IN THE COURT OF COMMON PLEAS FOR THE STATE OF
DELAWARE IN AND FOR NEW CASTLE COUNTY

SLH General Contractor, Inc.,
Plaintiff-Below/ Appellant
Case No. CPU4-19-001661

Vv.

AMBIENCE INC.,,

MY NL ON ON Oe ON Ne

Defendant-Below/ Appellee.

Submitted: December 17, 2020
Decided: March 4, 2020

Donald L. Gouge, Esq. James J. Haley, Esq.
800 N. King Street, Suite 303 Ferrara & Haley
Wilmineton, DE 19801 1716 Wawaset Street
Attorney for Wilmington, DE 19806
Plaintiff-Below/ Appellant Aittorney for

Defendant-Below/ Appellee

DECISION AFTER TRIAL
This matter is an appeal de xovo brought pursuant to 10 Ded C. § 9570 ev. seq. from
a Justice of the Peace Court decision dated Match 29, 2019. Plaintiff-Below/ Appellant
SLH General Contractor, Inc. (““SLH”’) timely filed a notice of appeal and complaint
with this Court on April 10, 2019, alleging that Defendant-Below/ Appellee Ambience
Inc. (“Ambience”) breached an agreement between the parties and, as a result, SLH

suffered damages in the amount of $10,800.00.
A bench trial was held on November 17, 2019. At trial, the Court heard
testimony from five witnesses. ‘The following witnesses testified during SLH’s case-in-
chief: Ernest Shepherd, co-founder/owner of Ambience; Beth Ferguson, an
administrative employee of Ambience; Shawn L. Harrison, a general contractor, and;
Shaunda Harttison, a property manager for Shawn L. Harrison Enterprises Inc.
(“Harrison Enterprises”). The following witnesses testified for the defense: John
Behornar, a plumbing and mechanical plan examiner for the New Castle County
Department of Land Use; Aaron Pricket, a New Castle County code enforcement
officer, and Ernest Shepherd. Documentary evidence was submitted by both patties.
At the conclusion of trial, the Court reserved decision. This is the Court’s Final
Decision and Order.

The parties agree that a contract existed, pursuant to which Ambience was to
perform HVAC work at SLH’s rental property. The parties agree that various events
resulted in the project being delayed. The issues before the Court ate whether and at
what point a material breach occurred, and whether the injured party is entitled to
damages as a result.

FACTS

Based on the testimony presented at trial and exhibits admitted into evidence,
the Court finds the following relevant facts:

The events culminating in this litigation occurred between November 2017 and

May 2019. By the start of that period, Ambience, an HVAC company, had an

2
established working relationship with Harrison Enterprises, a property management
company, dating back a few years. On November 13, 2017, at the request of Hartison
Enterprises, Ambience agreed to perform HVAC work on a property owned by SLH,
located at 25 South Street in New Castle, Delaware (the “South Property”), for a fee of
$3,600 (the “Agreement”).! It was customaty for Ambience to be paid after work was
complete, but in this instance, Ambience was pre-paid in full on November 17, 2017.

The terms of the Agreement were not memorialized in a formal written contract;
rather, Ambience issued an invoice to Harrison Enterprises that broadly described the
work to be performed.’ Pursuant to the Agreement, Ambience was required to obtain
a permit from New Castle County Department of Land Use (the “County”), supply and
install a gas furnace, install a gas line, repair any leaks, and complete the gas test with
the County and, once all such work was completed, conduct a final inspection with the
County. By all accounts, the parties did not specify a time by which this work was to
be completed.

On December 11, 2017, Hartison Enterprises instructed Ambience to delay
work on the South Property for “a week or two” because it was “dealing with an issue
there.”* Meanwhile, Hatrison Enterprises proceeded to enter a rental lease agreement

with a tenant, whereby the tenant agreed to rent the South Property at a rate of $900

 

' PL. Ex. 1, Tab 1.
* Id.
* Ta.

