Specific Performance of Construction Contracts:
The Minnesota Twins Legacy
An unexpected outcome of this year's baseball controversy has been to shed new light on courts' willingness to enforce "specific performance" as a remedy for breach of contract.
By William J. Otteson
As the 2002 baseball season drew to a close, Minnesota fans could hardly believe their good fortune. The team that last winter seemed likely not to survive until spring went on to win the division playoffs and, by October, was contending for a spot in the World Series.
While most of the credit for this success must go to the Twins, Minnesota attorneys will acknowledge the courts contributed as well. In January, the Minnesota Court of Appeals affirmed a lower court decision that required the Twins to play their home baseball games at the Metrodome for the 2002 season. The Minnesota Supreme Court declined to review the case, and spring training was on.
The decision that gave new life to the Minnesota Twins attracted national media interest. It spurred debate among politicians, economists, and other sports industry professionals about the challenges facing the game of baseball. We learned about stadium financing, the pressures on small-market teams, revenue-sharing, labor disputes, and multimillion-dollar player contracts.
But construction lawyers can learn something else from the Twins case. In Twins, the parties had agreed that "specific performance" was an available remedy in the event of a breach of contract. Construction lawyers routinely put similar clauses in their contracts. But courts have shown a general reluctance to enforce them. Why? Mostly because judges don't want to supervise an ongoing construction project. In addition, judges treat specific performance like other equitable remedies and almost always conclude that the nonbreaching party can be made whole by receiving money damages.
The Twins case at least opens the door to the possibility that courts in future cases may be more willing actually to enforce the specific performance clauses in parties' construction agreements. This article analyzes specific performance of construction agreements, first by analyzing the law from other states, then by looking to the Twins case to see how a Minnesota court might decide this question.
The Law Outside Minnesota
No published decision from Minnesota addresses the issue of specific performance of construction agreements. But a majority of courts around the country have concluded that "contracts for building or construction will not be specifically enforced, partly because damages are an adequate remedy at law, and partly because of the incapacity of the court to superintend the performance, especially if the performance of the contract would extend over a considerable period of time and would include a series of acts."1 This rule seems to be an extension of the rule set forth in the Restatement (Second) of Contracts: "A promise will not be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial."2
Despite this rule, there have been a number of cases where courts have approved or ordered specific performance of agreements requiring construction. In one leading case, the New York Court of Appeals affirmed an arbitration award ordering specific performance of a construction agreement, despite the argued need for judicial supervision of construction.3 The parties' agreement to build a shopping center contained an arbitration clause which gave the arbitrator power to grant "any just or equitable remedy or relief including specific performance."4 The arbitrator ordered the contractor to complete construction, and the contractor sought to overturn the award through the courts, arguing that "specific performance of a contract to construct a building ... is never ordered by courts of equity because of the necessity of continuous judicial supervision and control of performance."5
The court rejected the contractor's assertion that there was a "hard and fast rule against applying the remedy of specific performance" to construction agreements, especially since "the parties have by agreement provided for just that remedy."6 The court called it "an old tradition or approach" to decline enforcement just because judicial oversight would be difficult.7 Instead, the court noted, "Modern writers think that the difficulty of enforcement' idea is exaggerated and that the trend is toward specific performance."8 The court concluded, "[T]here is no binding rule that deprives equity of jurisdiction to order specific performance of a building contract. At most there is discretion in the court to refuse such a decree."9
The federal courts in the District of Columbia have also reached this conclusion.10 In City Stores v. Ammerman, a department store chain sued a shopping mall developer for the right to be one of the mall's anchor tenants. The chain sued for breach of contract and sought specific performance, which would have required the granting of a lease and the design and construction of the store.11 After determining that the developer had promised the chain the right to a store lease on terms "at least equal" to those of the other department stores in the mall, the court next addressed the "nature of the remedy available to plaintiff."12
The court recognized that a number of lease terms relating to the "design, construction, and price of the building" would have to be worked out.13 But the court examined precedent and concluded that "the mere fact that a contract, definite in material respects, contains some terms which are subject to further negotiation between [the parties] will not bar a decree for specific performance, if in the court's discretion specific performance should be granted."14 The court went on to examine the equities and to exercise its discretion based upon the facts at hand.
