Subcontractor Recovers nearly $2,500,000 on Contracts it Abandoned and Breached

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 30, November-December 2004.

The Court of Appeals for the Eastern District of Missouri has left in place a trial court's judgment allowing Corrigan Brothers, Inc., acting as a subcontractor, to recover $2,497,063 from its contractor, Fru-Con/Fluor Daniel Joint Venture, even though they mutually abandoned one of their contracts and Corrigan breached the other. The case is Fru-Con/Fluor Daniel Joint Venture v. Corrigan Brothers, Inc., No. ED 82587, decided October 19, 2004.

The Procter and Gamble Paper Products Company had contracted with the Joint Venture as the general contractor to build a $485,000,000 paper products manufacturing facility in Cape Girardeau County, Missouri. The Joint Venture and Corrigan then entered into two contracts, one called the Papermaking contract and the other the Balance of Plant contract, for pipe fabrication and mechanical work on the project.

During the project, the Joint Venture made numerous and substantial changes in the scope of Corrigan's work, reflected in change orders. These changes generated significant disputes over pricing including how much and when Corrigan would be paid. As a result, Corrigan quit work during the project.

The Joint Venture sued Corrigan for breaching the contracts by failing to complete its work. The Joint Venture sought damages for having replacement contractors complete the work, back charges, attorney's fees and costs.

Corrigan counter sued for breach of contract, contract abandonment, and quantum meruit (the reasonable value for services where there is no contract). Corrigan sought damages for unpaid work it performed, prejudgment interest, attorney's fees and costs.

They tried the case to a judge rather than a jury. The trial court found that Corrigan breached the Papermaking contract by walking off the job. The Joint Venture's expert witness estimated that 70 percent of the base contract work and change order work had been completed when Corrigan left the project.

The court concluded that the Joint Venture had underpaid Corrigan by $345,152 on this contract and awarded Corrigan accordingly. The trial court denied the Joint Venture's claim against Corrigan for breach of the contract, however, because the Joint Venture did not separate the contract work from the unresolved change order work.

Thus, there was no basis for the court to assess damages relating to the contract work. This allowed Corrigan to recover in full on its claim even though it breached the contract.

On the Balance of Plant contract, the court decided that the Joint Venture and Corrigan mutually abandoned their contract due to several reasons, including that Corrigan did not even begin work until approximately the date when the contract called for its work to be completed, the Joint Venture issued 258 revised isometric drawings (ISOs) for Corrigan's work, representing a change of 132 percent from the initial drawings, and Corrigan had to work significantly more hours than originally contracted given the Joint Venture's schedule changes and revisions to the ISOs.

Since the contract was abandoned, Corrigan could recover in quantum meruit (rather than contract) for the reasonable value of its work, regardless of what the contract had specified. Thus, the trial court awarded Corrigan $1,925,624, after concluding the total reasonable value for Corrigan's work was $5,781,032 and then subtracting $3,638,388 for money paid to Corrigan, and an additional $195,273 in back charges against Corrigan.

Both the Joint Venture and Corrigan appealed the trial court's judgment but ultimately the appellate court denied all the appeals and upheld the trial judge's initial decisions.

Corrigan argued on appeal that the trial court erred in finding that it breached the Papermaking contract because the parties had abandoned the contract before Corrigan stopped work. Corrigan also argued that the huge number of changes in the drawings fundamentally altered Corrigan's work under the contract; thus, Corrigan asserted it could not be liable for breach of a contract that already had been abandoned.

The appellate court decided that the Papermaking contract had not been abandoned because there was no showing of implied consent for abandonment. Implied consent requires positive and unequivocal acts that are inconsistent with intent to be further bound by the contract.

The parties used the contract rather than disregarding it; they had engaged in extensive negotiations during the Papermaking contract and they made many amendments to it.

The contract allowed the Joint Venture to require Corrigan to perform change order work before they had agreed on the yet-to-be negotiated contract price. Disagreements over the price may have caused Corrigan to walk off the job, but they did not constitute a mutual abandonment of the contract, the appellate court decided.

The appellate court also concluded that an award of damages in quantum meruit rather than contract did not preclude an award of interest and attorney's fees under Missouri's Prompt Payment Act. The Act allows a judge in his or her discretion to award attorney's fees and interest of up to 18 percent per year when a party fails under a construction contract to make a scheduled payment.

Even though the contract had been abandoned, they initially had a contract and the Act does not require the contract to be in existence throughout the duration of the project.

James R. Keller is a partner at Herzog Crebs LLP, where he concentrates his practice on complex business litigation, construction law and ADR.