* Pl. Ex. 1, Tab 4.
per month for a petiod of 12 months (the “Rental Lease”).” The Rental Lease was
dated December 15, 2017—only a few days after Ambience had been instructed to
delay wotk—but the term of the lease was to commence two weeks later, on January 1,
2018.°

On December 22, 2017, Hartison Enterprises informed Ambience that it could
proceed with the inspection.’ Ambience advised that such would not occur until the
New Year; Harrison Enterprises assented to that timetable? Acting earlier than
projected, on December 29, 2017, Ambience submitted an application for a permit to
the County,’ and subsequently informed Harrison Enterprises that it could “take a
couple weeks” for the permit to be issued."®

At some point in January 2018, Ambience notified Harrison Enterprises that the
County would not issue a permit due to outstanding property taxes on the South
Property. On January 30, 2018, Harrison Enterprises made two property tax payments
on the South House.”

On Match 4, 2018, a few weeks after Harris Enterprise’s email advising that the

taxes had been paid,'* Ambience notified Harrison Enterprises that unpaid property

 

Pl. Ex. 1, Tab 3.
Id.

Pl. Ex. 1, Tab 4.
Id.

Def. Ex. 2.1.

10 PL. Ex. 1, Tab 4.
"Def. Ex. 1.1.

2 PL Ex. 1, Tab 2.

CSC em I Dw
taxes remained outstanding, and the County would not let Ambience proceed with the
permit until all property taxes were paid.’? A month later, on April 5, 2018, Harrison
Enterprises made a payment satisfying all outstanding property taxes.'*

On May 9, 2018, Ambience advised that, due to recent litigation regarding its
company name, it could not obtain the permit until the company name was changed.
Ambience indicated that the issue would be resolved and the permit would be pulled
“soon.” The following week, on May 17, 2018, the County received payment from
Ambience for the permit fee; however, a permit was not issued at that time."

On June 11, 2018, Harrison Enterprises again reached out to Ambience for a
status update.'’ Ambience apologized, and indicated that it had not been able to go to
the County due to limited employee availability at that time, but assured Harrison
Enterprises that obtaining the permit would be taken care of as soon as possible."*

The permit was finally issued on June 13, 2018.” The permit was valid for three
months, expiring in mid-September.” After the permit was issued, Ambience

commenced work on the South Property, installing a gas line and new furnace. Once

 

B PL Ex. 1, Tab 4.
4 Def. Ex. 1.1.
Ppl. Ex. 3.

16 Def. Ex. 1.2.
Pl. Ex. 1, Tab 4.
18 Id,

Def. Ex. 2.3.

20 Td.
the gas line and furnace were installed, Ambience was required to conduct a gas test
with the County before proceeding to the final inspection.

On August 13, 2018—toughly two months after the permit was issued, and
nearly one month before the permit would expire—Harrison Enterprises inquired as to
when the work on the South Property would be complete.*"_ Ambience advised that it
hoped to have the gas test scheduled the following week.” Indicating some reservation,
Harrison Enterprises responded that it was working on other properties in New Castle
County, and that an “inspector always comes out within 1-2 days max.”* Ultimately,
the gas test went forward just a few days after this exchange, on August 16, 2018.
That same day, Ambience advised that Harrison Enterprises was required to install a
gas meter and louver doots before the final inspection could be scheduled.” Harrison
Enterprises responded that it understood the requirements.”

On August 30, 2018, Harrison Enterprises notified Ambience that the South
Property was teady for final inspection.”’ The next day, Ambience advised that the final
inspection was scheduled for the County’s earliest available date on September 7,

2018;78 however, the final inspection did not go forward as scheduled because Harrison

 

1 Pl. Ex. 1, Tab 4.
2 Ta.

3 Id.

4 Def. Ex. 1.2.

% Pl. Ex. 1, Tab 4.
26 Id,

27 Td.

28 Id.
Enterprises had failed to install the gas meter, without which the final inspection could
not be completed.

The amicable relationship between Harrison Enterprises and Ambience became
inimical on Septembet 19, 2018. Harrison Enterprises sent a text message to Ambience
letting it know that the gas meter had been installed.” In response, Ambience asserted
that it would not proceed with the final inspection at the South Property until Harrison
Enterprises paid the balance on an outstanding invoice for work Ambience had
performed on another, unrelated property.” Replying, Harrison Enterprises asserted
that it did not “own or have anything to do with” that property, and noted that it had
“missed almost a yeat of rent” on the South Property.*' Harrison Enterprises further
stated that it had already made payment for the work on the South Property, and
indicated that it would contact its attorney regarding the matter.’ At that point,
Ambience ceased all communications with Harrison Enterprises.

