Hanuman Chalisa, LLC v. BoMar Contr., Inc., 2022-Ohio-1111, 187 N.E.3d 1108 (Ct. App.)
Hanuman Chalisa LLC (owner) contracted BoMar Contracting, Inc. (BoMar) to construct a hotel in Columbus, OH. The contract consisted of the AIA A101-2007 and AIA A201-2007. The owner later terminated BoMar, alleging deficiencies in BoMar’s work. The parties disputed whether the owner terminated the contract “for cause” or “for convenience.”
The case proceeded to trial, concluding that the termination was one for convenience. Section 14.4.1 of the contract provided that in the event of a termination by the Owner for convenience, the “Owner shall pay the Contractor according to the terms of Section 13.1 … .” However, Section 13.1 did not speak to damages in the event of a termination for convenience. It provided only that the contract was governed by the laws of the state where the project was located.
BoMar argued that the cross-reference to Section 13.1 was a typographical error, and the parties intended to refer to Section 14.1.3, which provided that the Owner will make payments for “work executed, including reasonable overhead and profit and direct costs incurred by reason of such termination.” The Owner argued that the parties could not have intended to refer to Section 14.1.3 in the event of a termination by the Owner because Section 14.1.3 was titled “Termination by the Contractor.”
The trial court held that the cross-reference to Section 13.1 was a typographical error and awarded BoMar damages under Section 14.1.3, including a 25% margin for overhead and profit. The court explained that it:
[M]ust effect the logical meaning of the [Contract], and that meaning cannot be that [BoMar] would not be paid for the work it completed if [Owner] terminated the [Contract] for convenience. That would be a nonsensical result because it would allow the Owner to exceed the benefit of the bargain, which is not something [BoMar] would rationally agree to. Courts are permitted to interpret a contract so as to not create a “manifest absurdity.”
The appeals court affirmed the holding on two bases. First, the trial court’s reformation of the contract to account for the “obvious” typographical error in Section 14.4.1 was consistent with the equitable remedy of reformation, which allows a court to modify the language in a contract where the parties’ true intentions have not been expressed due to a mutual mistake. The fact that no extrinsic evidence was submitted to support a finding of mutual mistake was of no moment.
The appeals court also found that the damages awarded under Section 14.1.3 were consistent with Ohio law. In Ohio, damages for breach of contract are generally based on the nonbreaching party’s expectation interest, reliance interest, or restitution interest. Damages available specifically for terminations for convenience include restitution damages (which permit recovery of the benefit conferred on the breaching party), but not expectation damages (which place the nonbreaching party in the position it would have been in but for the breach). Section 14.1.3 limited BoMar’s recovery to restitution damages, so even assuming the trial court erred by reforming the contract to award damages under Section 14.1.3, an award of restitution damages was appropriate.
The appeals court modified the award of a 25% margin for overhead and profit because the contract unambiguously specified a 5% margin for overhead and profit. While the contract provided several blank spaces dedicated to payments for change order work, the parties left all such spaces blank. Had they mutually intended to provide a greater margin for overhead and profit on change order work, the parties would have provided language to that effect. The trial court erred by failing to apply the contract as written.
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Reprinted from LexisNexis with permission. Copyright 2022 LexisNexis. All rights reserved.
