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Default Termination As Unsound As The Site Conditions It Ignored

Sunday, April 01, 2012 02:16 am


Contract Termination -- Differing Conditions

In re: Rust of Kentucky, Inc. v. TMS Contracting, LLC, 2012 Bankr. Lexis 373 (D. Ky. Feb. 7, 2012)

A Kentucky court has adopted a recent Court of Federal Claims conclusion that a contractor may not reserve its right to terminate a sub for default and simultaneously allow contract performance time to run out while compelling more work from the sub.

Rust of Kentucky, Inc. (Rust) was the excavation subcontractor on a marina construction project located on the Cumberland River in Clarksville, Kentucky. Rust had slogged through excessive rains, complied with a modification in work scope, continued performance into the winter season, and completed 90 percent of the project by the time the contractor terminated the subcontract for default. Facing financial ruin, Rust filed for Chapter 11 and sued the contractor, TMS Contracting, LLC (TMS), for contract breach and wrongful termination. It prevailed, recovering nearly $5 million from TMS and its payment bond surety.

The marina construction, which was to be performed "in the dry," was plagued by water from the beginning. Months of abnormal rainfall saturated the site. But more troubling for Rust was the surprisingly high moisture

content of the soil--a separate condition from the weather and one not indicated in the bid documents' engineering reports and test borings. The wet dirt requ [...]

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