On November 2, 2108, SLH filed suit against Ambience in the Justice of the
Peace Court. On March 29, 2019, the Justice of the Peace Court entered a Decision
and Order, finding in favor of Ambience and dismissing the case with prejudice.

Thereafter, Ambience reached out to Harrison Enterprises indicating that it would

 

29 Td.
30 Td.
31 Td.
schedule the final inspection on the South Property.’ The final inspection was
completed on May 13, 2019.4
PARTIES’ POSITIONS

It is SLH’s position that Ambience failed to timely perform the agreed-upon
HVAC work, which constituted a material breach of the Agreement and, as a result,
SLH suffered damages in the amount of $10,800 in lost rental income commencing
January 1, 2018.*° Ambience contends that any delay in completing the HVAC work
was attributable to Harrison Enterprises, and that SLH failed to mitigate damages after
the relationship between Harrison Enterprises and Ambience dissolved in September
2018. Ambience further argues that SLH failed to prove damages in the amount sought
in that the property was uninhabitable when Ambience completed the final inspection
in May 2019, and remained uninhabited for months thereafter.

DISCUSSION

To prevail on a claim for breach of contract, the plaintiff must prove, by a

pteponderance of the evidence, that: (1) a contract existed between the parties; (2)

breach by the defendant of an obligation imposed under the contract; and (3) damages

 

33 Pl. Ex. 1, Tab 2.

* Def. Ex. 1.2.

* Tn its complaint, SLH seeks $10,800 in damages. At trial, SLH alleged varying damages figures,
ranging from $14,400 to $15,300. For the reasons discussed infra, the Court need not reconcile
the inconsistencies in the sum of damages sought by SLH.

8
to plaintiff resulting from that breach.” As the finder of fact in a bench trial, the Court
must weigh the credibility of witnesses and resolve the conflicts in their testimony.”’
a. SLH Is An Intended Third-Party Beneficiary

As an initial matter, although SLH framed its legal claim as a direct breach of
contract action, no evidence was adduced at trial to prove that a contract existed
between SLH and Ambience; rather, the undisputed contract upon which SLH’s claim
is based was strictly between Ambience and Harrison Enterprises.» Generally, only
parties to a contract have standing to sue when the contract is breached; however,
Delaware law permits a third-party to recover where the parties to the underlying
contract intended to confer a benefit to that thitd-party.”” Thus, SLH can recover under
the Agreement only if it was an intended third-party beneficiary.

A third-party’s tight to recover contractual damages turns on the intent of the
contracting parties.” “To create third party beneficiary rights, a contract should confer
an intended benefit on the third patty, and the conferral of such benefit must be a

material part of the contract's purpose.””*' Where the benefit to the third-party was not

 

36 VLIW Techn., LLC v. Hewlett Packard Co., 840 A.2d 606, 612 (Del. 2012); Interim Healthcare, Inc. v.
Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).

7 See Johnson v. State, 929 A.2d 784 (Del.2007) (TABLE); In re 2004 Farley Davidson VIN No.
1VF9FV31A84R1 16374, 2011 WL 601440, *3 (Del. Super. Feb. 2, 2011); Pencader Associates, LLC
v. Synergy Direct Mortgage Inc., 2010 WL 2681862, *3 (Del. Super. June 30, 2010).

8 See Pl. Ex. 1.

° Willis v. City of Reboboth Beach, 2004 WL 2419143, *1-2 (Del. Super. Oct. 14, 2004); De/mar News,
Ine. v. Jacobs Oil Co., 584 A.2d 531, 534 (Del. Super. 1990).

