Attorney Harrison Oldham

On September 2, 2020 the Fifty Circuit Court of Appeals released its opinion in D2 Excavating v. Thompson Thrift Constr., No. 19-40745 (Sept. 2, 2020). There, D2, an excavation company who was subcontracted to remove some dirt, ended up removing a lot more dirt from a construction site than originally anticipated. The resulting lawsuit over this “excess dirt” led to a judgment for the subcontractor exceeding half a million dollars. The principal issue on appeal is whether the subcontractor was entitled to additional money for the “excess dirt” removal or whether it was stuck with the price the parties agreed to.

Thompson Thrift Construction, Inc. was the general contractor for anew apartment complex in Corpus Christi.  It solicited a bid from D2 Excavating, Inc. for site grading and excavation work. Thompson sent D2 documents which included proposed contract terms, a topographical survey of the site, and the planned final elevations.

The documents included a section that stated: “This is a balanced site. It shall be this subcontractor’s responsibility to balance site. Change orders for import/export will not be accepted. Consider all spoils from other trades, and create berms where necessary.”

A site is “balanced” if the work will not require importing or exporting dirt to achieve the planned elevations. In that case, the dirt will need only be transferred within the site.

Despite its representation, Thompson did not actually determine whether the site was balanced. The proposed terms were its standard template for all excavation projects. D2 also declined to investigate the site—two months of heavy rain limited its ability to physically examine the site, and Thompson was eager to begin construction as soon as the rain ceased. Instead, D2 used a software program to determine the site was balanced.

After performing its simulations, D2 agreed to do the excavation. Under the final contract, Thompson was to pay D2 $630,000. The parties included the proposed terms that Thompson originally provided to D2 in the contract as an exhibit with slight modifications.

About one month after D2 began excavating, it became clear that the site was not balanced. Excavation was producing a lot more dirt than expected and some would need to be removed from the site. D2 and Thompson disagreed about whose fault the excess dirt was. Regardless of who was responsible for the misestimate, D2 promptly notified Thompson that there was unanticipated dirt that needed to be removed. The parties negotiated and decided that Thompson would cover D2’s costs for the additional work. Thompson told D2 it would issue a written change order for the additional work once it was finished so that it would be easier to calculate what it owed.

With Thompson’s promise to pay for unanticipated exporting work in hand, D2 continued excavating. In addition to the unexpected exporting of excess dirt, Thompson repeatedly asked D2 to re-excavate and regrade areas that other subcontractors’ activity had disturbed. In one case, Thompson’s mismanagement of other subcontractors required D2 to excavate the same area six times. However, it when it ultimately became clear that Thompson was not going to pay additional amounts for the removal of dirt, D2 stopped working. At that point, 98.6% of the excavation was complete.

D2 then sued for breach of contract. At the conclusion of the initial trial, the district court held in D2’s favor on all claims. It ordered Thompson to pay D2 $81,068.00 for unpaid work under the contract and $257,588.53 for “excess” excavating work. The biggest award of all was for attorneys’ fees: $356,080.91.

Thompson appealed the matter. On review, the appellate court reversed all of the district court’s decision to award D2 additional damages. In doing so, the court realized that the real question is which party bore the risk that the site might be unbalanced. The default rule in Texas, dating back to a case interpreting an 1899 contract to construct a building in San Antonio, is that the party doing the work bears the risk that it will end up being more difficult than anticipated unless the contract shifts that risk to the buyer of the services. This default rule flows from the basic contract principle that “where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered.”

The court found that in this case, that default rule applies because the contract does not allocate the risk to Thompson that the site would be unbalanced. The agreement instead put the risk on D2.

From there, the court reasoned that of course, a valid modification of the contract via a change order could render Thompson liable. But change orders, like any modification, must satisfy the normal requirements of a contract: “a meeting of the minds supported by consideration.” Critically, “[a] promise to fulfill a pre-existing obligation cannot serve as new consideration for an amendment to a contract.”

Here, Thompson and D2 orally agreed to revise the contract – Thompson would pay more and D2 would remove the excess soil. That means D2’s consideration would be removing the excess soil. However, the original contract already obligated D2 to do so without any compensation beyond the contract price. Hauling the dirt, therefore, cannot serve as consideration; the oral change order was void.  Put another way, if the contract had required less excavation work than the parties expected, Thompson would not be able to get a refund on the $630,000 it agreed to pay. Likewise, when the work turned out to involve more work than the parties expected, D2 cannot recover more than the $630,000.

EMPLOYERS: This same concept can be found all over the employment world. For instance, if you want to impose a new requirement (say an NDA or non-compete agreement) on an employee, you should offer them additional consideration for signing those documents. Merely paying an employee their normal wage but now imposing a new requirement on them, without offering additional consideration, could make those documents void.

About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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