Wilma Miller v. Mills Construction ( 2003 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 02-3793
___________
Wilma Miller, doing business as *
Double Diamond Construction, *
*
Plaintiff-Appellee, *
* Appeal from the United States
v. * District Court for the
* District of South Dakota.
Mills Construction, Inc.; Van Tol *
Surety Company, Inc., *
*
Defendants-Appellants. *
___________
Submitted: October 24, 2003
Filed: December 18, 2003
___________
Before LOKEN, Chief Judge, LAY and HEANEY, Circuit Judges.
___________
LAY, Circuit Judge.
Wilma Miller, doing business as Double Diamond Construction (“Double
Diamond”), filed suit against Mills Construction, Inc. (“Mills”) and its surety, Van
Tol Surety Co., Inc. (“Van Tol”), alleging that Mills failed to compensate Double
Diamond for work performed under a subcontract between Double Diamond and
Mills. The district court found in favor of Double Diamond in the amount of $83,723
and awarded prejudgment interest in the amount of $33,504.93. Mills and Van Tol
appeal. We affirm.
I. BACKGROUND
Mills, a general contractor in Brookings, South Dakota, contracted with the
City of Brookings to construct the Brookings AgriPlex, a series of buildings to be
used for various purposes. One of the buildings to be constructed was a steel clear
span arena 286 feet long by 209 feet wide. Due to the building’s size and the fact that
its construction would require the use of cranes, Mills decided to subcontract with a
steel erection company for construction of the arena. Double Diamond, a steel
erection company located in Lincoln, Nebraska, submitted a bid for the project, which
Mills accepted. The parties entered into a subcontract dated March 18, 1998, under
which Double Diamond agreed to provide the labor and equipment and Mills agreed
to provide the prefabricated steel and other component parts for the building. Mills
obtained the prefabricated steel for the building from American Buildings Company
(“ABC”). Mills agreed to pay Double Diamond a total of $209,875 under the
subcontract.
Double Diamond had to construct the building in two phases. The first phase,
called the red-iron phase, involved erecting the building’s frame. Generally, this
phase involves setting side-wall columns onto concrete foundations, bolting them
down, and bracing them with struts, pipe braces, and girts. Once the side-wall
columns are erected, steel mainframes or rafters are set onto the columns and braced
together with purlins, pipe braces, and x-bracing. The second phase is the steel-
sheeting phase, which involves attaching metal sheeting to the frame to form the sides
and roof of the building. Double Diamond never reached the second phase of
construction because the structure collapsed before any sheeting could begin.
Under the subcontract, the delivery of materials was to begin the week of April
6, 1998. However, Mills, through ABC, did not make its first delivery until April 15,
1998, and some of the materials needed for the early stages of the building were not
delivered until later shipments. As a result, construction was delayed. When Double
Diamond was able to begin working on the building, it discovered numerous
-2-
problems with the component parts supplied by Mills. Many of the steel components
did not fit together properly, some of the mainframes were twisted, and other parts
were missing or the wrong length.
Double Diamond reported the problems to Mills, who told Double Diamond
to contact ABC directly. Double Diamond made numerous calls to ABC, but ABC
did not resolve the problems. On May 12, 1998, Double Diamond ceased working
on the project and informed Mills and ABC that nothing else could be done until the
problems were corrected. On May 14, 1998, Wilma Miller wrote a letter to Mills,
ABC, the City of Brookings, and the project architects, in which she recounted the
problems encountered during construction and expressed concern about the structural
integrity of the structure.
On May 15, 1998, Dave Roberts, an ABC representative, visited the
construction site to examine the structure. A videotape of his inspection documented
the many problems with the structure and materials. Before leaving the site, Roberts
concluded that the structure did not need additional bracing and would be fine unless
hit by a tornado. Later that evening, the structure collapsed in the wind. A
climatologist testified that the wind speed at the approximate time of the collapse was
thirty-five miles per hour, but he also noted that an observer at the scene reported
wind speeds of nearly fifty miles per hour at the time of the collapse.
