Washington, D.C.: “That’s Not What I Agreed To!” – The Legal Concept of Abandonment of Contract
Once two sophisticated parties have entered into a binding contractual agreement, legal principles, in general, tend to discourage the dissolution of that binding agreement. The justification for this approach is based on the assumption that the parties had an opportunity to negotiate the deal, and it is therefore only fitting that the negotiated bargain be upheld. Nevertheless, there are instances when governing law recognizes that the contractual agreement between parties should no longer be upheld. To that end, the legal concept of abandonment is relied on by courts to dissolve contractual agreements that can no longer stand.
The concept of abandonment as a means to end contractual relations was recently addressed in a published opinion by the United States Court of Appeals, Eighth Circuit. More specifically, in O’Brien & Gere Technical Services, Inc. v. Fru-Con/Fluor Daniel, 380 F.3d 447 (8th Cir. 2004), the Court examined whether a contractual agreement between two parties can be considered to have been abandoned as a result of numerous changes to the design and scope of work. The facts of this case provide a good example of the circumstances that can ultimately give rise to the abandonment of a contract.
In O’Brien, the Procter & Gamble Company hired the Fru-Con/Fluor Daniel Joint Venture (Joint Venture) as the general contractor to build a paper-manufacturing complex in Missouri. In April 1998, the Joint Venture hired O’Brien & Gere (OBG) to design and build six buildings in the complex for a lump sum of $15.3 million.
On April 17, 1998, the Joint Venture sent OBG a Notice to Proceed, which included a scope of work that had been recently changed to accommodate certain qualifications to the overall scope of work for the project, as well as indications that the official subcontract (which had not been signed) would be issued within 14 working days and would be effective as of the date of the Notice to Proceed. OBG understood these “recently exchanged documents” to include the Joint Venture’s RFP, OBG’s own original proposal, and OBG’s Best and Final Offer (BAFO).
As early as April 27, 1998, the Joint Venture forwarded 11 new drawings to OBG, modifying two of the buildings included in OBG’s original scope of work. Likewise, on May 11, 1998, and prior to the subcontract being forwarded to OBG, the Joint Venture eliminated a building from OBG’s original scope of work.
Despite these revisions to OBG’s scope of work, the Joint Venture did not send the official subcontract to OBG for execution until July 1, 1998. OBG executed the original subcontract, and included language stating that OBG had not “incorporated all previously communicated and agreed upon comments. To avoid further delays in subcontract execution and release of payment … [OBG] has executed the Subcontract based upon incorporation of … changes … by hand and initial.” OBG included additional language stating that updated milestones would follow in a separate document, and that the original milestone dates were no longer effective.
What ultimately transpired between the parties over the course of the next few weeks was a series of delays brought about by both design errors and additional scope changes. Moreover, the parties could not reach an agreement regarding which set of contractual documents actually defined the base scope of work or the design stage from which the work changes should be measured. This confusion was primarily due to the delay in the exchange and execution of the subcontract.
The Joint Venture ultimately terminated OBG on the basis that OBG failed to achieve the contract milestones. OBG filed a lawsuit seeking recovery through a quantum meruit theory, in essence seeking to recover the reasonable value of its services, which had exceeded the actual contract price.
In order for a party to recover under a quantum meruit theory, the Court began its review by explaining that the original subcontract must be considered to have been “abandoned” by the parties. O’Brien, 380 F.3d at 454-55. The Court explained that “[a]n abandonment may be accomplished by express mutual consent or by implied consent through the actions of the parties.” O’Brien, 380 F.3d at 455, citing, Schwartz v. Shelby Constr. Co., 338 S.W. 2.d 781, 788 (Mo. 1960). The Court in O’Brien, went on to state the following:
Abandonment can be shown by acts and conduct consistent with the intent to abandon, and the District Court may discount contrary testimony that no abandonment existed. Land Improvement, Inc. v. Ferguson, 800 S.W. 2.d 460, 464 (Mo.Ct.App. 1990). Proof of abandonment must be made by clear, unequivocal, and decisive evidence, and must manifest the parties’ actual intent to abandon contract rights. McBee v. Gustaaf Vandecnocke Revocable Trust, 986 S.W. 2.d 170, 173 (Mo. 1990).
O’Brien, 380 F.3d at 455.
In this particular matter, and in light of the above-referenced standard, the Court upheld the lower court’s decision finding that an abandonment of the subcontract had occurred. In other words, OBG “presented clear substantial evidence the parties manifested an intent to abandon their rights under the contract.” Id. The initial work under the subcontract was confused and delayed as a result of the numerous changes that occurred to the initial design prior to the subcontract even being executed by the parties.
More succinctly, the Court found that the actual job became substantially different from that which the parties initially agreed. The scope, quantity and frequency of changes were factors in the Court’s finding that an abandonment had occurred in this matter. Also, the confusion among the parties regarding which contractual language actually governed played a significant role in the determination that the original contract had been abandoned. Finally, and likely most importantly, the breakdown in the process regarding how to handle changes in scope and design gave the Court its greatest basis for concern as far as trying to uphold the original subcontract. In the end, the Court found that this breakdown in the changes process, in addition to the other issues, presented no choice other than to consider the original agreement as abandoned between the parties.
While every set of circumstances must be reviewed with a clean slate, it is important to remember that substantial changes in the scope of work, or evidence of failure to achieve a “meeting of the minds” pertaining to the governing terms and conditions of an executed agreement, can give rise to the legal concept of abandonment. The abandonment of a contract can arise as the result of any number of factual situations. It is important to remain aware of this concept if and when problems arise during the course of performance.