Court: APPEALS COURT OF MASSACHUSETTS
Citation: 11 Mass. App. Ct. 76
Parties: ROBLIN HOPE INDUSTRIES, INC. vs. J. A. SULLIVAN CORPORATION
(NO. 2).
County: Suffolk
Hearing Date: November 3, 1980
Decision Date: December 23, 1980
Judges: GRANT, CUTTER, & GREANEY, JJ.
In a proceeding to determine the amount of damages to be awarded to a subcontractor for the loss of its anticipated profit on a subcontract of which it had been wrongfully deprived by a general contractor, findings were warranted that the subcontractor's overhead expenses were fixed and would not have increased had the subcontract been performed and, therefore, were not to be considered in determining the anticipated profit. [78-80] In an action against a general contractor for failing to award the plaintiff a subcontract in violation of the public bidding statute, an award of damages which amounted to approximately 35% of the amount of the subcontract bid and represented the subcontractor's anticipated profit on the subcontract was not in excess of what the defendant could reasonably have foreseen as the natural and probable consequence of its conduct. [80-81]
CIVIL ACTION commenced in the Superior Court on April 11, 1975.
After review by this court reported at 6 Mass. App. Ct. 481 (1978) a proceeding
to redetermine damages was heard by Connolly, J.
Victor Brogna for the defendant.
Peter J. Gagne for the plaintiff.
CUTTER, J.1 This case is before this
court for the second time. See Roblin Hope Indus., Inc. v. J.A. Sullivan Corp.,
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1 Recalled retired Justice of the Supreme
Judicial Court sitting by designation.
Page 77
6 Mass. App. Ct. 481 (1978) (hereafter the 1978 decision). There it was decided
that the plaintiff (Hope's) had been deprived (in violation of G. L. c. 149,
Sections 44A to 44L) by J. A. Sullivan Corporation (Sullivan) of the
opportunity to provide, as subcontractor through its Hope's Windows division,
the metal windows for a classroom building being constructed by the
Commonwealth at Southeastern Massachusetts University. Sullivan had been
selected as the general contractor on the project. In the 1978 decision, it was
determined that Sullivan was liable to Hope's for its loss of the anticipated
profits in performing the subcontract and not merely for $1,000, the cost of
preparation of Hope's subbid. The case was remanded to the Superior Court for a
new determination of the damages to Hope's. No question of liability is before
us but only the issue of the amount of damages.
1. At trial, it appeared that Hope's, for performance of the subcontract of
which it had been deprived, would have received its bid price, $158,758. A
witness called by Hope's testified that the direct costs which Hope's would
have been obliged to incur in 1975 in performing the contract would have been
$101,910. These direct costs were determined retroactively in 1979 by the
witness (who had prepared in 1975 a pricing estimate2 for use in making the subbid). In 1979, he ascertained
the 1975 cost of all materials used in manufacturing and finishing the windows,
and the 1975 labor costs of making, erecting, transporting, and installing the
windows. He included in the direct cost figure of $101,910, all variable
overhead costs, such as overtime, vacation and holiday pay, payroll taxes,
group insurance,
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2 The witness's 1975 estimate was based
on applying, to quantities of materials and labor required, the figures
contained in a company-pre-pared book used in computing prices. These figures
were not confined to costs but included various other allowances. The estimate
of selling price thus computed by the pricing book came to $183,842, which was
later reduced to $158,758 by superiors of the witness, as a matter of their
judgment, perhaps to meet competition. The trial judge, in his decision, in
effect treated this pricing estimate, not solely related to cost, as
irrelevant.
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workmen's compensation, pensions, tools, truck and utility expense, and
union-required contributions related to the performance of such a subcontract.
On the evidence, the profit reasonably to be anticipated by Hope's, if it had
been awarded and had performed the subcontract, was computed as $158,758 (the
Hope's subbid) less $101,910 (the estimate of costs), or $56,848.
