Hancock v. Northcutt
808 P.2d 251 (1991)
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Rule of Law:
Damages for breach of a construction contract are limited to the diminution in the property's value if the cost to repair is grossly disproportionate to the value, unless the plaintiff proves they will actually make the repairs. Additionally, emotional distress damages are not recoverable for breach of a house construction contract as it is not a contract where serious emotional disturbance is a particularly likely result.
Facts:
- Carol and Melvin Northcutt entered into an oral contract with contractors Herb and Marge Hancock for the construction of a unique earth-sheltered concrete house.
- The parties disputed the contract price; the Northcutts claimed it was a fixed $65,000, while the Hancocks claimed they were owed more for extra work.
- Construction was delayed, with each party blaming the other for the problems.
- After the Hancocks poured the concrete for the house's seven pods, the Northcutts identified what they believed to be defective work.
- The Hancocks offered to cure the alleged defects, but the Northcutts refused the offer and ordered the Hancocks off the property.
- The Northcutts moved into the house but did not occupy one of the pods due to safety concerns, believing it might collapse.
- The Northcutts claimed the finished house leaked and was structurally unsafe.
Procedural Posture:
- The Hancocks (contractors) first filed a lien and sued the Northcutts (homeowners) to enforce it, but the suit was dismissed due to the Hancocks' failure to comply with contractor registration requirements.
- The Northcutts then sued the Hancocks in an Alaska superior court (the court of first instance) for breach of contract, wrongful lien, misrepresentation, and infliction of emotional distress.
- The Hancocks filed a counterclaim for amounts they alleged were due under the contract.
- After a four-week trial, the jury returned a special verdict in favor of the Northcutts, awarding them compensatory damages totaling $686,271, which included costs for demolition and rebuilding, as well as for emotional distress.
- The trial court entered a judgment against the Hancocks based on the jury's verdict.
- The Hancocks (appellants) appealed the judgment to the Supreme Court of Alaska, and the Northcutts (appellees/cross-appellants) filed a cross-appeal.
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Issue:
Do damages for breach of a construction contract include (1) the cost to demolish and rebuild a defective structure when that cost is grossly disproportionate to the structure's value, and (2) compensation for emotional distress arising from the breach absent physical injury?
Opinions:
Majority - Matthews, Chief Justice
No. Damages for a defective building are typically the cost to repair, but if that cost involves 'unreasonable economic waste' (i.e., is grossly disproportionate to the property's diminished value), the correct measure is the difference in value. An exception allowing cost-of-repair damages may exist if the owner can prove both special significance of the property and a likelihood that they will actually use the award to perform the repairs. Here, the trial court's jury instruction was erroneous because it allowed the jury to award demolition and replacement costs, which constituted economic waste, without requiring a finding that the Northcutts would actually rebuild, thus creating the potential for an unjust windfall. Furthermore, emotional distress damages are not recoverable for breach of a house construction contract because, unlike highly personal contracts (e.g., for funeral services), it is not a contract where serious emotional disturbance is a particularly likely result of a breach.
Analysis:
This decision refines the 'economic waste' doctrine in construction law by conditioning the recovery of disproportionately high repair costs on the plaintiff's intent to actually perform the repairs. It establishes a significant barrier to plaintiffs receiving a large 'cost-to-cure' award that they might pocket as a windfall without fixing the defect. The ruling also reinforces the traditional divide between contract and tort law, firmly placing standard construction agreements in a commercial context where emotional distress damages are unavailable, thereby limiting the scope of recoverable damages in such disputes.
