Court: District Court, Virgin Islands; June 2, 1981; Federal District Court
Martin Marietta Alumina (MMA) breached its contract with Action Engineering, leading to a court ruling for restitution. The case involved a contract for constructing two bulk lime holding silos at MMA's St. Croix plant, prompted by issues with MMA's small bag lime handling process. In early 1976, MMA solicited bids after approving a bulk handling process, providing specific project specifications through an invitation for bids. Action Engineering, a St. Croix-based construction firm, prepared their bid after site inspections and consultations, submitting an initial bid on March 19, 1976, followed by a revised bid on April 19, 1976, which included a $5,000 increase due to higher quality materials.
A conference on April 29, 1976, led to a tentative agreement that incorporated modifications to the project specifications, which Action agreed to absorb despite recognizing the cost implications. A formal contract was established on May 10, 1976, consisting of the purchase order and accompanying general terms, with a total contract price of $212,863. Key contractual terms emphasized the need for a work schedule and established that timely performance was critical, granting MMA the right to terminate the contract if Action failed to adhere to the schedule.
Subsequent issues arose concerning the working plans submitted by Action, which required revisions and additional steel due to changes identified by MMA's engineers. The revisions stemmed from both previously agreed modifications and errors in Plant City's initial estimates.
MMA did not agree to take on any increased costs but requested a detailed list of additional expenses for consideration of potential remuneration. Construction delays occurred, with conflicting accounts regarding their causes. MMA attributed the delays to Action's choice of the "off-site sub-assembly" construction method, while Action claimed this method was imposed by MMA's failure to provide silo foundations on schedule. Evidence indicated that the off-site method was chosen by Action's supervisor, James Johnson, rather than a result of MMA's delays, as Johnson's letter from August 27, 1976, referenced plans that included the use of jigs distinctive to the off-site method.
Despite the availability of the second foundation in mid-October, Action continued using the off-site method and did not switch to a more efficient method. By October 19, 1976, Action was behind schedule and attributed this to MMA's delays. The original completion date of November 1, 1976, passed without completion, leading Action to submit a revised schedule projecting completion by December 25, 1976, which MMA accepted.
On December 1, 1976, MMA terminated the contract with Action without prior notice and ordered Action off the site. Action had been compensated $166,230.68 for its work. Prior to termination, MMA had already contracted a replacement contractor, which was set to begin work on December 15, 1976, but did not start until January 15, 1977.
A third contractor was hired to paint the silos for $9,600. Erection work was completed by the third week of February, with full use of bulk handling equipment achieved by April 1, 1977. The extent of work completed by December 1, 1976, is disputed: MMA claims that none of the scheduled items from November 21 to December 4 were finished, though work had started and three days remained; Action contends that all but one item was completed. Expert witnesses for both parties presented differing assessments based on photographs of the silos and their knowledge of remaining work. MMA's expert estimated completion at 40%-45% if pieces were not finish welded, while Action's expert estimated 60%-70% completion depending on the welding status. Action's expert provided a detailed basis for his opinion, estimating that a crew of twelve could finish the job by December 25. Photographic evidence and testimony indicated a completion estimate closer to 60%-70%. The conclusion reached was that work was approximately 66% complete as of December 1. Action's submitted expenses totaled $192,743.95, which included labor, shipping, materials, and equipment, and after adding charges for tools and overhead, the total claim reached $83,523.10 after subtracting $166,230.68 received from MMA. Additionally, MMA claimed $18,500 in damages for a 37-day delay in the bulk lime handling process, asserting a loss of $500 per day. The court must resolve three claims: Action's assertion of wrongful contract termination, claims of altered project specifications increasing material costs, and MMA's claim for damages due to Action's delays.
MMA terminated a construction contract with contractor Action after granting an extension of time for completion. The evidence indicates that MMA's termination was unjustified, thus constituting a breach of contract. Ten days post the original deadline, Action submitted a revised schedule, which MMA accepted, modifying the contract's completion date. This acceptance formed a binding modification, despite the original "time is of the essence" clause remaining intact. The contract's termination clause allowed MMA to terminate if it believed Action was behind schedule; however, such belief must be reasonable, as mere opinion is insufficient. If MMA had a reasonable basis to believe that Action could not meet the revised schedule by December 25, then termination would be valid. The evidence suggests that Action was expected to achieve substantial completion by that date, as it began work on September 23, 1976, and there was no indication it would change its construction method. Consequently, MMA's termination was deemed improper.
On December 1, there was still at least one sub-assembled ring at the off-site field, with a modified contract requiring completion by December 25. Action had 94 days starting September 23, and by December 1, 68 days had passed, resulting in 73% of the contract time used and 66% of the work completed. If Action maintained its pace, it would complete approximately 89% of the project by the deadline. However, Action argued that it would have exerted more effort had MMA's December 1 notice been a warning rather than a termination, leading to the Court's finding that MMA wrongfully terminated the contract.
