped and their
         effectiveness diluted if [subcontractor] were to have,
         in addition to the rights therein provided, the
         alternative but unmentioned right to walk away from the
         project without obligation.

See also Granite Computer Leasing Corp. v. Travelers Indem. Co., 894 F.2d 547, 552 (2d Cir. 1990) (subcontractor "bound under the disputes clause of
the prime contract to submit its claim to the [prime contractor] and to
continue working even if the subcontract had been breached by the
government's delay in design approval").
     We do not agree, however, that the record adequately supports Neshobe's
contention on appeal that McGee walked off the job without complying with
the contractual claims procedure.  In determining an appeal from a jury
verdict, we must look at the evidence in the light most favorable to the
verdict winner, excluding the effect of modifying evidence, and we will
sustain the verdict if there is any evidence fairly and reasonably tending
to support it.  Lowe v. Beaty, 145 Vt. 215, 216, 485 A.2d 1255, 1256 (1984);
Claude G. Dern Electric, Inc. v. Bernstein, 144 Vt. 423, 426, 479 A.2d 136,
138 (1984).  Here the contractual claims procedure did not specify which
party bore the obligation of referring a claim to the architect.  The
contract in this regard provided only that "Claims . . . shall be referred
initially to the Architect."  Neshobe on this appeal cannot successfully
attribute the failure to engage in the claims procedure to McGee where it is
unclear which party was responsible for the failure.  It is evident from the
minutes of the October 10th meeting between McGee and Neshobe that
Neshobe's response to McGee's statement that he could not operate under the
existing contract was not that any claims McGee had be referred to the
architect.  Rather, the minutes record that a vice president of Neshobe
stated that if McGee "will not honor the terms and conditions of the
contract (suggested) that H. McGee remove his equipment from the site and
(suggested) that perhaps we will be better off having another contractor
finish the project."  The minutes then read: "H. McGee indicated that was
acceptable to him and that would be exactly what he would do."  Taking this
evidence in the light most favorable to McGee, Neshobe cannot assert that
the failure to engage in the claims procedure was wholly attributable to
McGee.
     Neshobe would contend that the question of who bore the obligation to
refer a claim to the architect was never reached because a condition
precedent to this obligation was that the claim be in writing.  As stated
above, Neshobe's response to McGee's demands on October 10th was not that
McGee put it in writing.  Rather, it was "suggested" that he leave the site.
Neither of the termination notices sent by Neshobe to McGee make reference
to the necessity of submitting a written claim.  We are not convinced, on
this evidence, that the verdict of the jury should be overturned.
                                    II.
     Neshobe's next contention is that McGee failed to introduce evidence
necessary to the jury's proper calculation of damages.  We agree.  The
correct measure of the recovery which McGee pursued at trial, as stated in
Restatement (Second) of Contracts { 347 (1979), is

          (a) the loss in the value to him of the other party's
          performance caused by its failure or deficiency, plus

          (b) any other loss, including incidental or
          consequential loss, caused by the breach, less

          (c) any cost or other loss that he has avoided by not
          having to perform.

