McGee Const. Co. v. Neshobe Development, Inc.

• Decision Date: 24 May 1991
• Docket Number: No. 89-551,89-551
• Citation: 594 A.2d 415,156 Vt. 550
• Court: Vermont Supreme Court
• Parties: McGEE CONSTRUCTION COMPANY v. NESHOBE DEVELOPMENT, INC.

Page 415

594 A.2d 415

156 Vt. 550

McGEE CONSTRUCTION COMPANY v. NESHOBE DEVELOPMENT, INC.

No. 89-551.

Supreme Court of Vermont.

May 24, 1991.

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.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

ALLEN, Chief Justice.

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, 97 S.Ct. 176, 50 L.Ed.2d 146 (1976). They can determine the damages that are recoverable in the event of a breach. See Simpson Development Co. v. Herrmann, 155 Vt. 332, ---, 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, 57 Ill.Dec. 209, 212, 428 N.E.2d 889, 892 (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 p 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...