Construction Contract Court Cases

Hyundai Amco America, Inc. v. S3H, Inc

&

T.C.B. Construction Company, Inc., v. W.C. Fore Trucking, Inc

Department of Civil and Environmental Engineering

Temple University

By Meshel Alkorbi
Case I...........................................................................................................................................................1
Case title and number..............................................................................................................................1
Parties involved.......................................................................................................................................1
Project Specifications..............................................................................................................................1
Court/Case location and date...................................................................................................................1
Case summary.........................................................................................................................................2
Decision of the Appellate court...............................................................................................................3
Further action(s) by the parties................................................................................................................4
Commentary............................................................................................................................................4
Opinion of the case..............................................................................................................................4
Contract issues involved......................................................................................................................5
Prior actions the parties could have taken/made to settle the case before it went to court..................7
What could have been done by whom in the past (or what could be done in the future) to avoid
problems of this nature?......................................................................................................................7
Case II.........................................................................................................................................................9
Case title and number..............................................................................................................................9
Parties involved.......................................................................................................................................9
Project Specifications..............................................................................................................................9
Case location and date.............................................................................................................................9
Case summary.........................................................................................................................................9
Court decision and ward given..............................................................................................................11
Further action(s) by the parties..............................................................................................................11
Commentary..........................................................................................................................................12
Opinion of the case............................................................................................................................12
Contract issues involved....................................................................................................................12
Prior actions the parties could have taken/made to settle the case before it went to court................13
What could have been done by whom in the past (or what could be done in the future) to avoid
problems of this nature?....................................................................................................................14
References.................................................................................................................................................15
Appendix A...............................................................................................................................................16
Appendix B...............................................................................................................................................17
 Case I

Case title and number

Hyundai Amco America, Inc. v. S3H, Inc.

Case No. G049204

Parties involved

Plaintiff and Respondent: Hyundai Amco America, Inc.

Defendant and Appellant: S3H, Inc.

Project Specifications

Name: Provision of mechanical system design and construction services for the mechanical

systems to be installed in the headquarters building

Type: Subcontractor services agreement

Contract Amount: $4.7 million paid with $4.5 million meant for sub-subcontractors for 4 months

work up to March 2013

Location: Hyundai Amco headquarters in California.

Court/Case location and date

Location: Court of Appeal, Fourth District, Division 3, California.

Date: Dec 17, 2014

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Case summary

The case is a reversal of a trial court order by the Fourth Appellate District court, which

denies a petition to compel arbitration. The case can be summarized by capturing what the

Appellate court held – that in a contract, once a party refused arbitration by filing a suit in a state

court, the other party that sought to compel arbitration was not required to make a formal

arbitration demand.

Hyundai Amco America, Inc, which is further referred to as Hyundai Amco herein, got

into a contract with Hyundai Motor America, Inc as their general building contractor for the

construction of the headquarters in the United States. S3H, Inc. was a subcontractor of Hyundai

Amco, which was meant to serve design and construction services. Hyundai Amco served as

general building contractor for construction of the United States headquarters of Hyundai Motor

America, Inc. The subcontract included a California choice of law provision and an arbitration

provision.

Four months after starting the project on May 15, 2013, S3H communicated to Hyundai

Amco its business dissolution and abandonment of the work. S3H was accused by Hyundai

Amco of a breach in its contractual obligations agreed upon by both parties and demanded cure

in a letter served to S3H on May 21, 2013. Hyundai Amco further proceeded to file suit against

S3H and related parties in the California state Court on June 28, 2013. S3H sought to compel

arbitration in accordance to the Code of Civil Procedure 1281.2. In their denial for the motion,

the trial court reasoned that there was failure to allege that S3H had demanded arbitration and in

return Hyundai Amco refused. S3H appealed in the Fourth Appellate District court.

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Decision of the Appellate court

The Fourth Appellate court held that the State Court erred in making the conclusion that

S3H motion to compel arbitration required to be denied by Hyundai Amco for failure to fulfill

the requirements of Civil Procedure 1281.2. Therefore, the decision by the state Court was

reversed.

