New Era Homes Corp. v. Forster
86 N.E.2d 757 (1949)
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Rule of Law:
A contract that specifies a total price for a complete project is an entire contract, even if it includes a schedule of progress payments tied to specific milestones. Upon the owner's breach, the contractor's damages are not the specific missed progress payment but rather the actual loss sustained, measured either in quantum meruit or as the contract price less payments made and the cost of completion.
Facts:
- New Era Homes Corp. entered into a written contract with the Forsters to perform extensive alterations on their home for a total price of $3,075.
- The contract stipulated a payment schedule: $150 on signing, $1,000 upon starting work, $1,500 on completion of rough carpentry and plumbing, and $425 on final completion.
- The Forsters made the first two payments as scheduled, totaling $1,150.
- After New Era Homes Corp. completed the rough carpentry and rough plumbing, it demanded the third scheduled payment of $1,500.
- The Forsters refused to make the $1,500 payment.
- In response to the non-payment, New Era Homes Corp. ceased all work on the project.
Procedural Posture:
- New Era Homes Corp. (plaintiff) sued the Forsters (defendants) in a New York trial court for breach of contract.
- At trial, the jury returned a verdict in favor of New Era Homes Corp., awarding it the $1,500 sought.
- The Forsters (appellants) appealed to the Appellate Division, Second Department, which affirmed the judgment of the trial court.
- The New York Court of Appeals (the state's highest court) then granted the Forsters (appellants) leave to appeal.
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Issue:
Does a construction contract that provides for a total price but schedules payments upon the completion of specific stages of work constitute a divisible contract, entitling the contractor to sue for a specific missed payment as the sole measure of damages upon the owner's breach?
Opinions:
Majority - Desmond, J.
No. The agreement is an entire contract, not a divisible one, because it provides a single consideration for the total work. The court reasoned that the contract's language, which states the material and labor were 'to be supplied for $3,075.00,' indicates a single, unified project rather than several separate engagements. The scheduled payments are not allocated as the full value for specific parts of the work but are merely convenient installments on the total price. Therefore, upon the Forsters' breach, New Era Homes Corp. is not entitled to the specific $1,500 payment. Its proper remedy is to sue for its actual damages, which can be measured either in quantum meruit (the value of the work already performed) or as contract damages (the total contract price, less payments already made and the cost to complete the remaining work).
Dissenting - Lewis, J.
Yes. The contract is divisible because the parties' intent, as gathered from the agreement, was to apportion the price according to designated stages of the work. The dissent argued that by making specific payments due upon the completion of distinct stages, the parties demonstrated an intent to treat each stage as a separate item with its own corresponding payment. Under this view, once New Era Homes Corp. completed the rough carpentry and plumbing, it had earned the $1,500 payment, and the Forsters were obligated to pay it.
Analysis:
This decision reinforces the legal presumption that construction contracts with a single overall price are 'entire,' not 'divisible,' even when they contain progress payment schedules. It clarifies that such payment schedules are for convenience and do not, by themselves, apportion the consideration among different phases of the work. The ruling protects owners from potentially overpaying for partially completed work and forces contractors who sue after a breach to prove their actual damages, which provides a more accurate measure of loss than simply demanding a scheduled payment. To create a truly divisible contract, parties must now draft language that explicitly allocates separate consideration for each distinct part of the performance.
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