CASE 7.4 Holder Construction Group v. Georgia Tech Facilities, Inc., 282 Ga. App. 796 (2006)
FACT SUMMARY Holder Construction Group, LLC (Holder), entered into a contract with Georgia Tech Facilities (GTF) for the construction of the Georgia Tech Family Apartments project. Under this contract, Holder assumed the obligation to construct the project for a guaranteed maximum price. This is known as a construction-manager-at-risk contract, under which Holder bears the risk for performance deficiencies, construction delays, and cost overruns. The parties also negotiated a clause in the contract concerning any delay of performance by including the following force majeure clause:
If Construction Manager [Holder] shall be unable to perform or shall be delayed in the performance of any of the terms and provisions of this Agreement as a result of (i) governmental preemption of materials in connection with a national emergency declared by the President of the United States; (ii) riot, insurrection, or other civil disorder affecting performance of the Work; or (iii) unusual and extreme weather conditions constituting Acts of God, then, and in any such event, such inability or delay shall be excused, and the time for completing the affected portions of the Project shall be extended.
After construction on the project had begun, Holder experienced difficulties due to an increase in steel prices and the late delivery of steel materials. Because of these problems, Holder requested a 67-day time extension. GTF denied the request. Holder then filed a declaratory judgment action, arguing that it was entitled to an adjustment of more than $1 million in the contract price due to cost overruns and a time extension of no less than 63 days for completing the project.
The trial court granted summary judgment in favor of GTF, and Holder appealed the decision.
SYNOPSIS OF DECISION AND OPINION The Georgia appellate court affirmed the decision of the trial court and allocated the risk of steel price increases and shipment delays to Holder. The court analyzed the force majeure provision in the context of delays and found that the sudden price increase fell outside of the force majeure clause. The court held that price increases are purely economic and cannot be classified as unforeseeable under the doctrine of impossibility. Absent a price escalation plan in the contract, the risk falls on Holder. WORDS OF THE COURT: Risk for Delay “It is undisputed that the late delivery of the steel was not the result of any of the causes stated in the ‘Force Majeure clause.
“The contract goes on to state that late deliveries of materials, for reasons other than those set out in the ‘Force Majeure clause, ‘do not constitute reason for extending the Date for Final Completion’ and it is the construction manager’s responsibility to make adequate provision for this when scheduling the work…. Accordingly, under the contract, Holder bore the risk of the late delivery of the steel because it was not due to any of the reasons set out in the ‘Force Majeure’ clause…. “Likewise, GTF was entitled to summary judgment on Holder’s claim for damages due to the rise in steel prices. As the trial court held, the contract did not contain [a price] escalation clause, and Holder had already been paid from the construction contingency fund for this claim.”
FACT SUMMARY In 2006, Ralph and Carolee Thomas (Thomas) signed a contract with Montelucia Villas, LLC (Montelucia), for the construction of a custom villa for $3,295,000. As part of the purchase agreement, Thomas made three installment deposits totaling $659,000, representing 20% of the villa’s purchase price. The remainder of the purchase price was due when Thomas took title to the completed villa. The contract characterized the payments as “earnest money deposits.” The contract also provided that Montelucia could retain the payments as damages if Thomas breached the construction agreement.
On April 25, 2008, Montelucia notified Thomas by letter that it had set the closing date of May 16 to transfer title to the villa in exchange for payment of the remainder of the purchase price from Thomas. When the letter was sent, Montelucia did not have a certificate of occupancy for the property, which the contract required as a condition for closing. Thomas responded on May 6 with a letter stating that they would not close on May 16 and they were terminating the purchase contract alleging that Montelucia had not performed its obligations and had violated Arizona statutes governing the sale of subdivided land. The Thomas letter asked Montelucia to return the $659,000 in deposits. Montelucia did not respond to the letter or refund the deposits. Instead, it unsuccessfully attempted to obtain a certificate of occupancy for the property on May 8 and May 14. Montelucia ultimately obtained the certificate on August 27.
In February 2009, Thomas sued to recover the deposits. Montelucia counterclaimed for breach of contract. Although the trial court ruled in favor of Thomas, the court of appeals reversed and ruled that Thomas had anticipatorily repudiated the contract by sending the May 6 letter. Thomas appealed.
SYNOPSIS OF DECISION AND OPINION The Arizona Supreme Court reversed the decision of the court of appeals and remanded the case to a lower court. The court ruled that although the doctrine of anticipatory breach could be applied in this case, damages for the nonbreaching party turned on whether Montelucia was ready, willing, and able to perform its obligations. Because there was a factual dispute as to whether Montelucia would have been able to perform, the court ordered the trial court to determine whether Montelucia was able to close in accordance with the contract. If it was ultimately determined that Montelucia was ready, willing, and able to perform as required by the contract, the court could then determine the appropriate remedy available to Montelucia under the contract.
WORDS OF THE COURT: Ready and willing to perform “An anticipatory repudiation is a breach of contract giving rise to a claim for damages and also excusing the necessity for the non-breaching party to tender performance. Yet, an anticipatory breach, by itself, does not entitle the injured party to damages. To recover damages, ‘[i]n addition to proving repudiation, the non-breaching party need only show that he would have been ready and willing to have performed the contract, if the repudiation had not occurred.’ Thus, ‘[a] party’s duty to pay damages for total breach by repudiation is discharged if it appears after the breach that there would have been a total failure by the injured party to perform his return promise.”
Case Questions
- How might have Holder avoided the risk of bearing the unforeseen and significant increase in steel prices?
- If you are Holder, how would you rewrite this contract to avoid liability in the future?
- Focus on Critical Thinking: If the parties had left out the force majeure clause, how would the case have been decided?
Read case 7.4 – Holder Construction Group v. Georgia Tech Facilities, Inc. and answer the three questions provided. Then address:
- Assess the timing of this case (2006) – What global economic factors in 2004-2006 may have helped cause this case?
- Briefly contrast this case with Case 7.5. Are there any similarities that stand out to you?
- Do you think the courts ruling in each of Case 7.4 and Case 7.5 are fair? Why or Why not?