After the collapse, Double Diamond submitted to Mills an invoice dated May
21, 1998, in the amount of $119,928 for work completed on the project up to the date
of collapse. The amount of the invoice was based on Double Diamond’s estimate that
phase one of the construction had a contract value of $149,910 and that Double
Diamond had completed eighty percent of the work on phase one. Mills previously
had paid Double Diamond $20,000 on an invoice dated April 23, 1998. Mills paid
Double Diamond $50,000 in response to the May 21st invoice but refused to pay any
more. On June 30, 1998, Double Diamond informed Mills that it would not return
-3-
to work on the project unless Mills paid the balance due on the $119,928 invoice and
executed a new contract with Double Diamond for completion of the project. When
the parties did not reach a new agreement, Mills completed the project on its own.
Mills submitted a claim to its insurer for the damages it sustained when the
building collapsed. In its claim, Mills included Double Diamond’s $119,928 invoice
plus $6,500 for additional move-in costs. In a June 18, 1998, letter from Mills to its
insurance agent, Mills’ project manager explained why these costs were reasonable.
Mills’ insurer approved $103,230.50 for structural steel erection plus nearly sixteen
percent for profit and overhead, which amounted to approximately $119,600.
On February 22, 1999, Double Diamond filed what amounted to a breach-of-
contract claim against Mills, seeking damages in the amount of $139,875. Double
Diamond later amended its complaint to add an alternative theory of recovery of the
same amount based on quantum meruit. Mills denied liability and asserted
counterclaims based on negligence and breach of contract for failure to construct in
a good and workmanlike manner. One of Mills’ affirmative defenses was that Double
Diamond breached the contract and was not entitled to recover because it voluntarily
discontinued work on the project after the collapse, and failed to return to work
despite numerous requests by Mills.
Following a bench trial, the district court held that Mills breached the contract
by failing to provide the appropriate materials. The district court stated that the sheer
number of problems made it impossible for Double Diamond to perform under the
contract. The district court also found that the collapse was not the result of
negligence on Double Diamond’s part and that Mills could not maintain an action
against Double Diamond for breach of contract because Mills did not substantially
comply with its obligations under the contract. Even if Mills could maintain an
action against Double Diamond, the district court found that Double Diamond’s
performance under the contract was not substandard.
-4-
The district court awarded Double Diamond damages of $49,928, after finding
that Double Diamond proved by a preponderance of the evidence that eighty percent
of the red-iron work was completed for a total amount of $119,928 and subtracting
the $70,000 previously paid. The district court also awarded consequential damages
of $33,795 for down-time charges from the date of collapse through the end of the
contract term, finding that the damages were proximately caused by Mills’ breach.1
After entry of judgment, the district court amended the judgment to add $33,504.93
in prejudgment interest.
II. DISCUSSION
Breach of Contract
Mills and Van Tol2 assert on appeal that the district court erred in its
determination of breach of contract because this claim was not included in Double
Diamond’s amended complaint. The claims in Double Diamond’s amended
complaint are based on Mills’ refusal to pay the amount due to Double Diamond for
its work on the building through the date of collapse, not on Mills’ failure to provide
appropriate materials. While we acknowledge that Double Diamond’s amended
complaint does not allege that Mills breached the contract by providing defective
building materials, we conclude that the parties tried the issue by consent.
Federal Rule of Civil Procedure 15(b) provides that “[w]hen issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings.” A party’s consent
may be implied “if evidence to support the claim was introduced at trial without
1
The down-time charges included expenses for wages and payroll costs, office
expenses and administration, insurance coverage, contractor profit margin, and
equipment costs.
2
For convenience, we will hereafter use “Mills” when referring to the
arguments of Appellants Mills and Van Tol.
-5-
objection.” Shen v. Leo A. Daly Co., 222 F.3d 472, 479 (8th Cir. 2000). Thus, under
Rule 15(b), the district court could consider any theory of liability tried and argued
by the parties, regardless of whether it was included in the pleadings. See Karlen v.
