American Standard, Inc. v. Schectman – Case Brief

American Standard, Inc. v. Schectman, 80 A.D.2d 318, 439 N.Y.S.2d 529, 427 N.E. 2d 512 (N.Y. 1981).

Facts: American Standard, Inc. (P) operated a pig iron manufacturing plant on 26 acres of land abutting the Niagara River in Tonawanda. On the property were several buildings, a 60-ton blast furnace, railroad tracks and locomotives, and other heavy machinery. American Standard decided to close the plant and contracted with Schectman (D) to convey the buildings and equipment, in exchange for $275,000 and his promise to remove everything. Schectman promised to remove all foundations etc., including those beneath the surface and not visible, and grade the property as specified. D failed to perform and P brought suit and was awarded $90,000. D appealed.

Issue: What is the measure of damages for breach of a construction contract?

Holding and Rule: The general rule of damages for breach of a construction contract is that the injured party may recover those damages which are the direct, natural, and immediate consequence of the breach and which can reasonably be said to have been in the contemplation of the parties when the contract was made. The diminution in value measure of damages is only applied when the defects are irremediable or may not be repaired without substantial tearing down; however courts have applied the diminution of value measure even where no substantial tearing down is necessary if the breach is only incidental to the main purpose of the contract, and completion would be disproportionately costly.

It is also a general rule in building and construction cases, that a contractor who would ask the court to apply the diminution of value measure must not have breached the contract intentionally, and must show substantial performance made in good faith. In this case the court held that D’s completed performance would not have involved undoing what in good faith was done improperly, but only doing what was promised and left undone. D, instead of attempting in good faith to complete the removal of the underground structures, contended that he was not obliged by the contract to do so and, thus, cannot claim to be a transgressor whose default is unintentional and trivial.

That the fulfillment of defendant’s promise would add little or nothing to the sale value of the property does not excuse the default. The rule that the measure of P’s damage is the cost of completion is not altered by the mere fact that the burden of performance was heavier than anticipated, and the cost of completion disproportionate to the end to be obtained.

Disposition: Affirmed.

Notes: One of the key features of this case that distinguishes it from other construction contracts cases is that the court deemed that D’s breach was intentional.

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