As applied to this case, the damages would be calculated by subtracting from
the contract price, { 347(a), McGee's cost of completion and other costs
avoided, { 347(c).  To this recovery would be added the damages McGee
incurred as a result of the delay, { 347(b).  See VanVelsor v.
Dzewaltowski, 136 Vt. 103, 105, 385 A.2d 1102, 1104 (1978) ("Where the owner
breaches the contract by demanding that the work shall stop, the contractor
is entitled to recover the contract price less his cost to perform the
remainder of the contract."); 5 A. Corbin, Corbin on Contracts { 1094
(1964); 11 S. Williston, A Treatise on the Law of Contracts { 1363 (W.
Jaeger 3d ed. 1968). (FN1)
     McGee failed to introduce the evidence necessary to calculate its cost
of completion.  It is undisputed that at the time of Neshobe's wrongful
termination, McGee still had some of part 1, and all of part 2, of the Phase
II contract left to complete.  Yet McGee's showing on its cost of completion
consisted solely of the number of days it would take to complete part 2
times its costs-per-day.  It did not introduce evidence on how many days of
work remained on part 1 as of the date of termination. (FN2) The cost of
completing the work that remained to be done on part 1 was a part of
McGee's total cost of completion.  Without any evidence on it, the jury did
not have the evidence necessary to ascertain McGee's total cost of
completion.  McGee attempts to avoid this defect by reminding the Court that
it is not our role to "second guess the jury."  See Retrovest Assocs. v.
Bryant, ___ Vt. ___, ___, 573 A.2d 281, 283 (1990). Yet the presence of a
jury does not work to cure defects in a party's proof.
     The reasoning behind McGee's failure to introduce evidence on the cost
to complete the remainder of part 1 is perhaps best demonstrated by a
hypothetical.  A contractor is engaged on a thirty-day construction project.
After doing five days of work, it is forced to sit idle at the site for
twenty-five days because of owner delay.  It then properly terminates the
contract and sues for recovery.  If recovery were simply the contract price
minus the cost of completion, the contractor would receive nothing for the
twenty-five days in which it was incurring expenses yet was not furthering
completion of the project.  The cost of completion remains as large on the
thirtieth day as it was on the fifth day.  To redress this inequity, the
contractor presents its cost of completion as zero.  It reasons that it was
not able to avoid any cost of completion because it was incurring expenses
at the site up through the day the contract was to be completed, and
therefore it did not have to subtract any cost of completion from the
contract price.
     The reasoning employed by our hypothetical contractor and by McGee
equates the cost of completion with the damages incurred because of delay,
without a showing that they are indeed equivalent.  This approach is
erroneous.  As stated above, the proper measure of recovery is the contract
price minus the cost of completion and other costs avoided.  Added to this
are damages incurred because of owner delay.  As applied to the hypo-
thetical, this would be the contract price minus the twenty-five-day cost of
completion, plus the damages incurred because of the twenty-five-day delay.
     We do not hold, however, that McGee's erroneous approach to damages
warrants entry of judgment in Neshobe's favor.  Our case law has not
previously addressed the proper presentation of a claim for damages where
owner delay constitutes a material breach of contract, resulting in
termination.  This Court has previously stated, in general terms, that a
builder's recovery under a terminated contract is the contract price minus
cost of completion, VanVelsor, 136 Vt. at 105, 385 A.2d  at 1104.  But
VanVelsor did not answer how McGee was to account for the damages incurred
because of owner delay.  Having answered that question only today, we
decline to enter judgment in Neshobe's favor, and choose rather to remand
for a new trial on damages.  See Vines v. Orchard Hills, Inc., 181 Conn.
501, 514, 435 A.2d 1022, 1029 (1980) (because the law surrounding
plaintiffs' claims has "not previously been clearly spelled out in our
cases, it is appropriate to afford to the [plaintiffs] herein another
opportunity to proffer evidence to substantiate their claim"); see also B.B.
& J. v. Bedell, 2 Vt. L.W. 45, 46 (Jan. 25, 1991)(where liability
established, remand on issue of damages may be appropriate to prevent a
miscarriage of justice).
                                   III.
     Having affirmed Neshobe's liability, there is no longer a possibility
that it will be entitled to a set-off against the judgment on the
stipulation in favor of McGee.  Accordingly, there is no just reason for
delaying McGee's enforcement of the judgment on the stipulation against the
security provided by Neshobe.  See V.R.C.P. 54(b).  For this reason, the
trial court's denial of McGee's V.R.C.P. 65.1 motion is reversed.
     Affirmed as to Neshobe's liability and reversed and remanded as to
damages.  The denial of McGee's Rule 65.1 motion is reversed.

                                        FOR THE COURT:




                                        Chief Justice



FN1.    An equivalent measure of damages would be McGee's expenditures it
had incurred in performance of the contract, as distinct from damages
incurred as a result of Neshobe's delay, plus the profit on the contract.
Then added to this would be the damages incurred as a result of the delay.
See 5 A. Corbin, supra, { 1094, at 511-12; 11 S. Williston, supra, { 1363,
at 343.  McGee did not present its case in conformance with this measure,
and did not present evidence on the full amount of expenditures it had
incurred in performance of the contract.

FN2.    McGee contends that the following testimony of Hugh McGee was
directed toward the number of days it would take to complete the remainder
of part 1:
     Q:  Mr. McGee, how much additional work was involved in Part 1 of Phase
         II in terms of days as opposed to the Part 2 work?
     A:  I'd say that's probably 10 days.
Even after taking this evidence in the light most favorable to McGee, Lowe
v. Beaty, 145 Vt. 215, 216, 485 A.2d 1255, 1256 (1984), the context makes
clear that this testimony demonstrated only that the contract was front-
loaded, and said nothing about the number of days remaining on part 1 as of
the date of termination.  Following the above statement, Hugh McGee
testified to the additional work that part 1 contained over the work in part
2, and testified that part 2 would take only 20 days to complete, as opposed
to the 30 days provided for in the contract.  Throughout the proceedings
below, McGee expressly presented its cost of completion as the 20 days to
complete part 2 times its costs-per-day.
   Further, we cannot find that the gap in McGee's evidence was filled by
the testimony of Markowski, the contractor engaged by Neshobe to replace
McGee.  Markowski's testimony contains no discussion of the number of days
it needed for completion.