CONTRACTS II

Milich

Practice Problem # 1

On January 1, Alice contracted with Bob's Construction Company to build a $200,000 house. Relevant provisions of their contract:

"All work on the house will be completed by July 1. Time is of the essence."

"The Owner will hire the Architect."

"Owner will pay Contractor $25,000 upon execution of this contract. Owner will pay $30,000 on the first day of February, March, April, May, and June, provided that the Architect certifies that the Contractor is making satisfactory progress toward timely completion. All remaining monies due under this contract shall be payable upon satisfactory completion of the work, as certified by the Architect."

"The plans and specifications for the work, as attached, are incorporated into this contract. All changes in the work, after the execution of this contract, must be in writing and signed by the Owner, Contractor, and Architect."

"Contractor promises to maintain satisfactory progress on the job and to keep sufficient numbers of workers on the site to assure timely completion of the work."

"Contractor will indemnify Owner for any damage to Owner's property or claims against Owner for damage to the property of others, if said damage was caused by the negligence of the Contractor or any of the Contractor's workers or subcontractors."

The job started smoothly. The Architect certified Bob's progress as satisfactory on January 28 and Alice paid Bob $30,000 on February 1. Another certification was issued in late February and Bob was paid $30,000 on March 1. Alice fired the Architect in March so there was no certification. Nevertheless, Alice paid Bob $30,000 on April 1.

In mid-April, Alice decided she wanted different flooring in several rooms. Bob told her it would cost an extra $5,000 and Alice agreed. Nothing was put in writing. Alice still had not replaced the Architect so there was no certification of progress for April, but Alice paid Bob $30,000 on May 1. Bob complained to Alice that he needed the extra $5,000 now to pay for the flooring. Alice said she would not pay for the flooring until it was installed.

Bob installed the flooring in early May but Alice rejected the work, claiming that Bob had installed the wrong pattern. Bob admitted that the pattern was not exactly what she had specified (Bob made a small mistake in ordering the flooring) but the pattern was very close to what she asked for and Bob begged Alice to accept it, offering her a $1,000 credit. But Alice was adamant that the floor be replaced.

On May 15, a neighbor's wall fell down and the neighbor blamed it on Bob's landscaping crew which had been running a bulldozer near the wall the morning it fell. On May 20, the neighbor gave Alice an estimate of $4,000 to repair the wall. Alice gave the estimate to Bob on May 21 and asked him to assume responsibility for it. Bob told Alice he had no intention of paying for the wall and that she should make a claim under her own insurance.

Alice hired a new Architect in late May and he told her that the house was at least one month behind schedule, there were too few workers to keep from falling even further behind, and the flooring still had not been replaced. Alice refused to pay Bob anything on June 1. Bob insisted he was only a week behind and would finish by July 1.

Bob stopped work on the house on June 2, notifying Alice that he would return only when he was paid $35,000 to cover the June 1 payment and the extra charge for the flooring. On June 3, Alice sent Bob a letter notifying him that if he did not return to work by June 6, the contract would be terminated and Alice would hire a new contractor to finish the house.

On June 6, Alice went to the job site and Bob was there with one other worker, drinking coffee. Alice asked Bob if he was coming back to work. Bob said he was. Alice asked if he was going to pay the $4,000 repairs on the neighbor's wall. Bob said he did not believe it was his fault, but that he would "look into it." Alice asked Bob if he intended to replace the flooring and Bob replied "Not until you pay the $5,000 for the flooring already installed." Alice ordered Bob and his worker off the site and told Bob their contract was terminated.

Alice hired another contractor to finish the house at a cost of $76,000 (including replacement of the flooring, which cost $6,000). The house was finally certified as complete on September 1. Alice paid the neighbor $4,000 to fix the wall. Alice paid $3,000 in interest on the loan for this house during July and August. It would have cost Bob $35,000 to finish the house (assuming he did not have to replace the flooring).

Alice sues Bob and Bob counterclaims. How much does Alice claim as damages? How much does Bob seek in his counterclaim?

Prepare winning arguments for both sides.