The court first noted that the "essential criterion" for granting specific performance is that a damages award must be either "inadequate" or "impracticable."15 Damages are inadequate, the court stated, when the subject matter of the contract is "of such a special nature, or of such a peculiar value," that damages would not be a "just and reasonable substitute."16 Damages are impracticable, the court said, when "it is impossible to arrive at a legal measure of damages at all, or at least with any sufficient degree of certainty."17 The court found the plaintiff was entitled to specific performance because it was not possible to arrive at a precise measure of damages, and (perhaps more importantly) because damages would "in no way compensate the plaintiff for the loss of the right to participate in the shopping center enterprise."18
The court recognized the developer's argument about difficulties of judicial supervision of construction, but concluded that specific performance could only be denied where those difficulties "outweigh[ed] the importance of specific performance to the plaintiff."19 Given that the leases of other anchor tenants were available to the parties, the court was satisfied that the "standards to be observed in construction of the plaintiff's store are set out ... with sufficient particularity as to make design and approval of plaintiff's store a fairly simple matter ... ."20 The court advised that, if the parties could not in good faith agree on certain details, it could appoint a special master to help settle their differences.21
The D.C. Circuit affirmed the district court's opinion in its entirety:
More recently, an appellate court in Illinois recognized the possibility of specific performance of construction agreements, although it did not go so far as to order construction. In Franklin Point v. Harris Trust & Savings Bank, a developer sued a bank for failing to build and occupy an office building that was a crucial part of a larger development.23 The trial court dismissed the developer's specific performance claim, concluding that "Illinois law is well-settled that specific performance of construction projects is forbidden as a matter of law."24
The appellate court remanded, stating that it was "unwilling to agree with such a broad assertion that specific performance can never be granted in a construction case."25 It allowed the developer leave to amend its specific performance claim so that the trial court could determine whether, "if specific performance is granted, the court will be required to become involved in prolonged supervision of the building's construction if disputes arise."26 If the lower court was not likely to become "embroiled in continuing disputes and decisions regarding the building's construction," the court concluded specific performance "may be an appropriate remedy."27
The court noted the parties' contract, which provided for an independent review board to approve architectural and other construction plans, might allow for specific performance without excessive judicial entanglement.28
In an important piece of dictum, the court rejected the contention that contracting parties could require judges to order specific performance just by putting it in their contracts:
A case from Pennsylvania also supports specific performance of construction in certain cases. In Sullivan v. Bucks County, various parties sought to enforce a contract for the construction of a water-pumping station that was designed to provide water for public use and a nuclear power plant's cooling system.30 The lower court ordered specific performance, and the appellate court affirmed.31
The court stated that a decree of specific performance "may properly be entered if damages are not reasonably ascertainable or are inadequate."32 The court also stated, "where the contract is one in which public interest and convenience are at stake, specific performance will be decreed even though certain oversight or discretion is required.33 The court concluded specific performance was appropriate because damages were not ascertainable due to the uncertain availability of alternative water sources.34 Other courts have also upheld awards of specific performance in construction cases.35
The Law in Minnesota
While no Minnesota court has addressed specific performance of construction agreements, Minnesota does recognize specific performance as a form of equitable relief.36 But a party does not have an "automatic right" to specific performance on a contract.37 Instead, a court will balance the equities of the case to determine whether specific performance is appropriate in a particular circumstance.38
In Twins, the Minnesota Court of Appeals upheld an order for specific performance where the parties' agreement expressly provided for "injunctive relief and orders for specific performance" in the event of breach.39 The Twins had signed a "use agreement" with the Metropolitan Sports Facilities Commission, the landlord for the Metrodome stadium.40 That agreement required the Twins to play their home games at the Metrodome, and it further stated that if the Twins ceased to play games "for any reason":
Analyzing the contract, the court first concluded that the nature of the parties' contractual relationship supported equitable relief.42 Specific performance, the court reasoned, would not alter that existing relationship or "create a new legal relationship." This fact favored the granting of specific performance.43
On this point, Minnesota courts faced with construction disputes are also likely to follow Twins and conclude that the nature of the parties' relationship supports an award of specific performance. If a contractor and an owner have an existing contractual relationship which provides for specific performance as a remedy for breach, then a court would probably find that awarding that form of relief would be "coextensive" with the terms of the contract. In other words, the court would not be creating a "new" legal relationship that didn't exist before.
