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Mississippi Appellate Court Holds Defective Work Performed By Subcontractor Constituted Material Breach Preventing It From Recovering Alleged Acceleration Damages

In Kanza Constr., Inc. v. Kansas City S. Railways Co., the Mississippi Court of Appeals analyzed whether the circuit court properly granted partial summary judgment when it found, as a matter of law, that a construction company was not entitled to acceleration damages on the contract it breached. 2021 WL 670993 (Miss. Ct. App. Feb. 22, 2021).

Kanza Construction Inc. (“Kanza”) and Kansas City Southern Railway Company (“KCS”) entered into a contract under which Kanza was to demolish and reconstruct a bridge which passed over two parallel railroad tracks operated by KCS. The bridge had been closed by the City of Vicksburg, Mississippi (the “City”) in 2009 due to safety concerns. The City then entered into a contract with KCS for demolition of the old bridge, construction of a new bridge, and to build retaining walls around the tunnel under the bridge. Following this, KCS accepted a bid from Kanza in the amount of $6,796,000.00 to perform the demolition and construction.

The parties then entered into a “Master Agreement”, which incorporated design plans for the project drafted by the city’s engineer, but allowed Kanza reasonable discretion to make changes that would not delay the project deadline, and which were “sound from an engineering standpoint.” Pursuant to the agreement, Kanza was to complete the project by June 10, 2011.

However, Kanza did not begin construction until April 2011 because the changes it ultimately elected to make to the design of the retaining walls caused significant delays. KCS granted Kanza two extensions, the second of which extended the deadline to December 3, 2011.

In September 2011, KCS’ senior vice president and chief engineer sent a letter regarding the delays and extensions to Kanza’s president and insisted Kanza add manpower and equipment in order to meet the second deadline extension of December 3, 2011. The letter referenced a provision in the Master Agreement that required Kanza to add additional manpower and equipment immediately if KCS determined that Kanza was behind schedule. It also called for Kanza to direct its work force to work overtime if required to maintain the agreed upon schedule. Kanza was to do both without any additional cost to KCS.

Kanza’s president responded by denying it was behind schedule and asserting that it was entitled to additional time for the delays. Kanza proposed a new deadline of March 13, 2012. Alternatively, Kanza indicated its willingness to add additional manpower and equipment to complete the project by the December 3 deadline. However, Kanza argued the second option would constitute an acceleration of the project to which it would be entitled to acceleration compensation. A meeting subsequently occurred between the parties and counsel for KCS where a new deadline of February 28, 2012, was agreed upon. Kanza claims KCS requested it proceed with the acceleration without a prior change order. However, Kanza believed it would be paid for the additional costs associated with the accelerated schedule the parties agreed upon.

Kanza completed the project by the February deadline, but numerous defects were identified in the construction, and KCS was ultimately forced to hire additional engineers to evaluate the work and a new contractor to repair and finish the project. KCS refused to pay Kanza the remainder of the contract price or the requested “acceleration” costs because of the defects. Kanza filed a Complaint against KCS for breach of contract and various damages, including the remainder of the contract price and acceleration costs. KCS filed a counterclaim for breach of contract against Kanza and sought damages for the repairs that had to be made to complete the defective bridge and retaining walls.

KCS subsequently filed a motion for partial summary judgment arguing that Kanza was not entitled to acceleration damages because it never accelerated the project, such damages would be too speculative, and such damages would constitute delay damages prohibited by the Agreement. The trial judge granted partial summary judgment in favor of KCS. The remaining issues proceeded to a bench trial where the Judge found that Kanza’s changes resulted in significant delays, the work was not completed until February 2012, and the work was defective. The Judge further found Kanza breached the contract based on its defective work. Kanza appealed the trial court’s ruling on KCS’ summary judgment, which denied Kanza was entitled to acceleration damages.

On appeal, Kanza argued summary judgment was inappropriate because there was a genuine issue of material fact based on whether the contract had been orally modified at the meeting between the parties and KCS’ counsel. The appellate court discussed the caselaw cited by Kanza and KCS’ counterargument, but ultimately affirmed the lower court’s judgment on alternative grounds.

The Court of Appeals of Mississippi referenced the trial judge’s finding, after a trial on the merits, that Kanza had breached the Agreement – a finding that was not challenged by Kanza on appeal. The appellate court discussed the well-established law in Mississippi that “[a] party who has breached a contract may not … maintain a suit for breach of contract against the other party.”  Kanza Constr., Inc., 2021 WL 670993, at *4 (citing Snow Lake Shores Prop. Owners Corp. v. Smith, 610 So. 2d 357, 361 (Miss. 1992)). The appellate court additionally referenced a provision in the Master Agreement which relieved KCS of its obligation to make any payment to Kanza if Kanza materially breached the Agreement.

The appellate court found the breach was material by definition, Kanza had not cured the breach, and KCS had not waived the breach. Ultimately, the appellate court found Kanza’s damages claim was “nothing more than a demand that it be paid for defective work that had to be redone at a substantial cost to KCS.” Thus, Kanza’s material breach barred it from recovering the alleged acceleration damages and any error by the trial judge in granting summary judgment would be harmless. This case should serve as a reminder to subcontractors of the established principle of Mississippi law that a material breach of contract, including one based on defective construction, serves as a bar to recovery for breach of contract.