According to the court’s observation, the requirements of 1281.2 require that a party

seeking a court order for arbitration must show that the arbitration has a written agreement, and

that there was refusal to arbitrate a dispute by the other party. The appellate court cites the

Mansouri V Superior Court (1) (2010) case law, where the Third Appellate District held that a

party that would compel an arbitration agreement must prove that a written agreement exists, as

well as that there was a demand for arbitration that the other party refused. This was the basis for

trial court’s decision to deny the motion to compel arbitration by S3H since it did not meet the

burden of proof as declared under Mansouri (1). According to the Appellate court, that was

wrong. By its plain language, the Civil Procedure 1281.2 requirement is that a party with a

motion to compel arbitration should allege “the existence of a written agreement to arbitrate a

controversy and that a party thereto refuses to arbitrate such controversy.” The procedure to

enforce arbitration agreements does not require that the petitioning party make a demand for

arbitration. The only requirement according to Section 1281.2 is that the other party has refused

arbitration. The court was clear and put emphasis that refusal of arbitration can happen even

when there is no formal demand made (Hyundai Amco America, Inc.v.S3H, Inc. 2014).

As such, in this case, there was no requirement for S3H to make a formal arbitration

demand since filing of a suit by Hyundai Amco invoked the procedures and protections of the

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court, which meant that this was an effective refusal to arbitrate as provided in the written

arbitration agreement. To this end, S3H met its Section 1281.2 burden of proof. As a

clarification, the Appellate court declared that it was not in disagreement with Mansouri (1) in

the context of that case’s presentation of facts. To clarify, the petitioning party in Mansouri (1)

sought to compel arbitration on different terms from the ones in the written agreement that the

parties consented to. On the contrary, Hyundai Amco’s filing of suit in this case was rooted from

a controversy emanating from the contractual performance of the parties involved. Under the

facts, this was sufficient to establish refusal by Hyundai Amco to arbitrate (Hyundai Amco

America, Inc.v.S3H, Inc. 2014).

The appellate court sent the case back to the trial court to determine whether a stay on

litigation should be granted pending arbitration.

Further action(s) by the parties

There is no documented further action by the parties. The ruling by the Appellate court,

however, meant that the motion to compel arbitration was successful, which means that the court

gave pause to litigation actions. Therefore, it is likely that the parties sought relief under the

written agreement that contained the provision for arbitration.

Commentary

Opinion of the case

The case brings up necessary allegations in order to file a motion to compel arbitration.

The two important allegations that the petitioner should allege are existence of a written

agreement and refusal of a party to the agreement to arbitrate. Indeed, Hyundai Amco and S3H

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had a written agreement that provided for arbitration incase of any dispute. Therefore, Hyundai

Amco should have commenced with arbitration as stipulated in the contract, rather than filing a

suit. A suit should have only have come up if either party demanded for arbitration as provided

in the written agreement and the other party refused to arbitrate.

S3H meets it burden by showing that all the requirements to compel arbitration are met. It

was wrong for the state Court to deny the motion; rather, it should have ordered the petitioner

and respondent to pursue arbitration. Indeed, it was right for the Appellate Court to reverse the

decision of the state Court that denied S3H the motion to compel arbitration. An agreement

containing provisions for arbitration should avoid seeking relief in state courts by filing actions.

Contract issues involved

a) Breach of contract

The controversy between Hyundai Amco and S3H that led to filing of the suit was

because Hyundai Amco alleged that the contract was breached. According to the Judicial

Education Center (2021), a breach of contract is described as failure to perform part or all forms

of the contract without a legal excuse. Failure also includes failure to perform in accordance to

the industry standards or requirements of warranty implied or expressed.

For Hyundai Amco, the allegations of breach of contract were rooted in the fact that, S3H

failed to perform as per the agreement of providing services for the mechanical systems in the

construction of Hyundai headquarters. Indeed, a contract existed in the agreement between

Hyundai Amco and S3H. The contract was not amended or modified that would allow S3H to

abandon its obligations to the agreement. This was a breach, which was material to the contract.

