Indian River Colony Club, Inc. v. Schopke Const. & Engineering, Inc., 91-499

• Decision Date: 17 January 1992
• Docket Number: No. 91-499,91-499
• Citation: 592 So.2d 1185
• Parties: 17 Fla. L. Weekly D293 INDIAN RIVER COLONY CLUB, INC., Appellant, v. SCHOPKE CONSTRUCTION & ENGINEERING, INC., Appellee.
• Court: Florida District Court of Appeals

Page 1185

592 So.2d 1185

17 Fla. L. Weekly D293

INDIAN RIVER COLONY CLUB, INC., Appellant, v. SCHOPKE CONSTRUCTION & ENGINEERING, INC., Appellee.

No. 91-499.

District Court of Appeal of Florida Fifth District.

Jan. 17, 1992.

Elting Storms and David A. Baker of Foley & Lardner, Orlando, for appellant.

Tom G. Burrows of Burrows & Jester, P.A., Merritt Island, for appellee.

DIAMANTIS, Judge.

Appellant Indian River Colony Club, Inc. (IRCC) appeals the award of damages in favor of appellee Schopke Construction & Engineering, Inc. (Schopke) in a breach of contract action. We reverse and remand this cause to the trial court for proceedings consistent with this opinion.

IRCC was the planner and developer of a residential community for which Schopke was the project manager pursuant to a construction management contract executed between IRCC and Schopke on May 15, 1987. The contract provided that Schopke would be compensated a fixed base amount of $350,000, payable at $10,000 per month for 35 months for preconstruction and construction services. The contract also contained the following provisions regarding termination of the agreement:

10.1 This Agreement may be terminated by either party upon seven days written notice should the other party fail substantially to perform in accordance with its terms through no fault of the party initiating the termination.

10.2 This Agreement may be terminated by the Owner upon at least fourteen days written notice to the Construction Manager in the event that the Project is permanently abandoned.

10.3 In the event of termination not the fault of the Construction Manager, the Construction Manager shall be compensated for all services performed to the termination date, together with Reimbursable Costs then due and all Termination Expenses.

10.4 Termination Expenses are defined as Reimbursable Costs directly attributable to termination for which the Construction Manager is not otherwise compensated.

On August 31, 1988 IRCC sent a letter to Schopke terminating the construction management contract effective September 15, 1988 citing Schopke's poor and inadequate performance as the reason for termination. Schopke was paid the base compensation of $10,000 per month for 11 1/2 months (from October 1987 ¹ through September 15, 1988), for a total of $115,000. Schopke was paid all reimbursable expenses which it billed. At the time the contract was terminated, 78 of the 280 acres in the development had been completed.

Schopke filed suit against IRCC for damages alleging breach of contract. IRCC counterclaimed for damages also alleging breach of contract. The trial court found IRCC's termination of the contract constituted a breach and denied IRCC relief on its counterclaim. The court awarded Schopke $235,000, which represented the entire fixed amount of the contract less the amount already paid ($350,000 less $115,000 = $235,000), plus prejudgment interest. IRCC appeals this award arguing that the trial court erred when it awarded the entire balance owing on the contract. IRCC principally claims that the termination provision of the contract controlled the amount of Schopke's damages. Alternatively, IRCC contends that the trial court should have only awarded Schopke its lost profits.

Where the parties to a contract have agreed to the consequences of a breach, their agreement will control provided the remedy is "mutual, unequivocal and reasonable." Design Time, Inc. v. Monco of Orlando, Inc., 518 So.2d 454, 456 (Fla.5th DCA) rev. denied, 525 So.2d 879 (Fla.1988); Hatcher v. Panama City Nursing Center, Inc., 461 So.2d 288, 290 (Fla. 1st DCA 1985). In the instant case, paragraph 10.3 of the contract specifies the compensation to be paid to Schopke in the event of termination not the fault of Schopke. However, the August 31 letter from IRCC terminating the contract indicates that Schopke was terminated for its poor and inadequate performance; therefore, paragraph 10.3 is inapplicable in this case. ² The trial court found Schopke was substantially performing on the contract at the time of termination and that the termination was wrongful and constituted a breach of the contract. We agree. Gunter Hotel of San Antonio, Inc. v. Buck, 775 S.W.2d 689, 697 (Tex.App.1989).

