## Facts

- Watson Construction Co., a general contractor on a state hospital project, entered two written subcontracts with Ervin F. Palmer (Palmer Landscaping and Grading) for excavation, backfilling, and related work.
- The subcontracts required Watson to pay Palmer for work “as far as executed and fixed in place,” less a retained percentage, and required Palmer to complete work as the job progressed while providing sufficient equipment.
- The contracts did not specify a binding method to resolve disputed excavation quantities for progress payments in the absence of an architect’s certification.
- Palmer submitted a progress statement claiming excavation of 19,400 cubic yards at a unit price; Watson disputed the yardage and tendered payment for substantially fewer cubic yards, less retainage.
- The parties disputed whether Palmer’s excavation exceeded requirements due to improper slopes (Watson’s position) or complied with job stakes/markers that Palmer claimed were set or left uncorrected by Watson’s personnel (Palmer’s position).
- After Watson refused to pay using Palmer’s higher quantity figures, Palmer stopped work and sued for amounts allegedly due, retainage, and damages including anticipated profits on unperformed work.
- Watson counterclaimed, alleging Palmer defaulted and failed to perform; a jury awarded Palmer roughly $9,000, including anticipated profits, and the trial court denied Watson’s post-trial motions.

## Issues

1. Whether a contractor’s refusal to pay a disputed progress payment based on the subcontractor’s quantity calculation justified the subcontractor’s cessation of work as a response to breach.
2. Whether the subcontractor could recover anticipated profits on unperformed work absent proof that the contractor’s conduct prevented performance or constituted a total breach.
3. Whether jury instructions regarding the legal significance of survey stakes and “lack of protest” improperly removed key factual questions and required a new trial.

## Decision

- The Minnesota Supreme Court reversed the order denying a new trial and remanded for a new trial.
- The court held the jury was materially misinstructed on the effect of stakes “left standing without protest,” which could have led the jury to impose liability without deciding who set the stakes, what they meant, and whether they reflected Watson’s directions.
- The court held the record did not support awarding Palmer anticipated profits on the theory that Watson’s refusal to pay the disputed progress amount wrongfully prevented Palmer’s performance.

## Legal Principles

- In a construction subcontract, nonpayment of a disputed progress installment, standing alone, ordinarily does not constitute repudiation or prevention of performance sufficient to justify abandonment and recovery of anticipated profits.
- Anticipated profits for unperformed contract work require (1) a breach that excuses further performance because it actually prevents performance or amounts to a total breach, and (2) proof of profits with reasonable certainty.
- Jury instructions in technical quantity/direction disputes must not imply liability from simplified presumptions (e.g., stakes remaining without protest) where critical factual determinations remain contested; prejudicial misdirection warrants a new trial.

## Conclusion

The court ordered a new trial because the jury instructions on excavation stakes improperly suggested liability without resolving central factual disputes, and because a good-faith progress-payment dispute did not, on the record presented, justify contract abandonment or an award of anticipated profits.


Palmer v. Watson Constr. Co., 121 N.W.2d 62 (Minn. 1963)