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Judicial Education Center (2021) asserts that when a breach is material, the breaching party

cannot perform part or the entire obligations of the contract.

b) Fraud by concealment

Hyundai Amco alleged fraud by concealment, which according to Cornell Law School

(2021) is failure of one party to disclose information to the other party. Fraudulent concealment

arises when one party has duty to disclose information, but intentionally hides it, especially in

instances where the other party’s decision would have been influenced by this information. It can

be argued that S3H intentionally hid information about its dissolution from Hyundai Amco. S3H

only executed its obligations of the contract for just four months and then communicated its

dissolution, hence termination of the contract. This could mean that S3H got into the contract

with hidden information.

c) Conversion

Conversion according to Lee (2009) is the unauthorized possession of another individuals

personal property, hence leading to curtailing possession by the owner. Essentially, this is

usually to the detriment of the rightful owner rather than benefit of the wrongful taker. It

originated from protection of personal property, but as Lee (2009) asserts, the protection has

extended to intangibles such as cheques, money, insurance policies, shares and guarantees. In

this case, S3H was provided payment to cover the sub-subcontractors for materials and services

up until March 2013. However, in their communication, S3H said that they had no intention of

paying for work done in March 2013, thereby taking possession of property meant for other

parties.

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 d) Equitable subrogation

Equitable subrogation is a doctrine in law that allows for damages or funds recovery from

a third party when a party has made payments for another party. This doctrine is meant to avoid

unjust enrichment (Bernhardt, 2013). In S3H accepting payment of $4.5 million dollars from

Hyundai Amco to pay its sub-subcontractors, and in turn choosing not to pay for the month of

March 2013, S3H simply wanted to unjustly enrich itself.

Prior actions the parties could have taken/made to settle the case before it went to court

There are a number of ways the parties could have handled the case. The parties had a

written agreement to arbitrate. Once Hyundai Amco was served with a letter that S3H was

dissolving the company and could not further fulfill its contractual obligations, this should have

been followed by another letter from SH3 for arbitration. On the other hand, Hyundai Amco

should have initiated the arbitration as provided in the written agreement by submitting a claim

to S3H of contentions the party is raising. A cure for the contentions should have been sought by

Hyundai Amco within the provisions of the written agreement. As such, before any court

indulgence, provisions of the written agreement should have been used by the parties to resolve

the dispute as at the time it arose. Arbitration should have been an inexpensive dispute resolution

alternative than opting for litigation.

What could have been done by whom in the past (or what could be done in the future) to avoid

problems of this nature?

The motion to compel arbitration would have been upheld by the Appellate Court if there

existed an express requirement in the written agreement that requires a party to make a demand

7
for arbitration. With such express requirement, S3H would have failed to meet its burden of

proof hence leading to denial of a motion to compel arbitration. While drafting the written

agreement, the legal departments can choose to include such express requirements. Otherwise,

the legal departments in companies should understand the specific language of Section 1281.2 as

declared and emphasized by the Appellate Court that the requirement is the other party has

refused to arbitrate; rather than requirement for a petitioner to have made a demand for

arbitration.

As such, the language in the written agreement could have avoided such a problem.

Going forward, the written agreement can also avoid such problems by expressly including any

other requirements. Otherwise, filing suits for cure under written agreements contained in

arbitration provisions will always lead to motions to compel arbitration.

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 Case II

Case title and number

T.C.B. Construction Company, Inc., v. W.C. Fore Trucking, Inc

Case No. 2010-CT-00177-SCT

Parties involved

Plaintiff and Respondent: T.C.B. Construction Company, Inc. (T.C.B)

Defendant and Appellant: W.C. Fore Trucking, Inc

Project Specifications

Name: Removal of debris to the north of Highway 53

Type: Subcontractor agreement

Contract Amount: Amount for debris north of Highway 53 at $8.90 per cubic yard

Location: Harrison County .

Case location and date

Location: Supreme Court of Mississippi.