Ray E. Friedman & Co. Commodities, 688 F.2d 1193, 1197 n.3 (8th Cir. 1982).
A review of the record reveals that Double Diamond argued the issue of Mills’
failure to provide appropriate materials under the contract and introduced evidence
to support a claim that this amounted to a breach of contract. Although Mills did not
expressly consent to try the issue of breach of contract based on failure to provide
appropriate building materials, its consent, nevertheless, may be implied from its
failure to object to the introduction of such evidence. Therefore, we conclude the
district court properly considered and decided the issue of whether Mills breached the
contract by failing to provide appropriate materials.
Material Breach
On appeal, Mills argues that the district court erred because it did not find that
Mills’ failure to provide appropriate materials was a material breach of the contract.
Mills suggests that without a finding of material breach, Double Diamond was not
entitled to recover any damages.
A material breach of contract allows the aggrieved party to cancel the contract
and recover damages for the breach. 23 Richard A. Lord, Williston on Contracts
§ 63:3 (4th ed. 2002). However, if the breach is not material, the aggrieved party may
not cancel the contract but may recover damages for the nonmaterial breach. Id.
Under South Dakota law, a material breach is one that “would defeat the very object
of the contract.” Icehouse, Inc. v. Geissler, 636 N.W.2d 459, 465 (S.D. 2001)
(quoting Thunderstik Lodge, Inc. v. Reuer, 585 N.W.2d 819, 825 (S.D. 1998).
Whether a party’s conduct amounts to a material breach is a question of fact. Id.-6-
The district court found that Mills breached the contract by failing to provide
appropriate materials, but it did not use the term “material” to describe Mills’ breach.
The object of the contract in this case was the construction of the arena by a specified
date. Mills’ failure to provide suitable building materials prevented proper
construction of the building and made the structure vulnerable to collapse. As the
district court noted, the record is replete with evidence of problems with the materials
supplied by Mills prior to the collapse. These problems eventually required Double
Diamond to stop working on the building because nothing more could be done until
the problems were corrected. The sheer number of problems with the materials led
the district court to find that it was impossible for Double Diamond to perform under
the contract. The record also contains evidence that Double Diamond notified Mills
and ABC of the problems on several occasions, thereby providing Mills with an
opportunity to cure the deficiencies.
On these facts, we conclude that a finding of material breach is implicit in the
district court’s finding that Mills breached the contract by failing to provide
appropriate materials. See Horton v. Horton, 487 S.E.2d 200, 204 (Va. 1997)
(upholding ruling that one contracting party’s refusal to perform obligations under
the contract was a material breach because the breach defeated the essential purpose
of the contract); Anthony’s Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 819
(Mass. 1991) (rejecting contention that trial judge’s finding of breach of contract was
not a material breach where one party’s refusal to approve development plan in
violation of contract terms made other party’s duty to begin performance of contract
by specified date impossible); Clevert v. Jeff W. Soden, Inc., 400 S.E.2d 181, 183
(Va. 1991) (finding that “building contractor defaults in the performance of his
contract if he furnishes defective materials or workmanship”).
Excuse from Performance
Mills further argues on appeal that the district court erred by failing to find that
Double Diamond was excused from performance of the contract. Mills asserts that
-7-
absent a finding that Double Diamond was excused from performance, Double
Diamond breached the contract by refusing to return to the project and is not entitled
to recover. Material breach provides one basis for excusing Double Diamond’s
performance under the contract. See Restatement (Second) of Contracts § 237
(providing that uncured material breach relieves non-breaching party of obligation
to render further performance). Another basis for excusing Double Diamond’s
performance is the district court’s recognition that Mills made Double Diamond’s
performance under the contract impossible.
