Opinion ID: 516924
Heading Depth: 1
Heading Rank: 6

Heading: Gilbane's Contract Claim

Text: 111 Gilbane asserted a claim against Pierce for breach of contract and a parallel claim against Federal on Federal's bond securing Pierce's performance of its work under the subcontract. Gilbane's breach of contract claim has two elements--(i) liquidated damages for delay in the amount of $3,000 for each day of delay from March 23, 1983 through December 4, 1984, for a period of 625 days resulting in a total liquidated damages claim of $1,875,000 and (ii) back charges for clean-up, hoisting and miscellaneous items in the amount of $269,699. The jury returned a verdict of $2,066,699 on the combined claim and judgment was entered in that amount plus $951,671 in pre-judgment interest plus post-judgment interest. Of necessity the major portion of the award represented liquidated damages. 112 Pierce and Federal challenge the liquidated delay damages award on the ground that the provision for liquidated damages created a pass through obligation, triggered only if Gilbane became obligated to Nemours under a similar provision in the general contract. Since Gilbane was never required to pay delay damages (or, in fact, any damages) to Nemours, Pierce and Federal contend that Pierce is not required to pay delay damages to Gilbane. 113 Once again it is necessary to turn to the applicable contracts. 114 Article 4.1 of the general contract between Nemours and Gilbane provided: 115 The work to be performed under this Contract shall be commenced within five (5) days of the effective date of the Architect's notice to proceed and, subject to authorized adjustments, Substantial Completion shall be achieved not later than September 15, 1982. 116 It is expressly agreed and understood that time is of the essence in this agreement and if the contractor fails to complete the work on or before the above specified date, or any extension thereof, authorized in writing by the Owner, the actual damages to the Owner due to such delay will be difficult or impossible to determine. Contractor therefore agrees to pay, in lieu of actual damages and not as a penalty, the sum of $3,000 for each and every calendar day of delay, which constitutes fixed, agreed and liquidated damages. The Owner may at its option deduct said sums from monies due the Contractor. Contractor will not be charged with liquidated damages for delays excused by the Owner pursuant to the terms of paragraph A-3 of Exhibit A. 117 Paragraph 14 of the subsequently executed Gilbane-Pierce subcontract contained a liquidated damages provision which provided: 118 Since time is of essence in this project, and since it is difficult to determine the exact damage that the Owner will sustain by a delay in performance, it shall be agreed that in case of failure on the part of the Subcontractor to complete the work within the time fixed in the Contract by milestones or any extension thereof, the Subcontractor shall agree to pay to the General Contractor liquidated damages, a maximum sum of $3,000 for each calendar day of delay in the completion of work. It shall be understood and agreed that the General Contractor may, at his sole determination, make a pro-rata assessment of the maximum liquidated damages for each Subcontractor. (Emphasis added.) 119 We reject at the outset Pierce's and Federal's contention that since Gilbane has failed to establish actual damages caused by the delay in completion, paragraph 14 of the Gilbane-Pierce subcontract constitutes an unenforceable penalty provision. The general rule in Delaware is that an enforceable liquidated damages provision is distinguishable from a penalty where two criteria are found to exist. First, the damages which the parties might reasonably anticipate to result from a breach must be difficult or impossible to prove accurately and second, the agreed upon sum must be reasonable. Piccotti's Restaurant v. Gracie's, Inc., 1988 Del. Super. LEXIS 48, at 3 (Del.Super.1988). It can hardly be disputed that delay damages in the complex construction context of this case would be difficult or impossible to prove accurately. Given the amount of money and the extent of the work involved in the Nemours-Gilbane contract and in the Gilbane-Pierce subcontract, it cannot be said that $3,000 per day liquidated damages bears an unreasonable relation to the damages that might be expected to result from a breach. 120 Under Delaware law it is a defendant's burden to demonstrate unreasonableness, and the district court in this case could appropriately have concluded that Pierce and Federal failed to sustain that burden. Further, contrary to Pierce's and Federal's contentions, under Delaware law damages are recoverable under a valid liquidated damages provision even though no actual damages are proven as a consequence of that breach. Piccotti's, supra, at 4. 121 A more difficult question in the present case is whether the liquidated damages clauses in the general contract and in the subcontract must be read in tandem, with the latter becoming operative only if liquidated damages are recovered under the former. 122 As noted above the Nemours-Gilbane general contract recited that actual damages to the Owner [Nemours] due to ... delay will be difficult or impossible to determine and provided for liquidated damages in the amount of $3,000 per day of delay. 123 The language of the Gilbane-Pierce subcontract was somewhat different in nature. It did not provide that actual damages to Gilbane would be difficult or impossible to determine. Rather, it provided that it is difficult to determine the exact damage that the Owner [Nemours] will sustain by a delay in performance. Further, the Gilbane-Pierce subcontract did not provide for fixed liquidated damages of $3,000 per day. Rather, it provided for liquidated damages in a maximum sum of $3,000 for each calendar day of delay in the completion of work. 124 Thus, standing alone the provision in the subcontract is not really a true liquidated damages clause. It refers to the difficulty of establishing the damages of a non-party to the subcontract (Nemours), which will not be claiming damages under the subcontract, and it does not establish a fixed amount as liquidated damages, only a maximum amount. To establish the actual amount of liquidated damages under the subcontract reference must of necessity be made to something else. 125 The subcontract liquidated damages provision makes sense only if it is construed, as Pierce and Federal contend, as a pass-through obligation, providing that in the event a subcontractor caused delay in completing the project Nemours could collect $3,000 per day from Gilbane, which in turn could pass-through that obligation to the subcontractor. Read in this light, the subcontract's statement that it is difficult to ascertain the exact damage to the Owner makes sense. Similarly the amount of liquidated damages can be ascertained, namely the amount which Nemours, the Owner, recovered against Gilbane. Since there was a $3,000 per day amount which Nemours could recover, Gilbane was fully protected by the $3,000 ceiling in the subcontract. This view of the meaning of the liquidated damages provision in the subcontract is consistent with the court's conclusion in United States v. Henke Constr. Co., 157 F.2d 13 (8th Cir.1946). 126 In the present case Gilbane paid nothing to Nemours as liquidated damages. In fact Nemours and its architect and engineer paid $4,025,000 to Gilbane under the settlement agreement, a sum which Gilbane distributed among its subcontractors (other than Pierce) and itself. In these circumstances Gilbane was not entitled to recover delay damages. It can reasonably be assumed that in the jury's award to Gilbane of $2,066,699 there was included the sum of $269,699 representing Gilbane's claim under the subcontract for back charges. To that extent paragraph 5 of the final judgment will be affirmed. The balance of the award contained in paragraph 5 representing liquidated delay damages must be reversed.