40 Td.

“| Greater New York Mut. Ins. Co v. Travelers Ins. Co, 2011 WL 4501207, at *3 (D. Del. Sept. 28, 2011).

9
contemplated and was merely fortuitous, such third-party will not be conferred rights
under the contract.” Whether a third-party was an intended beneficiary is “essentially
a question of interpretation.’”’” It is not essential for the third-party to be specifically
named in the contract; rather, intent to benefit the third-party can be inferred.“

Here, it is clear that the parties to the Agreement (Harrison Enterprises and
Ambience) intended to confer a benefit to SLH, and that such intended benefit was
material to the Agteement. ‘The very purpose of the Agreement was to provide HVAC
work at the South Property that, to the knowledge of all, was owned by SLH. I find
that SLH is a third-party beneficiary, and thus has the right to pursue a claim for breach
of the Agreement.

b. Material Breach

The existence of the Agreement between Ambience and Hattison Enterprises is
not disputed. The issue, then, is whether and at what point there was a material breach
of the Agreement. A party will be excused from performance under a contract if the
other party materially breaches the contract.” Inversely, a slight breach by one patty

does not necessarily extinguish the injured party’s obligation to perform under the

 

2 Delmar News, Inc., 584 A. 2d at 535.

® Willis, 2004 WL 2419143, at 2.

“See id.; Greater New York Mut. Ins. Co., 2011 WL 4501207, at *2-3.

© Preferred Investment Services, Inc.. v. T C H Bail Bonds, Inc. 2013 WL 3934992 (Del. Ch. July 24, 2013);
Commonwealth Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL 2567916, *19 (Del.
Super. Aug. 31, 2006) (“performance under a contract is justifiably excused when the other party
to the contract commits a material breach”).

10
contract.” “[W]hether the breach is of sufficient importance to justify non-performance
by the non-breaching party is one of degree and is determined by weighing the
consequences in the light of the actual custom of men in the performance of contracts
similar to the one that is involved in the specific case.”*”
In determining whether a breach is material, Delaware courts consider the
following factors, as set forth in the Restatement (Second) of Contract, § 241:
(a) the extent to which the injured party will be deprived of the benefit
which he reasonably expected; (b) the extent to which the injured party
can be adequately compensated for the part of that benefit of which
he will be deprived; (c) the extent to which the party failing to perform
or to offer to perform will suffer forfeiture; (d) the likelihood that the
party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable
assurances; and (e) the extent to which the behavior of the party failing

to perform or to offer to perform comports with standards of good
faith and fair dealing.*

In the present case, both parties argue, in essence, that the other breached the
contract first, thereby justifying non-performance. Certainly, both patties were not fully
compliant in satisfying their contractual duties. Harrison Enterprises breached its
implicit obligation to render the South Property free of any encumbrances that would

hinder the issuance of the permit. Ambience breached the contract by failing to

 

“6 Td.; see also Simon-Mills I, LLC v. Kan Am USA XVI Limited Partnership, 2017 WL 1191061, *29
(Del. Ch. March 30, 2017), Daystar Const. Management, INc. v. Mitchell, 2006 WL 2053649, *7 (Del.
Super. July 12, 2006).

*'  Biolsfe Solutions, Inc. v. Endocare, Inc., 838 A.2d 268, at 278 (Del-Ch.2003) (quoting EZastern Elec. and
Heating, Inc. v. Pike Creek Professional Center, 1987 WL, 9610, *4 (Del. Super. April 7, 1987)).

‘8 Restatement (Second) of Contracts § 241 (1981); see BioLsfe Solutions, 838 A.2d at 278; Carey v. Estate of
Myers 2015 WL 4087056, *20-21 (Del. Super. July 1, 2015); eCommerce Industries, Inc. v. MWA
Intelligence, Inc., 2013 WL 5621678, *13-14 (Del. Ch. Sept. 30, 2013).