2. In the 1979 cost computation of $101,910, no amount was included for fixed
overhead, i.e., "overhead [cost] items that go on in the factory whether
or not you get a specific job," such as the compensation of salaried
employees, depreciation, and real estate taxes. Such "ongoing" costs,
so an accountant in charge of "costing jobs" for Hope's testified,
would not have been increased or decreased if Hope's had been awarded the
subcontract. There was testimony that Hope's 1975 had the material, labor, and
plant capacity to handle the subcontract if it had been awarded it. All the
witnesses were present or former employees of Hope's and their examination and
cross-examination produced no evidence requiring a finding that the performance
of the subcontract would have had any effect on the amount of Hope's fixed
overhead. Sullivan called no independent cost accountant or other expert to
testify concerning usual business and accounting practice in allocating fixed
overhead to a lost opportunity to perform a subcontract (in addition to a large
volume of other business) in a situation such as that now before the
court.3
3. On the testimony summarized above, the trial judge was well justified in
finding, as he did, "that the overhead expenses of . . . [Hope's] were
fixed and would not have increased if . . . [Hope's] had been awarded the . . .
subcontract
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3 We thus need not consider what
different considerations might apply if there had been introduction by Sullivan
of persuasive and intelligible expert testimony concerning more sophisticated
general cost accounting and usual business practices in the allocation of fixed
overhead costs in situations such as that here presented. Compare Air
Technology Corp. v. General Elec. Co., 347 Mass. 613, 628 n.18 (1964); Coyne
Industrial Laundry of Schenectady, Inc. v. Gould, 359 Mass. 269, 276-277
(1971).
Page 79
and had performed" it. In the light of this explicit finding, he correctly
ruled that Hope's fixed overhead expenses "are not to be considered . . .
in determining the anticipated profit of" Hope's.
The most nearly controlling Massachusetts decision is F.A. Bartlett Tree Expert
Co. v. Hartney, 308 Mass. 407, 409-410 (1941), where there was a specific
master's finding that overhead of the plaintiff would not have been materially
decreased by the loss of orders to which it was entitled or materially
increased if the plaintiff had executed those orders. See Flower v. Billerica,
320 Mass. 193, 196-197 (1946). The Bartlett case was distinguished, on the
basis of the explicit master's finding in that case, in Coyne Industrial
Laundry of Schenectady, Inc. v. Gould, 359 Mass. 269, 276-277 (1971). By his
decision in our case the trial judge did not put Hope's in a better position
that if it had received and performed the subcontract (cf. Ficara v. Belleau,
331 Mass. 80, 82 [1954]), but merely awarded Hope's what (so far as disclosed
by the evidence) would have put Hope's "in as good a position as if"
it had not been deprived wrongfully of the opportunity to perform the
subcontract.4 See Concannon v. Galanti,
348 Mass. 71, 74 (1964). The Bartlett case is supported by substantial
authority. See Vitex Mfg. Corp. v. Caribtex Corp., 377 F.2d 795, 797-799 (3d
Cir. 1967); Buono Sales, Inc. v. Chrysler Motors Corp., 449 F.2d 715, 719-720
(3d Cir.
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4 The present case is not governed by
Fillmore v. Johnson, 221 Mass. 406, 410 (1915), where the plaintiff was seeking
to recover its costs in "finishing" the output of its paper tissue
factory, so that inclusion of various fixed overhead items would be necessary
to reflect "actual cost," in a situation somewhat analogous to a
cost-plus-a-fixed-fee contract. An allocation to "costs" of fixed
overhead, however, is not appropriate when determining the loss of anticipated
profits from a subcontract, the performance of which, on the evidence
presented, would neither increase nor decrease fixed overhead. This case is
governed by the simple principle of the Bartlett case. We do not consider any
contention (made for the first time on appeal, so far as appears) that Hope's
did not meet some special burden of proof with respect to fixed overhead,
beyond the evidence produced by it at trial. See Corkery v. Philbrook, 6 Mass.