The court in Twins also addressed the team's argument that the legal remedy of money damages could adequately compensate the Commission for any breach.44 The court rejected the argument, noting that "[t]he availability of money damages to compensate for some of the harm suffered ... does not necessarily preclude an injunction; instead, the issuance of injunctive relief depends on whether there are additional injuries for which money cannot compensate the nonbreaching party."45 The court noted that equitable relief in the form of specific performance could be available in cases where "potential damages are difficult to determine."46 The court concluded the loss of the Twins would result in an "intangible loss" to the public which could not be compensated by a damages award.47
In construction cases, the availability of money damages makes specific performance a tougher argument. If a contractor is alleged to have breached an agreement before completing a project, he or she will likely argue that damages would adequately compensate the owner for any breach and would cover the owner's cost of completion. The challenge to owners will be to articulate arguments that an award of damages in insufficient, by itself, to remedy the contractor's breaches. Arguments to consider would include the speculative or indeterminate nature of the damages, other "intangible losses" or "economic waste" which might result from the denial of specific performance, the public benefit of having the breaching contractor finish the job, and the unavailability of other contractors to complete the project.
Obviously, one important factor for a court to consider is whether the parties contemplated that specific performance would be an available remedy in the event of a breach. The court in Twins concluded that the existence of an express contractual provision authorizing specific performance weighed heavily in the Commission's favor.48 The court emphasized that the parties' contract did not "foreclose" specific performance, but rather "actually identifies" it as a potential remedy.49 The court concluded the parties' contractual language, along with other "unique aspects" of the case, supported the award of specific performance.50
Owners who include specific performance clauses in their construction contracts can point to Twins as support for an award of specific performance. But contractors seeking to avoid specific performance might attempt to distinguish the contract in Twins because the applicable contract language in Twins was so strong and clear. The contract there actually defined the specific relief available for a specific type of breach: should the Twins cease to play games "for any reason," the Commission could obtain an order "requiring the Team to play its Home Games at the Stadium during the Term hereof."51 In construction cases, however, the form of specific relief available to an owner is likely to be less well-defined, as most construction agreements do not specify the particulars, i.e., what types of specific performance are allowed for what types of breaches. A court may therefore be more hesitant in a construction case than in Twins to award specific performance.
The court in Twins admitted a reluctance to order equitable relief where: (1) it would require the parties to "maintain a cooperative relationship," and (2) it would "impose a continuing duty of supervision on the district court."52 The court cited these reasons as justification for the general rule that specific performance is not available for "personal services" contracts except under "genuinely extraordinary circumstances."53 But since specific performance would merely preserve the parties "close, long-term relationship," and since the court "expressed willingness to address administrative problems," the court found specific performance was appropriate despite this rule.54
In construction cases, a contractor seeking to avoid specific performance will undoubtedly argue that problems with maintaining a "cooperative relationship" would put the court in an untenable supervisory position. This argument is probably a contractor's most compelling one against an award of specific performance. Whether a court would be willing to act as the parties' supervisor depends on the individual inclinations of the judge assigned to the case. One way an owner could minimize this concern might be to suggest the appointment of a construction expert to serve as a special master to oversee any disputes that might arise during completion of the project.