11
diligently pursue the permit from the County. However, such breaches were minor,
especially when considered in the context of the parties’ course of dealings. It is clear
from the evidence presented that delays wete pat for the coutse in transactions between
Harrison Enterprises and Ambience. Furthermore, regarding the South Property,
neither patty expressed concern with the delays until August 13, 2018, at which time
Harrison Enterprises ostensibly indicated skepticism regarding the anticipated
timeframe for scheduling the gas test. Notably, the gas test did go forward within a few
days as Harrison Enterprises envisioned.

However, the mutual minor breaches gave way to a material breach of the
Agteement by Ambience when it refused to proceed with the final inspection in
September 2018. At that point, Ambience effectively abandoned the project, and by
evety indication did not intend cure its failure to perform. I find that this breach was
not made in good faith. Harrison Enterprises indicated that the unpaid invoice was
from a property unrelated to SLH, yet Ambience made no effort to engage in resolution
of the issue, and instead ceased all communication with Harrison Enterprises.

Considering the factors delineated in Section 241 of the Restatement (Second)
of Contracts, I find that Ambience’s refusal to proceed with the final inspection was a
material breach of the Agreement. As third-party beneficiary, SLH is entitled to recover

for damages consequent to Ambience’s material breach.

12
c. Damages

SLH’s burden as to damages hinges on whether the damages it seeks to recover
are considered direct or consequential.” ‘The principal distinction between direct and
consequential damages is the degree of foreseeability.°° Direct damages are those
intrinsic to the breach, which “necessarily and naturally [result] from the wrongful act
ot omission.’”*' Consequential damages, also known as special damages, “are those that
result naturally but not necessarily from the wrongful act, because they require the
existence of some other contract or relationship.”

Lost profits may properly be categorized as direct damages or consequential
damages, depending on their nature.” Profits lost on the underlying contract itself are
considered direct damages.** Conversely, profits lost on other tangential contracts are
considered consequential.° In eCommerce Industries, Inc. v. MWA Intelhgence, Inc., the

Court of Chancery adopted the Second Circuit’s methodology and held that:

“lost profits are considered consequential damages when “as a result of
the breach, the non-breaching party suffers loss of profits on collateral

 

® Pharmaceutical Product Development, Inc. v. TMB Life Science Ventures VI, L.P., 2011 WL 549163, *6-7
(Del. Ch. Feb. 16, 2011).

50 Td.

Twin Coach Co. v. Chance Cought Aircraft, Inc., 52 Del. 588, at 603 (Del. Super. 1960).

°° Bonanza Restaurant Co. v. Wink, 2012 WL 1415512, at * 3 (Del. Super. April 17, 2012); eCommerce
Industries, Inc. 2013 WL 5621678, at *47 (“Black's Law Dictionary defines consequential damages
as ‘losses that do not flow directly and immediately from an injurious act but that result indirectly
from the act”); Twin Coach Co, 52 Del. 588, at 603 (Del. Super. 1960) (defining special damages
as “those which are the actual, but not the necessary, result of the injury complained of, and which
in fact follow it as a natural and proximate consequence in the particular case, that is, by reason of
special circumstances or conditions’).

eCommerce Industries, Inc., 2013 WL 5621678, at *47.

54 Td.

°° Td.

13
business arrangements’. By contrast, lost profits are not considered
consequential damages when ‘profits are precisely what the non-
breaching party bargained for, and only an award of damages equal to
lost profits will put the non-breaching party in the same position he
would have occupied had the contract been performed.”

The lost rental income SLH seeks to recover stemmed from the Rental Lease,
which was collateral to the Agreement and in no way represented what the parties to
the Agreement bargained for. Accordingly, I find that the lost rental income falls within
the definition of consequential damages. As such, SLH 1s entitled to recover reasonably
cettain consequential damages,*’ provided that SLH properly mitigated damages.

It is well-established under Delaware law that the measure of damages 1s
attenuated by the principle that the injured party is required to mitigate damages,
regardless of whether mitigation is expressly prescribed in the underlying contract.”
The injured party’s duty to mitigate commences after the offending party materially
breaches the contract.”

