Groves v. John Wunder Co.
286 N.W. 235 (1939)
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Rule of Law:
For a willful breach of a construction contract, the proper measure of damages is the reasonable cost of completing the promised performance, not the diminution in the market value of the property resulting from the non-performance.
Facts:
- In August 1927, S. J. Groves Sons Company (Groves) leased a 24-acre tract of industrial land to John Wunder Co. for a term of seven years.
- In exchange for a payment of $105,000, Wunder received the right to remove sand and gravel from the property.
- The contract explicitly required Wunder to leave the property at a uniform grade, substantially the same as a nearby roadway.
- Wunder deliberately breached the contract by removing only the richest gravel deposits.
- At the end of the lease term, Wunder surrendered the property in a broken, rugged, and uneven state, having failed to perform the required grading work.
- The reasonable cost to perform the grading as required by the contract was found to be over $60,000.
- If Wunder had performed the grading, the reasonable market value of the property would have been only $12,160.
Procedural Posture:
- Plaintiff, as assignee of S. J. Groves Sons Company, sued defendant John Wunder Co. for breach of contract in a state trial court.
- The trial court found that the defendant had breached the contract.
- The trial court awarded damages based on the difference in the value of the property, granting plaintiff a judgment for $12,160 plus interest, for a total of just over $15,000.
- Plaintiff, arguing he was entitled to the much higher cost of performance (over $60,000), appealed the judgment to the Minnesota Supreme Court.
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Issue:
For a willful breach of a contract to perform work on real property, is the measure of damages the cost of performance, even if this amount is grossly disproportionate to the resulting diminution in the property's value?
Opinions:
Majority - Stone, J.
Yes. For a willful breach of a construction contract, the measure of damages is the cost to complete the promised performance. The law aims to give the disappointed promisee what was bargained for, not the monetary difference in value. The defendant's breach was willful and in bad faith, so it cannot benefit from the equitable doctrine of substantial performance. The owner's right to improve property is not limited by its market value; one may contract for a 'monument to his caprice or folly,' and the breaching party cannot escape liability by claiming the performance would not be beneficial. The doctrine of 'economic waste' is inapplicable here, as it only prevents the destruction of a substantially completed structure, not damages for work that was never performed at all. Therefore, the plaintiff is entitled to the cost of doing what the defendant willfully failed to do.
Dissenting - Unspecified in text
No. The proper measure of damages should be the diminution in the property's value, not the cost of performance when that cost is grossly disproportionate to the benefit attained. The fundamental goal of contract damages is compensation for actual loss, not punishment of the breacher. Awarding damages of over $60,000 for work that would result in land worth only $12,160 places the plaintiff in a far better position than if the contract had been performed, violating the principle against unconscionable enrichment. Citing Justice Cardozo, the dissent argues that when the cost of completion is 'grossly and unfairly out of proportion to the good to be attained,' the measure is the difference in value. The majority's rule results in more than compensation, making it the wrong rule for these facts.
Analysis:
This case establishes a strong precedent favoring the 'cost of performance' measure of damages over the 'diminution in value' measure, especially in cases of willful breach. It rejects the theory of 'efficient breach,' which suggests a party should be free to breach a contract and pay damages if doing so is more economically efficient than performing. By focusing on the promisee's right to get what was bargained for, regardless of objective market value, the court reinforces the sanctity of the contract itself. This decision creates a potential tension with the doctrine of economic waste, but the court narrowly confines that doctrine to situations involving the destruction of existing work, not the failure to perform work in the first place.
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