As the Twins case illustrates, parties who agree to specific performance clauses should not assume a court will never enforce them. Instead, parties should be prepared for the possibility that a court may uphold these clauses in certain circumstances, even for construction and other types of personal service contracts. Contractors who wish to avoid an order of specific performance should consider this issue during their negotiation of these agreements. Similarly, owners who may want to compel specific performance someday should require these clauses Ñ and draft them specifically enough to address the types of breaches that should trigger particular types of relief. Finally, to alleviate judges' concerns about supervising the completion of construction, drafters should consider allowing for the appointment of a special master to supervise the work. Armed with such a contractual provision, a Minnesota judge may be willing to follow Twins and tell the parties to "play ball!"
2 Restatement (Second) of Contracts ¤366.
3 Grayson-Robinson Stores, Inc. v. Iris Const. Corp., 168 N.E.2d 377, 378 (N.Y. 1960).
7 Id.at 379.
8 Id. (citing 5 Corbin on Contracts ¤1172 (1951 ed.) and 5 Williston on Contracts, p. 3977 (rev. ed.).
10 City Stores Co. v. Ammerman, 266 F. Supp. 766 (D.D.C. 1967), aff'd., 394 F.2d 950 (D.C. Cir. 1968).
11 Id. at 769-70.
12 Id. at 774.
14 Id. at 775-76.
15 Id. at 776.
16 Id. (quoting Pomeroy's Equity Jurisprudence ¤¤1401-03 (5th ed. 1941).
18 Id.at 776.
19 Id. at 776-77 (citing Williston on Contracts ¤1423 (Rev. ed. 1937).
20 Id. at 778.
22 Ammerman v. City Stores Co., 394 F.2d 950, 956 (D.C. Cir. 1968)(footnotes omitted).
23 Franklin Point, Inc. v. Harris Trust & Sav. Bank, 660 N.E.2d 204 (Ill. App. Ct. 1995).
24 Id. at 205.
26 Id. at 206.
28 Id. at 207.
29 Id.at 208.
30 Sullivan v. Bucks County, 499 A.2d 678, 682 (Pa. Commw. Ct. 1985).
31 Id. at 689-90.
32 Id. at 689.
33 Id. at 689 n. 19.
34 Id. at 689.
35 See, e.g., Bean v. Cy Realty Corp., No. 932255, 1994 WL 879579 (Mass. Super. Ct. 1994) (ordering contractor to reconstruct foundation and complete construction of house where there would be "no unreasonable economic waste" to the contractor in doing so); Shirer v. Treadaway Homes, Inc., 391 So.2d 562, 563-64 (La. Ct. App. 1980)(ordering contractor to complete construction of house where the agreement provided the right to specific performance); Montalbano v. Berners, Inc., 365 So.2d 923, 924-25 (La. Ct. App. 1978)(ordering defendant to specifically perform contract to install air conditioner condenser unit where the defendant could replace the unit "more economically" than could plaintiffs; Pembroke Park Lanes, Inc. v. High Ridge Water Co., 178 So.2d 37, 38 (Fla. Dist. Ct. App. 1965)(ordering utility to extend water service to landowner's property where the contract imposed on the utility a "duty to proceed."
36 Dakota County HRA v. Blackwell, 602 N.W.2d 243, 244 (Minn. 1999).
39 Metropolitan Sports Facilities Comm'n v. Minnesota Twins P'ship, 638 N.W.2d 214, 219 (Minn. App.), rev. denied (2002).
41 Id. 226 (emphasis added).
42 Id. at 221 ("[I]njunctive relief based on a contract must be coextensive with the terms of the contact.").
44 Id. at 223 (noting requirement that party seeking equitable relief show "irreparable injury").
47 Id. at 224-25.
48 Id. at 226.
49 Id. at 227.
51 Id. at 226.
52 Id. at 228-29.
53 Id. at 228.
54 Id. at 229.
BILL OTTESON is a member of the Minneapolis law firm of Greene Espel, PLLP. He practices in the area of complex business litigation, with particular interest in finance and technology.