American Standard, Inc. v. Schectman
439 N.Y.S.2d 529, 80 A.D.2d 318 (1981)
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Rule of Law:
The measure of damages for a contractor's failure to perform a construction contract is the cost to complete the work, not the difference in property value, particularly when the breach is intentional and the unperformed work was a central part of the contract's consideration.
Facts:
- Plaintiffs operated a pig iron manufacturing plant on a 26-acre property in Tonawanda, New York.
- On August 3, 1973, after deciding to close the plant, plaintiffs contracted with defendant Schectman, a demolition contractor.
- Under the contract, plaintiffs conveyed the buildings and equipment to Schectman in exchange for his payment of $275,000 and his promise to demolish the structures and grade the property.
- The agreement specifically required Schectman to remove all foundations, piers, and other subsurface structures to a depth of one foot below specified grade lines to prepare the plot for resale.
- Schectman failed to remove the subsurface structures as promised, leaving walls, foundations, and other structures existing above the required grade.
- The failure to complete the grading work as promised had little to no impact on the fair market value of the property.
Procedural Posture:
- Plaintiffs sued defendant Schectman in a New York trial court for breach of contract.
- A jury returned a verdict in favor of the plaintiffs, awarding them $90,000 in damages.
- The trial court denied defendant's motion to set aside the verdict.
- Defendant Schectman appealed the judgment and the denial of his motion to the New York Supreme Court, Appellate Division, Fourth Department (an intermediate appellate court).
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Issue:
For a breach of a construction contract, is the proper measure of damages the cost of completion, even when that cost is significantly greater than the resulting diminution in the property's market value?
Opinions:
Majority - Hancock, Jr., J.
Yes, the proper measure of damages is the cost of completion. The general rule for breach of a construction contract is that the injured party is entitled to the reasonable cost of replacement or completion. The alternative 'diminution in value' measure, established in cases like Jacob & Youngs v. Kent, is a narrow exception applied only when there has been substantial performance, the breach is unintentional and trivial, and correcting the defect would result in unreasonable economic waste, such as tearing down an almost-completed structure. Here, Schectman's breach was neither trivial nor unintentional; he contended he was not contractually obligated to perform the work. Furthermore, the removal of subsurface structures was a principal part of the consideration plaintiffs bargained for, not an incidental covenant. Fulfilling the promise involves completing unfinished work, not undoing work already performed, so the doctrine of economic waste does not apply. A party is entitled to receive what they contracted for, and the breacher cannot escape liability by arguing that the promised performance would not have been beneficial to the plaintiff from a market value perspective.
Analysis:
This decision reinforces the traditional 'cost of completion' as the default measure of damages for breach of construction contracts in New York. It clarifies that the 'diminution in value' rule is a limited exception reserved for cases involving good faith, substantial performance, and true economic waste, not merely a disparity between completion cost and property value. The ruling signals that courts will enforce the benefit of the bargain, especially against a party who willfully breaches a material term of a contract. This precedent makes it difficult for contractors to intentionally cut corners on contract specifications and then argue for a lesser measure of damages based on a lack of impact on market value.
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