Date: February 28, 2013

Case summary

Harrison County had been working with W.C. Fore Trucking, further referred to here as

W.C, and after Hurricane Katrina, the county extended the contract to remove debris from the

9
rights-of-way in the county. W.C subcontracted T.C.B Construction, Inc., further referred here

as T.C.B, to remove debris North of highway 53. T.C.B removed debris north of highway 53 and

later started removing debris to the south. As per the contract, all daily work tickets and invoices

were sent to W.C. W.C billed Harrison County for all the debris removed by T.C.B, but the

subcontractor was underpaid by $ 6,634,436.69 (T.C.B. Constr. Co. v. W.C. Fore Trucking, Inc.

2013).

W.C claimed that T.C.B’s geographical scope was only to the north of Highway 53 as

stipulated in the written subcontract. As such, according to W.C, the company had no duty to pay

for debris collection to the south of the highway. T.C.B countered this claim by arguing that W.C

had modified the contract orally, requiring T.C.B to expand the scope of work to the south too.

The dispute proceeded to trial and was heard by a jury, which found that indeed there was

contract modification between T.C.B and W.C in which the subcontract was amended to cover

the south and north areas. However, the jury ignored the express payment of $8.9 per cubic yards

and awarded T.C.B only half of what it was owed. T.C.B appealed.

The case proceeded to the Mississippi Court of Appeals. The court upheld the jury trial’s

decision that according to the law, the contact had been modified. Further, the court held that

damages should be awarded according to the contract’s rate of payment. Therefore,

compensatory damages were revised by the Court of Appeal to the right amount of $

6,634,436.69. However, T.C.B’s ongoing request of punitive damages to be submitted to the jury

was denied. The Court of Appeal ruled that W.C’s refusal to pay the full amount for work done

was not malicious. T.C.B appealed the punitive damages to the Mississippi Supreme

Court(T.C.B. Constr. Co. v. W.C. Fore Trucking, Inc. 2013).

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Court decision and ward given

The Mississippi Supreme Court held that the issue of punitive damages should be brought

to the jury’s attention. According to the court, the state law provides for instances where breach

of contract would lead to award of punitive damages. First, punitive damages can be awarded if a

defendant has acted maliciously. Second, if the defendant committed a wrong intentionally.

Third, is if the defendant’s actions were of gross disregard or was reckless in regards to the rights

of others. The focus that the Court of Appeal paid on the notion that W.C acted malicious led to

a favorable conclusion that it was a hard-line business position from W.C. However, the

Supreme Court shifted its focus to the notion that W.C as the contractor acted with gross

disregard of the rights of its subcontractor, T.C.B (T.C.B. Constr. Co. v. W.C. Fore Trucking,

Inc. 2013).

The Supreme Court was skeptical of the sincerity of W.C’s obliviousness to TBM

conducting debris removal south of the highway. In lieu of this, the court opined that W.C acted

in bad faith and that as the contractor, the company wanted to reap the benefits of the

subcontractor by denying its obligations. The court remanded the case Harrison County circuit

court where punitive damages were to be submitted to the jury.

Further action(s) by the parties

Once the case was remanded to the Harrison County Court, there is no documented

further action by the parties. The ruling by the Supreme Court, however, meant that T.C.B was

11
successful in convincing the court to consider punitive damages, which means that punitive

damage were to be presented to the jury in Harrison County circuit court.

Commentary

Opinion of the case

The subcontract between TBM and W.C was for debris removal to the North of Highway

53. Modification of the contract to remove debris to the south of the highway was however not

written but orally agreed to by the parties. There was no written contract either demanded by

T.C.B, or granted by W.C. However, an oral contract is binding and can be legally enforced. The

contractor, W.C could therefore not go ahead and deny knowledge of the additional work. The

oral contract was not only the binding agreement, but also the contractor, W.C, knew about the

work,

No written contract modification was ever requested or granted. W.C acted in bad faith

and wanted to unjustly enrich themselves at the expense of the subcontractor. Rightly put by the

Supreme Court, this is not only malicious, but also a disregard for the rights of the sub

contractor.

