Denbury Onshore, LLC v. Precision Welding, Inc.

Mississippi Supreme Court
98 So. 3d 449 (2012)

ELI5:

Rule of Law:

An oral contract for services that does not specify a definite duration, a set number of hours, or a fixed scope of work is considered a contract for an indefinite period and is terminable at will by either party upon providing reasonable notice. The determination of a contract's terms must be based on objective evidence of the parties' conduct, not on their subjective beliefs or expectations.

Facts:

From 2002 to 2006, Precision Welding, Inc. provided construction services almost exclusively for Denbury Onshore, LLC under an oral agreement.
The arrangement stipulated that Precision would be paid by the hour for its labor and equipment, and the parties never discussed or contemplated a specific end date for the work.
In 2005, Precision submitted a successful "time-and-materials" bid, based on hourly rates, for the construction of Denbury's Barksdale Plant project.
During a 2006 audit, Denbury discovered that Precision had given gift cards to Denbury employees, which violated Denbury's internal ethics policy.
Precision's president, Mike Dickerson, refused multiple requests from Denbury's auditors to provide the names of the employees who had accepted the gift cards.
In July 2006, Denbury terminated its relationship with Precision while the Barksdale Plant project was partially completed.

Procedural Posture:

Precision Welding, Inc. sued Denbury Onshore, LLC in a Mississippi circuit court for breach of contract and other claims.
The trial court denied Denbury's pre-trial motion for summary judgment, in which Denbury argued the contract was terminable at will.
The case proceeded to a jury trial, where the trial court also denied Denbury's motions for a directed verdict made at the close of Precision's case and at the close of all evidence.
The jury returned a verdict for Precision, awarding it $1,500,000 in damages.
Denbury, as the defendant, filed a post-trial motion for judgment notwithstanding the verdict (JNOV) or for a new trial, which the trial court denied.
Denbury, as appellant, appealed the denial of its post-trial motions to the Supreme Court of Mississippi.

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Issue:

Does an oral contract for services at an hourly rate, which lacks a specific duration or a definite scope of work, constitute a contract for an indefinite period that is terminable at will by either party?

Opinions:

Majority - Dickinson, P.J.

Yes, an oral contract for services at an hourly rate without a specific duration or scope of work is a contract for an indefinite period and is therefore terminable at will. The court must apply an objective standard to determine the terms of a contract, looking to the parties' external conduct rather than their subjective beliefs. The agreement, including the "time and materials" bid, was for hourly labor at specified rates, not a fixed contract to complete the entire Barksdale Plant. Because the contract did not obligate either party to a definite amount of work or a specific time period, it was indefinite in duration. Citing precedent like American Chocolates, Inc., contracts for an indefinite period are terminable at will by either party upon reasonable notice. The trial court erred by allowing the jury to decide if the contract was terminable at will, as it should have been determined as a matter of law. The case is therefore reversed and remanded for a new trial limited to the factual issue of whether Denbury provided Precision with reasonable notice of termination and, if not, the damages proximately caused by that failure.

Dissenting - King, J.

No, the contract was not terminable at will as a matter of law, and the jury's verdict should be affirmed. The dissent argues that the contract was not indefinite because its scope was the completion of the Barksdale 1 project, and its price was the accepted bid for labor and materials. Under Mississippi law, when no time for performance is given, a reasonable time is inferred, making the contract sufficiently definite. Furthermore, the dissent contends that the majority's remand is unnecessary because the trial court's jury instructions already required the jury to consider whether Denbury provided "reasonable notice" if it found the contract was terminable at will. The jury could have plausibly found the contract was terminable at will but that the notice given was unreasonable, which would support its verdict for Precision.

Analysis:

This decision reinforces the objective theory of contract law in Mississippi, emphasizing that courts will enforce terms based on external conduct and express agreements, not on a party's subjective hopes or expectations. It solidifies the legal distinction between "time and materials" contracts and "fixed-price" contracts, establishing that the former, without a specified duration or scope, creates an at-will relationship as a matter of law. The ruling limits a jury's role in such cases to determining the reasonableness of termination notice, rather than the fundamental at-will nature of the contract itself. This precedent makes it more difficult for contractors in informal, ongoing relationships to claim breach for early termination unless they can produce objective evidence of a definite duration or scope of work.

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