The doctrine of impossibility of performance provides an excuse for
nonperformance of contractual obligations caused by supervening or existing
conditions not contemplated by the parties. 4 Bruner & O’Connor on Construction
Law § 14:44 (2002). The Restatement (Second) of Contracts § 261 speaks in terms
of impracticability of performance rather than impossibility. South Dakota
recognizes the doctrine of commercial impracticability found in § 261 as an excuse
from performance “due to extreme and unreasonable difficulty, expense, injury or loss
involved.” Groseth Int’l, Inc. v. Tenneco, Inc., 410 N.W.2d 159, 167 (S.D. 1987).
The South Dakota Supreme Court has stated that “[a]s a general rule,
unexpected difficulty, expense, or hardship involved in performance will not excuse
performance where performance has not become objectively impossible.” Id.However, it also has recognized that performance may be excused “where very
greatly increased difficulty is caused by facts not only unanticipated, but inconsistent
with the facts that the parties obviously assumed would likely continue to exist.” Id.The question of whether performance has become commercially impracticable
generally is considered to be a question of law. Cent. Kansas Credit Union v. Mut.
Guar. Corp., 102 F.3d 1097, 1102 (10th Cir. 1996).
The district court found that the number of problems with the materials
supplied by Mills made it impossible for Double Diamond to perform. It was
-8-
therefore explicit in the district court’s findings that it was impracticable for Double
Diamond to perform prior to the collapse. However, we believe an analysis of
whether it was impracticable for Double Diamond to perform the contract must
include the collapse as a factor.
The contract between Mills and Double Diamond called for completion of the
project by June 30, 1998. Double Diamond points out that time was of the essence
in the contract and that the object of the contract was completion of the arena by a
specified date. Double Diamond asserts that the collapse was the result of Mills’
failure to provide appropriate materials, and, because of the collapse, it was no longer
objectively possible for Double Diamond to complete the project as required under
the contract. On this basis, Double Diamond claims it was excused from performance
of the contract. We agree.
Double Diamond experienced more than “greatly increased difficulty” in
completing the project by the June 30, 1998, contract date by virtue of the collapse.
Groseth, 410 N.W. at 167. It was impossible for Double Diamond to complete the
project by this date since materials needed for the reconstruction were not scheduled
to arrive until July 1, 1998. (See Appellants’ App. at 26.) However, commercial
impracticability under South Dakota law requires that the difficulty excusing
performance be unanticipated and inconsistent with the facts the parties assumed
would continue to exist. Id. Both requirements are met here.
The impossibility of completing performance was caused by the collapse,
which we view as unanticipated given the assurance by ABC’s representative that
nothing further needed to be done to protect the structure from collapse. The collapse
was also inconsistent with the facts the parties assumed would continue to exist,
namely that the structure would remain standing. On these facts, we conclude that
Mills’ provision of defective materials and the resulting collapse made it
commercially impracticable for Double Diamond to complete construction of the
-9-
arena by June 30, 1998, as required by the contract, thereby excusing Double
Diamond’s performance. Accordingly, Double Diamond did not breach the contract.
Damages
Mills argues the district court erred in awarding Double Diamond damages
based on the value of its work and consequential damages for losses incurred from
the date of the collapse to the end of the contract term. Mills contends that the
$49,928 damages award for the value of Double Diamond’s work was intended as a
recovery based on quantum meruit, while the $33,795 consequential damages award
was based on the contract. Mills argues that awarding these separate damages in the
same case is contrary to South Dakota law, which requires a party who has been
prevented from fulfilling the terms of his contract to either sue on the contract or treat
the contract as terminated and obtain the value of his services, but not both. Davis
v. Tubbs, 64 N.W. 534, 535-36 (S.D. 1895). Double Diamond argues that both of the
district court’s damages awards were based on the contract.
As our prior discussion illustrates, the parties tried this case as a breach of
contract case. The district court found Mills breached the contract, and we have
concluded that implicit in its decision is a finding of material breach. Under South
Dakota law, the plaintiff in an action for breach of contract “is entitled to recover all
his detriment proximately caused by the breach, not exceeding the amount he would
have gained by full performance.” Ducheneaux v. Miller, 488 N.W.2d 902, 915 (S.D.