App. Ct. 861 (1978).
Page 80
1971); Nederlandse Draadindustrie NDI B. V. v. Grand PreStressed Corp., 466 F.
Supp. 846, 854 (E.D.N.Y. 1979); Restatement (Second) of Contracts Section 361,
Comment d, at 33-34, and Illustration 11, at 36 (Tent. Draft No. 14, 1979); 5
Corbin, Contracts Section 1038, at 239-240 (1964) (citing the Bartlett
case).5 See also Apex Metal Stamping Co.
v. Alexander & Sawyer, Inc., 48 N.J. Super. 476, 483-487 (1958); Annot., 3
A.L.R. 3d 689, 705-709 (1965). Compare Partridge v. Norair Engr. Corp., 301
F.2d 247, 250-252 (D.C. Cir. 1962).
4. Sullivan contends that, under usual principles limiting recovery of
anticipated profits for breach of contract, a recovery of $56,848 was
significantly above what Sullivan could have foreseen as the natural and
probable consequence of wrongfully depriving Hope's of the subcontract. Under
the 1978 decision of this court, 6 Mass. App. Ct. at 491, the award of
anticipated profits was not exactly an award of anticipated profits was not
exactly an award of damages for breach of contract but only a somewhat similar
payment as a "deterrent to ensure that general contractors will comply
with the bidding statute" (G. L. c. 149, Sections 44A - 44L). The
precedents, however, on award of anticipated profits as damages for breach of
contract provide a useful analogy. See Bucholz v. Green Bros., 272 Mass. 49, 54
(1930); Associated Perfumers, Inc. v. Andelman, 316 Mass. 176, 185-186 (1944),
holding that the "injured party shall be placed in the same position he
would have been in, if the contract had been performed, so far as loss can be
ascertained to have followed as a natural consequence and to have been within
the contemplation of the parties as reasonable men as a probable result of the
breach" (emphasis supplied).
5. Sullivan suggests that no contractors knew until the 1978 decision of this
court what would be the measure of damages in the event that a private general
contractor
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5 See concerning a somewhat analogous
problem under G. L. c. 106, Section 2-708(2), Jericho Sash & Door Co. v.
Building Erectors, Inc., 362 Mass. 871, 872 (1972), and Cesco Mfg. Corp. v.
Norcross, Inc., 7 Mass. App. Ct. 837, 843 (1979).
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should violate the public bidding statute in awarding subcontracts. See Paul
Sardella Constr. Co. v. Braintree Housing Authy., 371 Mass. 235, 243 (1976). In
that sense, recovery by Hope's of its lost anticipated profits probably was not
within the contemplation of the parties.
The 1978 decision that Hope's is entitled to its anticipated profits we regard
as having dealt sufficiently with all questions necessary to that decision,
including the foreseeability of those profits as damages. See Levenson v.
Brockton Taunton Gas Co., 5 Mass. App. Ct. 883 (1977); Blake v. Springfield St.
Ry., 9 Mass. App. Ct. 912 (1980). See also Bar Assn. of the City of Boston v.
Casey, 213 Mass. 549, 556 (1913); Bacon v. George, 216 Mass. 519, 520 (1914);
Lummus, The "Law of the Case" in Massachusetts, 9 B.U.L. Rev. 225,
227-228 (1929); Note, 62 Harv. L. Rev. 286 (1948). In any event, we cannot say
on this record, as matter of law, that on a subcontract the bid on which was
$158,758, lost profits of $56,848 (or about 35 per cent) are in excess of what
the parties reasonably should have foreseen. The failure to award the
subcontract must be treated as essentially equivalent to a total breach or
repudiation of the subcontract in determining what is the "natural"
and "probable result" of that failure. See Boylston Housing Corp. v.
O'Toole, 321 Mass. 538, 562 (1947), in general following Hadley v. Baxendale, 9
Exch. 341, 354-355 (1854).
Judgment affirmed.
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END OF DECISION