In a counterclaim, MMA alleged losses due to Action's delayed performance, but evidence showed that the contract modification, moving Action's completion date from November 1 to December 25, was accepted by MMA. This advancement led to the overall project completion expected on March 10, 1977, yet actual completion occurred on April 1, 1977, only 20 days behind schedule. The 45-day delay before a replacement contractor began work was attributed to MMA's wrongful termination, not to Action's performance.
Action also claimed increased material costs due to MMA's changes, but evidence indicated that these increases were due to Action's own revisions, engineering errors, and bid preparation mistakes. Consequently, Action's material claim failed.
Action is entitled to restitution due to MMA's breach through wrongful termination, which disallows MMA from claiming contract price protection for relief determination. Under the Restatement of Contracts, relief for material breach can take the form of contract damages, restitution, or specific performance, with the injured party choosing the remedy. The Restatement indicates that remedies are not limited to damages and supports the availability of restitution in construction contract breaches.
Action has chosen restitution as its remedy and seeks compensation exceeding the contract price, with no changes in the relief sought since the beginning. Action is eligible for this relief due to MMA's total breach, which hindered further performance. MMA has benefited from Action's partial performance, retaining materials and the results of Action's work. There is no requirement for Action to return any monetary consideration received, as it can be credited to MMA. Action did not achieve full performance, nor did it partially perform in a manner that necessitates a specific exchange according to the contract. All applicable criteria for restitution under the Restatement of Contracts have been met.
Even if Action would have incurred a loss had it completed the contract, this does not preclude restitution; such limitations only apply when a defendant’s refusal to perform is justified by the plaintiff’s breach. The Fourth Circuit Court of Appeals supports the notion that quantum meruit allows recovery for the value of services rendered regardless of potential losses on the contract. For a total breach, the injured party is entitled to recover the reasonable value of services, adjusted for any benefits received.
Two key pieces of evidence for assessing the reasonable value of Action's services are the contract price of $212,863.00 and Action's calculated costs, including a 5% small tool charge, 20% overhead, and a 9% profit charge, totaling $249,753.78. Since these extra charges are customary in the construction industry, the total is adjusted to $259,125.22, applying a 9% profit on all costs. Additionally, while one valuation method suggests that the value of 66% completed work corresponds to 66% of the contract price, this overlooks that MMA has already received benefits from the materials and expenses incurred prior to contract termination.
Testimony from both parties indicates that Action sought to establish a relationship with MMA by accepting a contract that would result in losses, anticipating future contracts. Action was the successful bidder, suggesting that local competitors would likely have charged more. This context implies that the services rendered were worth more than 66% of the contract price. An alternate evaluation method involves calculating Action's actual expenses plus a 9% profit margin typically sought by contractors. However, this approach overlooks the inefficiency of Action's construction methods, which both parties acknowledged.
The court determined that a fair assessment of the services' value should account for the inefficiencies. To evaluate the costs associated with the inefficient construction method, the court proposed a three-step process: identifying time lost due to inefficiencies, assessing the costs impacted, and applying corresponding reductions. It was concluded that 57% of the time spent on constructing the lime silos was due to inefficiencies, derived from a detailed analysis of the timeline and work progress. Consequently, certain cost items affected by these inefficiencies were to be reduced by 57% in determining the restitution award.
Action is entitled to interest on the calculated value at the statutory rate from the contract termination date, December 1, 1976. A judgment will be entered accordingly. The construction timeline indicated delays, with only one concrete foundation ready by the scheduled date, and the second foundation completed later in mid-October. Action utilized a jig for assembling steel rings for the silos, a method involving off-site work that contributed to the inefficiencies identified.
Steel was sandblasted and primed by Plant City, with the priming of weld areas and finish coats still pending as of December 1. A waiver of a good faith claim can serve as consideration for a promise, as established in United States v. James Construction Co. Action's correspondence from October 9 indicates its belief that construction delays were caused by MMA's hindrances. Under contract law, a condition, such as timeliness, can be excused if obstructed by the party benefiting from that condition. Sufficient interference allows a party to stop work and treat the contract as breached, as noted in Anvil Mfg. Co. v. Humble. MMA's promise to extend the deadline to December 25, 1976, was supported by Action's waiver of its good faith hindrance claim. The court acknowledges that the rationale in comment e of the Restatement of Contracts could suggest a different outcome, particularly in cases of full performance. However, there is no reason to expand that rationale here, especially given the limitations of the Tentative Draft No. 14 Restatement of Contracts, which restricts relief to the contract price. The court finds that a breaching party should not benefit from the contract it has breached. The jurisdiction is bound by Restatements approved by the American Law Institute unless local law states otherwise. While the court has occasionally adopted positions from tentative drafts, it is not required to do so. Section 357 of the Restatement of Contracts could have applied if MMA had terminated Action on November 1, but by agreeing to a revised schedule, MMA waived Action's breach and cannot use it to limit Action's recovery rights. Evidence shows that Gale intended to use a more efficient construction method, making the 38-day timeframe appropriate, considering that only 50% of the job site was accessible, which limited efficiency during the first 21 days.