1992) (quoting Regan v. Moyle Petroleum Co., 344 N.W.2d 695, 696 (S.D. 1984));
Davis, 64 N.W. at 536. It is well-settled in this circuit that “the amount of damages
in a nonjury case is within the discretion of the trial court and cannot be overturned
unless clearly erroneous.” Taylor v. Pre-Fab Transit Co., 616 F.2d 374, 375 (8th Cir.
1980).
Double Diamond sought an award of damages for breach of contract, which
included progress payments due under the contract at the time of the collapse and
-10-
consequential damages for down-time charges. The district court found that the
progress payments due at the time of the collapse amounted to $119,928 less the
$70,000 Mills previously had paid. Double Diamond was entitled to this amount
pursuant to the terms of the contract. See Davis, 64 N.W. at 535 (stating party may
sue for breach of contract and recover what he was entitled to under the contract’s
terms). Although Double Diamond could have sought the entire amount it was
entitled to under the contract, see id., it did not seek damages in this amount.
Nonetheless, the district court’s award of $49,928 in progress payments due under the
contract still represents an award based on the contract. Furthermore, we do not
believe the district court committed clear error in making this award.
The district court also found that Double Diamond was entitled to
consequential damages for “down-time charges” incurred from the date of the
collapse through the end of the contract term.3 The district court found that the down-
time charges were proximately caused by Mills’ breach of the contract. As a result,
the award of consequential damages also represents an award based on the contract.
Mills next contends that the consequential damages award must be reversed
because it is not supported by sufficient evidence. Under South Dakota law, it is
essential that the party seeking to prove contract damages provide evidence that the
damages were caused by the breach. McKie v. Huntley, 620 N.W.2d 599, 603 (S.D.
2000). South Dakota applies “a reasonable certainty test concerning the proof needed
to establish a right to recover damages.” Id. (quoting Drier v. Perfection, Inc., 259
N.W.2d 496, 506 (S.D. 1977)). All that is required is “a reasonable basis for
measuring the loss.” Id. at 604. Any doubt as to the certainty of contract damages
is to be resolved against the breaching party. Id.3
Although the district court focused on the period of time between the date of
collapse and the end of the contract term, Double Diamond’s down-time charges
actually began on May 12, 1998, when it had to discontinue work on the project due
to the defective nature of the materials. However, Double Diamond apparently did
not raise this in the district court.
-11-
Due to Mills’ provision of inappropriate materials and the resulting collapse,
Double Diamond incurred down-time charges for the period it could have been
working on the arena. As the district court pointed out, Double Diamond did not
have other work scheduled for this period because it was scheduled to work on the
arena. As a result, Double Diamond did not have a stream of income to cover its
expenses. On these facts, the district court correctly found that the down-time
charges were proximately caused by Mills’ breach.
Double Diamond’s down-time charges were based on the testimony of Wilma
Miller. Ms. Miller testified that based on her calculations, Double Diamond incurred
$9,000 in wages and payroll costs, $3,000 in office and administration expenses,
$906 in insurance costs, and $2,900 in equipment costs as a result of Mills’ breach
and the subsequent collapse of the building. Her testimony indicates that the amounts
of the expenses were based either on the actual payment made or the company’s
average cost per month. Ms. Miller also testified that Double Diamond had to forego
$17,989 in profits as a result of the breach. She testified that this amount was
calculated based on a percentage of the work that should have been completed.
Based on Ms. Miller’s testimony, the district court had a reasonable basis on which
to determine the amount of loss Double Diamond incurred. Because that is all that
is required under South Dakota law, we conclude that the district court did not clearly
err in finding that Double Diamond was entitled to recover $33,795 in consequential
damages.
III. CONCLUSION
For the reasons set forth in this opinion, we AFFIRM the $83,723 judgment in
favor of Double Diamond.
______________________________
-12-