Contract issues involved

a) Breach of contract

A breach of contract is described as failure to perform contractual obligations in part or to

its entirety (Judicial Education Center, 2021). In this case, W.C failed to make payments for an

oral contract agreed to orally. The agreement was to pay $8.9 per cubic yard, but W.C, despite

12
receiving payment from the county failed to make a single payment to the subcontractor for

debris removal south of the Highway.

b) Compensatory damages

Compensatory damages, also referred to actual damages, are meant to cover loss incurred

due to breach of contract. The amount awarded is supposed to replace loss or make good due to

the breach (Merkin & Saintier, 2019). Since W.C breached the contract, compensatory damages

awarded by the Court of Appeals to TBM were meant to cover the actual cost of the contract that

was not paid. The compensatory damages in this case were meant to make good.

c) Punitive damages

Punitive damages, also referred to as exemplary damages, are awarded to ensure the

wrongdoer or one breaching a contract due to malicious intent, intention or disregard of rights of

another party is made an example of and punished. Different from compensatory damages that

make good or cover a loss, punitive damages intend to punish behavior and deter such behavior

from that party and others (Merkin & Saintier, 2019). In this case, the Supreme Court

established that W.C not only acted maliciously, but also disregarded the rights of TBM.

Therefore, the decision by the Supreme Court to remand the case for a jury trial to determine the

punitive damages was decided.

Prior actions the parties could have taken/made to settle the case before it went to court

During the court proceedings, there was no discussion of the subcontract provisions on

the modifications of the contract. Actually, there perhaps were not any. The contractor, W.C,

overly relied on the subcontractor’s geographical restriction even if the clause was not modified

in writing; therefore, there was no justification for allowing the subcontractor to continue

13
working for months south of the Highway and then spring a surprise by not paying. The moment

W.C started billing the county for T.C.B’s work done south of the Highway; the contract clause

should have been modified. W.C received full payment from the county by using T.C.B’s daily

work sheets, meaning the contractor had knowledge that T.C.B, the subcontractor was working

south of the Highway too. Instead of pocketing the proceeds and failure to pay T.C.B under the

circumstances was definitely invitation for suits. W.C should have amended the contract to

include debris removal south of the Highway and made the payments as agreed in the contract at

$8.9 per cubic yard.

What could have been done by whom in the past (or what could be done in the future) to avoid

problems of this nature?

The problems in this case came up because of lack of a written modification to a contract

and not honoring an oral contract. An oral contract is just as valid as a written contract. The

parties to an oral contract should recognize when the offer is made, acceptance regarding the

offer done and consideration that makes the oral contract legally binding. All this were met in

T.C.B. Constr. Co. v. W.C. Fore Trucking, Inc and W.C’s refusal to make payments based on the

written contract was malicious. Parties can avoid punitive damages by knowing when an oral

contract is made.

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 References

Bernhardt, R. (2013). Equitable subrogation: A sensible remedy but don't count on it. SSRN

Electronic Journal. https://doi.org/10.2139/ssrn.2227167

Cornell Law School. (2021). Fraudulent concealment and Misrepresentation. LII / Legal

Information Institute. https://www.law.cornell.edu/wex/fraudulent_concealment

Hyundai Amco America, Inc.v.S3H, Inc. (Court of Appeal, Fourth District, Division 3,

California December 14, 2014).

Judicial Education Center. (2021). Breach of contract — Judicial education center. Welcome —

Judicial Education Center. https://jec.unm.edu/education/online-training/contract-law-

tutorial/breach-of-contract

Kramer, M. (2020, November). Compelling arbitration. Advocate Magazine.

https://www.advocatemagazine.com/article/2020-november/compelling-arbitration

Lee, P. (2009). Inducing breach of contract, conversion and contract as property. Oxford

Journal of Legal Studies, 29(3), 511-533. https://doi.org/10.1093/ojls/gqp012

Merkin, R., & Saintier, S. (2019). 9. Damages for breach of contract. Poole's Textbook on

Contract Law, 343-412. https://doi.org/10.1093/he/9780198816980.003.0009

T.C.B. Construction Company, Inc. v. W.C. Fore Trucking, Inc. (The Supreme Court of

Mississippi February 28, 2013).

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Appendix A

16
Appendix B

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