Gundersons, Inc. v. Tull (1983) – Study Notes

Case Overview

• Colorado Court of Appeals, Div. I; opinion by Judge Berman (Nov. 23 1983, reh’g denied Dec 15 1983; cert. granted Mar 26 1984).

• Citation: 678 P.2d 1061; later reviewed in Tull v. Gundersons, Inc. (Colo. 1985).

• Nature of suit: Contractor (Gundersons) seeks lost profits & consequential damages after owner (Ptarmigan Investment Co. et al.) breaches golf-course construction contract.

Parties

• Plaintiff–Appellant: Gundersons, Inc. – S.D. corporation, 18 yrs experience building golf courses.

• Defendants–Appellees: James H. Tull, H. McGraw, T. Peck, et al.; Ptarmigan Investment Co. (Colorado general & limited partnerships) plus related investors.

Procedural Posture

• Trial court acknowledged breach but awarded only the 10 % retainage; denied lost-profit & consequential claims.

• Gundersons appealed. Court of Appeals reversed & remanded: lost profits proven with reasonable certainty; two categories of consequential damages recoverable.

Chronology & Key Facts

• July 26 1979: Bid accepted; contract price 1,294,129.

• Aug 6 1979: Work commences.

• Aug 28 1979: Gun Barrel Mortgage agrees to finance (never consummated).

• Aug 30 1979: AIA “Standard Form of Agreement” executed (date contract formed per trial court).

• Nov 1979: ~1⁄3 of project complete; winter stoppage; payments to date 391,544 (10 % retainage withheld).

• Mar 15 1980: Owner still unfunded; contractor suspends operations.

• Action filed: breach of contract—claiming expectation interest (lost profits) + incidental/consequential losses (equipment leases, superintendent salary, mitigation bids).

Issues on Appeal

1. Whether plaintiff proved lost profits with "reasonable certainty."

2. Whether trial court erred in denying consequential damages for:
   a. Superintendent’s salary,
   b. Long-term equipment lease payments,
   c. Expenses incurred seeking substitute contracts.

Holdings

• Lost profits granted: contractor satisfied evidentiary burden.

• Consequential damages: equipment-lease costs & mitigation expenses recoverable; superintendent salary not recoverable (avoidable loss).

• Cause remanded for entry of appropriate awards.

Governing Legal Principles

• Lost-profit recovery requires proof with “reasonable certainty”; speculative or remote figures disallowed (Lee v. Durango Music; Power Equipment v. Fulton).

• Formula from Comfort Homes v. Peterson:
  \text{Damages} = \text{Contract Price} - (\text{Payments Made} + \text{Cost to Complete})

• Breach alone warrants at least nominal damages (General Ins. Co. v. Colo. Springs).

• Purpose of damages: place non-breaching party where it would be but for breach (expectation interest).

• Incidental & consequential losses also recoverable (UCC §2-715 rationale adopted in common-law cases).

• Duty to Mitigate: injured party must use reasonable means to limit loss; reasonable mitigation costs themselves are compensable (Hoehne Ditch Co.).
  • Prima facie: show payment; burden then shifts to defendant to prove unreasonableness (Hoehne standard).

Evidence Supporting Lost-Profit Award

• President testified from 18 yrs experience; broke remaining work into discrete components (greens, tees, irrigation, cart paths, landscaping, etc.) using original supplier quotes.

• Estimated cost to complete 600,000 \text{–} 609,923.

• Historical margin: original bid built in ≈35\% profit over cost.

• Calculation examples:
  \text{Lost Profit} = 1,294,129 - 391,544 - 600,000 = 302,585
  \text{or}~1,294,129 - 391,544 - 609,923 = 292,662 (≈34 % of remaining contract value).

Consequential-Damage Analysis

1. Superintendent’s salary (Dec 1979–Mar 1980)

   • Retained in hope of future projects, not indispensable to Ptarmigan job.

   • Expense avoidable; failure to lay off = failure to mitigate → not recoverable.

2. Equipment lease payments

   • Long-term leases dedicated to Ptarmigan; Dec 1 1979–Mar 1980 payments unavoidable.

   • Distinguished from Uinta Oil (where equipment was purchased & depreciation avoided).

   • Recoverable to restore plaintiff’s position.

3. Mitigation bidding costs

   • Plaintiff presented invoices/receipts (travel, bid bonds, estimating) for pursuing alternate golf-course contracts.

   • Met prima facie burden; defendant offered no evidence of excessiveness → costs recoverable.

Relationship to Precedent & Doctrinal Connections

• Comfort Homes: central precedent for construction-contract damages; formula applied.

• General Ins. Co.: reaffirms that uncertainty as to amount does not bar recovery where breach & damage proven.

• Hoehne Ditch: establishes burden-shifting framework on mitigation expenses.

• Uinta Oil Refining: distinguishes recoverability of capital purchases vs. non-cancellable leases.

Practical Implications

• Contractors should maintain granular cost records; component breakdowns bolster "reasonable certainty."

• Long-term equipment leasing can transfer breach risk to owner, if leases are job-specific & non-cancellable.

• Employers must seriously consider layoffs or re-assignment to satisfy mitigation duty.

• Owners must secure financing before contract execution; failure exposes them to full expectancy & consequential damages.

Ethical / Philosophical Considerations

• Upholding expectation damages incentivizes contractual reliability and economic efficiency.

• Court respects corporate separateness (Gundersons vs. related Fairway Leasing) absent veil-piercing grounds—promoting predictability in closely-held ventures.

Numerical & Statistical References

• Contract price: 1,294,129

• Payments received: 391,544 (≈30.3 % of contract).

• Retainage rate: 10\%.

• Cost-to-complete projections: 600,000 \text{–} 609,923.

• Lost-profit range: 292,662 \text{ to } 302,585 (≈34-35 % margin).

• Equipment-lease exposure period: 4 months (Dec 1979 – Mar 1980).

Key Takeaways for Examination

• Lost profits demand reasonable certainty, not mathematical precision; detailed component estimates plus historical margins suffice.

• Expectation measure: contract price minus (payments + avoided costs).

• Consequential damages include unavoidable post-breach costs & reasonable mitigation expenses.

• Duty to mitigate can both:
  • bar recovery of avoidable losses (superintendent salary), and
  • allow recovery of mitigation costs (bidding expenses).

• Distinguishing between capital investments and non-cancellable leases affects damage entitlement.

Principal Citations

• Gundersons, Inc. v. Tull, 678 P.2d 1061 (Colo. App. 1983)

• Comfort Homes, Inc. v. Peterson, 37 Colo.App. 516, 549 P.2d 1087 (1976)

• General Ins. Co. v. City of Colorado Springs, 638 P.2d 752 (Colo. 1981)

• Hoehne Ditch Co. v. John Flood Ditch Co., 76 Colo. 500, 233 P. 167 (1925)

• Uinta Oil Refining Co. v. Ledford, 125 Colo. 429, 244 P.2d 881 (1952)

• Lee v. Durango Music, 144 Colo. 270, 355 P.2d 1083 (1960)

• Power Equipment Co. v. Fulton, 32 Colo.App. 430, 513 P.2d 234 (1973)