Sitework Contractor Awarded Lost Profits for Developer’s Breach
Reprinted from the Winter 2013 BrickerConstructionLaw.com Newsletter
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Recently, the Ohio Sixth Appellate District confirmed that a failure to communicate can constitute a breach of contract and held that the injured contractor was entitled to recover costs, overhead expenses and other consequential damages in addition to lost profits or expectancy interest for such a breach.
In Top Notch Excavating, LLC v. Peterman, 2012 Ohio 5266 (Ohio Ct. App., Erie County Nov. 9, 2012), a contractor entered into a contract to do excavation and installation of storm and sanitary sewers and related work for a developer. The contract listed the price of the work, but the developer agreed to pay for materials over and above the contract price. The developer also agreed to pay an additional amount, to be determined as necessary, for rock excavation work.
The work began and the developer made the first two requested payments, which were reimbursements for items not included in the amount of the contract. The developer then refused to make the next requested payment. The contractor provided documentation and sought payment as requested under the contract, in person and by fax. The developer refused to make the requested payment and stopped responding to the contractor’s request. The contractor did not complete any more work on the project and the parties went to trial, each claiming that the other had breached the contract.
The trial court issued a decision that the developer breached the contract by refusing to communicate with the contractor or make payments as the contract required and awarded the contractor damages for the full amount of the contract as well as costs for materials and excavation work.
On appeal, the court noted that where only one party has materially breached a contract, the non-breaching party is entitled to recover restitution or damages for its expectation interest. Thus, the measure of damages for a breach of contract is the sum of the actual and incidental or consequential losses from the breach, with any cost that the non-breaching party avoided by not having to perform on the contract subtracted out.
The court held that the trial court’s award of lost profits or expectancy interest was supported by the evidence and therefore proper. But the court held that this awarded amount was improper to the extent that it did not account for the expenses such as costs and overhead the contractor would have incurred to finish the project, or other consequential damages. Because the trial court should have conducted a hearing to determine the damages and should have taken these expenses into consideration, the court remanded the case for such a hearing.