Because IRCC breached the construction management contract, Schopke is entitled to recover the amount of profit it would have earned during the remainder of the term of the contract had there been no breach. Physicians Reference Laboratory, Inc. v. Daniel Seckinger, M.D. and Associates, P.A., 501 So.2d 107, 108 (Fla. 3d DCA 1987); Golf & Racquet Club of Palm Beach, Inc. v. Campbell-Dickey Advertising, Inc., 259 So.2d 192, 193 (Fla. 4th DCA 1972); Ballard v. Krause, 248 So.2d 233, 234 (Fla. 4th DCA 1971). The burden of establishing profit as if there had been no breach of the contract is on Schopke. Ballard, 248 So.2d at 234. Damages cannot be based purely and simply upon the entire balance of the contract price to which Schopke would have been entitled upon full performance. Golf & Racquet Club, 259 So.2d at 193. In order to prove its prospective lost profits, Schopke must show its total costs and expenses necessary to perform the contract and then deduct that sum from the balance owing on the contract price. Physicians Reference Laboratory, 501 So.2d at 109; Ballard, 248 So.2d at 234.

In arriving at its deductible expenses and costs to determine lost profits, Schopke must deduct the actual supervisory salary paid or, if no salary is paid, the reasonable value of the supervisory services that would have been attributable to performing the contract. Southern Bell Telephone and Telegraph Company v. Kaminester, 400 So.2d 804, 807 (Fla. 3d DCA 1981). See also Ad-Advantage Telephone Directory Consultants, Inc. v. GTE Directories Corp., 849 F.2d 1336, 1351-52 (11th Cir.1987), on appeal after remand, 943 F.2d 1511 (11th Cir.1991). Additionally, Schopke must also deduct any other operating expenses and costs, such as its home office expenses and overhead, which were not reimbursable. Physicians Reference Laboratory, 501 So.2d at 109; American Motorcycle Institute, Inc. v. Mitchell, 380 So.2d 452, 453 (Fla. 5th DCA 1980); Ballard, 248 So.2d at 234.

In the instant case, Schopke presented evidence only as to the balance owed under the contract (which constituted evidence of gross income) and omitted evidence as to the amount of costs and expenses necessary to perform the contract, even though such expenses clearly existed. Schopke admitted that the $350,000 fixed base amount was not all profit and that all services required by the contract had not yet been performed to complete the job. Schopke testified that he worked an average of 3 1/2 hours per day as construction manager for IRCC until September 15, 1988, the date of termination, and valued this supervisory time at $125 per hour. In addition, Schopke had continuing home office expenses and overhead which were not reimbursable under the contract.

Consequently, the omission of these deductible expenses and costs to determine lost profits requires reversal of the damages awarded by the trial court. American Motorcycle Institute, Inc. v. Mitchell, 380 So.2d at 453. Thus, we reverse the trial court's judgment and remand this case for a proper determination of damages. American Motorcycle Institute, 380 So.2d at 455. See also Physicians Reference Laboratory, 501 So.2d at 109; Southern Bell, 400 So.2d at 807; Golf and Racquet Club, 259 So.2d at 193; Ballard, 248 So.2d at 235; Ad-Advantage Telephone Directory Consultants, 849 F.2d at 1353, including n. 13. ³

Accordingly, we reverse the trial court's judgment and remand this cause for a new trial on damages consistent with this opinion.

REVERSED and REMANDED.

GRIFFIN, J., concurs specially with opinion.

COBB, J., dissents with opinion.

GRIFFIN, Judge, concurring specially.

Appellee, Schopke Construction and Engineering, Inc. ("Schopke"), had a Construction Manager's Agreement ¹ with appellant, as the owner, to provide management of the construction of an apartment complex for a fee of $350,000 plus reimbursable costs. The contract was to be performed over a period of thirty-five months with payment to be made at the rate of $10,000 per month. The owner ostensibly "terminated" this agreement after only eleven and one-half months, claiming poor performance by Schopke. It is by now undisputed, however, that Schopke was fully performing under the agreement and that the owner had no valid basis to terminate the Construction Management Agreement.

Under Article 10 of the Construction Manager's Contract entitled "Termination", there were two ways in which the contract could be terminated prior to full performance: (1) a party not at fault could terminate on seven days' notice if the other party was not performing its contractual obligations (section 10.1); or (2) the owner could terminate on fourteen days' notice if the owner made the decision to abandon the project (section 10.2). It is clear that appellant did not satisfy either of these authorized grounds to terminate the contract. An unauthorized "termination" is a breach of the contract. A party does not terminate a contract by breaching it, he breaches the contract by terminating it without the right to do so. Section 10.3 (which appellant and the dissent contend limits Schopke's damages) by its terms, does not apply to a breach of contract, it applies to a termination.

Perhaps the problem in this case lies in the current usage of the word "termination". Termination is a term having specific legal significance in contract law and is well described in the Uniform Commercial Code as:

[that which] occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On 'termination' all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives. ² ...