Here, SLH’s obligation to mitigate damages was triggered when Ambience

materially breached the agreement on September 13, 2018. At that time, the only work

outstanding was scheduling and completing the final inspection with the County. At

 

°° Id. (quoting Tractebel Energy Marketing v. AEP Power Marketing, 487 F.3d 89 (2d Cir.2007)).

> See Donald M. Durkin Contracting, Inc. v. City of Newark, 2008 WL 952984 at *2 (D.Del. Apr. 9,
2008).

8 Hanner v. Rice, 2000 WL 303458 (Del. 2000); NAMA Holdings, LLC v. Related WMC LLC, 2014
WL 6436647, *25 (Del. Ch. Nov. 17, 2014); EL. du Pont de Nemours ¢ Co. v. Alistate, 686 A.2d 152,
156 (Del.Super.1996).

See id.; NASDI Holdings, LLC v. North American Leasing, Inc., 2019 WL 1515153, *7 (Del. Ch. April
8, 2019).

14
trial, Shaun Harttison, a general contractor himself, testified that Harris Enterprises
made no effort to hire a new contractor to finish the final inspection because it was
“iHegal” to do so. However, John Behornar, an employee of the County, testified that
the contractor changes are not prohibited and, in fact, the County has a change of
contractor procedure in place. I find the testimony of Mr. Behornar to be credible, and
hold that SLH had a duty to mitigate damages by retaining a new contractor to perform
the final inspection. Accordingly, SLH’s recovery shall be limited damages it would
have received had it satisfied its duty to mitigate.

Although consequential damages need not be demonstrated with mathematical
precision, damages cannot be speculatively estimated; the burden is on the plaintiff to
“Jay a reasonable foundation by which the Court may estimate their loss.”® ‘To that
end, “a plaintiff may not recover damages for loss of income tortiously caused without
providing the trier of fact with “some reasonable basis upon which a jury may estimate

with a fair degree of certainty the probable loss which the plaintiff will sustain.”

 

°° LaPoint v. AmerisourceBergen Corp., 2007 WL 2565709, at *9 (Del. Ch. Sept. 4, 2007); see Preferred
Investment Services, Inc. v. T ¢ H Bail Bonds, Inc., 2013 WL 3934992, at *25 (Del. Ch. July 24, 2013).
°! Moody v. Nationwide Mut. Ins. Co., 549 A.2d 291 (Del. 1988); see eCommerce Industries, Inc. 2013 WL.
5621678, at *19 (“A plaintiff must prove its damages ‘with a reasonable degree of precision and
cannot recover damages that are ‘merely speculative or conjectural”’),; Pharmathene, Inc. v. SIGA
Tech., Inc, 2010 WL 4813553, at *11 (Del. Ch. Nov. 23, 2010)( “Under Delaware law, a plaintuff
can only recover those damages which can be proven with reasonable certainty”); Cal/ahan v. Rafail,
2001 WL 283012, at *1 (Del. Super. March 16, 2001)(““No recovery can be had for loss of profits
which are determined to be uncertain, contingent, conjectural or speculative”); LaPoint, 2007 WL
2565709, at *9 (“plaintiffs must show that the injuries suffered are not speculative or uncertain,

and that the Court may make a reasonable estimate as to an amount of damages”); Cura Financial
Services NV. v. Electronic Payment Exchange, Inc., 2001 WL 1334188, at *19 (Del. Ch. Oct. 22, 2001).

15
Here, SLH has not provided any reasonable basis by which damages could be
estimated with a fair degree of certainty. SLH had opportunity to present evidence
establishing the time and cost investment of retaining a new contractor to finish the
final inspection. No such evidence was presented, leaving the Court, as the finder of
fact, without any barometer by which damages could be measured. Accordingly, the
Court has no basis to award damages to SLH.

CONCLUSION
For the foregoing reasons, judgment is entered in favor of Defendant-

Below/ Appellee Ambience Inc. Each party shall bear its own costs.

Ay J fp.

f ies) pmalls,
ue! Judge

IT IS SO ORDERED.

16
