## Facts

- Transportation & Transit Associates, Inc. (TTA) regularly performed subcontract work for Morrison Knudsen Corp. (MKC) in railcar manufacturing and repair.
- In 1993, the parties settled a dispute through a contract requiring MKC, over five years, to award TTA at least $15 million in work, distributed as evenly as reasonably possible.
- The contract provided for proportional reduction of the $15 million commitment if MKC lost current railcar projects without offsetting projects of similar value.
- The contract also stated that if MKC breached the “future work” commitment, MKC would pay liquidated damages equal to 10% of the “unawarded contract sum,” citing difficulty in estimating TTA’s harm.
- The contract further promised to treat TTA as a “most preferred vendor” for other work during the same five-year period.
- After substantial business losses, MKC divested its transit division to American Passenger Rail Car Co., LLC (Amerail), and delegated to Amerail MKC’s obligations to TTA without obtaining TTA’s consent to release MKC.
- Amerail awarded TTA some work but not enough to satisfy the contract’s minimum commitment.
- TTA sued MKC and Amerail in federal court under diversity jurisdiction; Amerail defaulted.
- On cross-motions for summary judgment, the district court held MKC liable for failing to meet the future-work award value, rejected liability based on the “most preferred vendor” clause, and entered judgment (based on stipulated damages) for about $863,000 plus about $74,000 prejudgment interest.
- MKC appealed the liability and money judgment; TTA cross-appealed regarding the “most preferred vendor” ruling and prejudgment interest.

## Issues

1. Whether MKC’s delegation of performance to Amerail, without TTA’s consent, discharged MKC’s contractual liability for Amerail’s nonperformance.
2. How the contract’s proportional-reduction term for loss of projects affected MKC’s $15 million future-work obligation after MKC’s downturn and divestiture.
3. Whether the 10% “unawarded contract sum” provision was an enforceable liquidated-damages clause and how it should be applied.
4. Whether the “most preferred vendor” promise created an enforceable obligation supporting additional recovery.
5. Whether prejudgment interest was proper where damages were determined by a contractual formula.

## Decision

- The Seventh Circuit largely affirmed the judgment for TTA.
- MKC remained liable because delegation did not discharge MKC’s duty absent TTA’s consent (novation) or full performance by the delegate.
- The proportional-reduction clause could reduce the minimum commitment based on actual loss of projects without offsets, but it did not eliminate MKC’s obligation based solely on MKC’s restructuring decisions.
- The court upheld application of the 10% liquidated-damages formula to the unawarded portion of the adjusted minimum commitment.
- The court left intact the district court’s rejection of liability and additional recovery under the “most preferred vendor” clause on the record presented.
- The court upheld prejudgment interest because the contract’s formula rendered damages liquidated or readily ascertainable once liability was determined.

## Legal Principles

- Under Illinois law, delegation of performance does not relieve the delegating party of its duties or liability for breach unless the obligee consents to a substitution (novation) or the delegate fully performs.
- Contract terms are interpreted primarily from their text and are read together to avoid making provisions meaningless when a reasonable construction is available.
- A clause allowing proportional reduction for loss of projects is generally read as a risk-allocation mechanism tied to actual project loss, not as a blanket discharge for business divestiture.
- A liquidated-damages provision is enforceable where the harm is difficult to estimate at contracting and the chosen measure is a reasonable, proportional proxy rather than a punitive penalty.
- Prejudgment interest may be awarded when the amount due is liquidated or readily calculable from a contractual formula once the predicate facts establishing liability are found.

## Conclusion

The court held that MKC could not avoid liability for its five-year future-work commitment by delegating performance to Amerail without TTA’s consent, enforced the contract’s 10% liquidated-damages remedy for the shortfall (as adjusted by any proportional reduction tied to lost projects), rejected additional recovery under the “most preferred vendor” language on the developed record, and allowed prejudgment interest because the damages were readily ascertainable.


Transportation & Transit Assocs., Inc. v. Morrison Knudsen Corp., 255 F.3d 397 (7th Cir. 2001)