12.4 Wrongful Termination

• Library: Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.)

12.4 WRONGFUL TERMINATION

12.401 In General. The wrongful termination of a contract is itself the paramount material breach. ¹⁴⁶ The consequences of an improper default termination are so severe that parties should exercise the termination remedy only with the utmost care. Most courts consider default termination to be appropriate only in extreme situations ¹⁴⁷ and that it is a "drastic sanction"

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that should be imposed only on the basis of "solid evidence." ¹⁴⁸ It is a type of forfeiture. ¹⁴⁹ The burden of proof on whether a termination is warranted lies with the party who terminates, even if that party is denominated a defendant in subsequent litigation. ¹⁵⁰ The damages associated with a wrongful termination are severe.

12.402 Damages for Wrongful Termination.

A. Contractor or Subcontractor Damages. The wrongfully terminated contractor or subcontractor has a number of options available for recovery. In the federal government arena, a contract that has been wrongfully terminated will be converted to a termination for convenience (creating a constructive "conversion clause"). ¹⁵¹ In the private context, the measure of damages in Virginia for wrongful termination of a contractor or subcontractor is the amount of unpaid "work and labor done, money expended and materials furnished" ¹⁵² as of the date of termination, plus any loss of profits on the work remaining to be done "to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable cer-tainty." ¹⁵³ While speculative and conjectural profits cannot be recovered in an action for wrongful termination, all damages that are the direct result of the breach may be recovered. The damages must be proved with reasonable certainty, but exactness is not required. ¹⁵⁴

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B. Owner Damages. The wrongfully terminated owner (typically the result of a contractor walking off the job) is usually entitled to recover "the cost to complete the contract according to its terms or the cost to repair what has been done so that the contract terms are met." ¹⁵⁵ The sole exception to this general rule is when "the cost to repair would be grossly disproportionate to the results obtained, or would involve unreasonable economic waste." ¹⁵⁶ Under such circumstances, the cost of completion or repair would not constitute the appropriate measure of damages. ¹⁵⁷ The wrongfully terminated owner may also be entitled to assess actual and liquidated damages resulting from the delay caused by the wrongful termination. ¹⁵⁸

12.403 Conversion Clauses. A wrongful termination for default is a breach of contract unless a contractual...