286 N.W. 235 (Minn. 1939), 31916, Groves v. John Wunder Co.

Docket Nº:31916.
Citation:286 N.W. 235, 205 Minn. 163
Opinion Judge:STONE, Justice.
Party Name:GROVES v. JOHN WUNDER CO. et al.
Attorney:John P. Devaney, Louis B. Schwartz, and Bleecker & Babcock, all of Minneapolis, for appellant. Fowler, Youngquist, Furber, Taney & Johnson, of Minneapolis, for respondent.
Judge Panel:JULIUS J. OLSON and HOLT, JJ., dissenting. JULIUS J. OLSON, Justice (dissenting). HOLT, Justice. HILTON, J., being incapacitated by illness, took no part. LORING, J., took no part.
Case Date:April 21, 1939
Court:Supreme Court of Minnesota

Page 235

286 N.W. 235 (Minn. 1939)

205 Minn. 163




No. 31916.

Supreme Court of Minnesota.

April 21, 1939

Rehearing Denied June 8, 1939.

Appeal from District Court, Hennepin County; A. W. Selover, Judge.

Action for breach of contract by Frank M. Groves against the John Wunder Company and others. Plaintiff obtained judgment for an unsatisfactory amount, and he appeals.

Judgment reversed and new trial ordered.

Syllabus by the Court .

1. Where the contractor's breach of a building or construction contract is wilful, that is, in bad faith, he is not entitled to any benefit of the equitable doctrine of substantial performance.

2. The owner's or employer's or employer's damages for such a breach are to be measured, not in respect to the value of the land to be improved, but by the reasonable cost of doing that which the contractor promised to do and which he left undone.

3. The rule that the law does not require damages to be measured by a method necessitating ‘ economic waste’ applies only so as not to cause the wrecking of a structure already erected. That rule has nothing whatever to do with the value of the real estate.

JULIUS J. OLSON and HOLT, JJ., dissenting.

[205 Minn. 164] John P. Devaney, Louis B. Schwartz, and Bleecker & Babcock, all of Minneapolis, for appellant.

Fowler, Youngquist, Furber, Taney & Johnson, of Minneapolis, for respondent.

STONE, Justice.

Action for breach of contract. Plaintiff got judgment for a little over $15,000. Sorely disappointed by that sum, he appeals.

In August, 1927, S. J. Groves & Sons Company, a corporation (hereinafter mentioned simply as Groves), owned a tract of 24 acres of Minneapolis suburban real estate. It was served or easily could be reached by railroad trackage. It is zoned as heavy industrial property. But for lack of development of the neighborhood its principal value thus far may have been in the deposit of sand and gravel which it carried. The Groves company had a plant on the premises for excavating and screening the gravel. Nearby defendant owned and was operating a similar plant.

In August, 1927, Groves and defendant made the involved contract. For the most part it was a lease from Groves, as lessor, to defendant, as lessee; its term seven years. Defendant agreed to remove the sand and gravel and to leave the property ‘ at a uniform grade, substantially the same as the grade now existing at the roadway * * * on said premises, and that in stripping the overburden * * * it will use said overburden for the purpose of maintaining and establishing said grade.’

Under the contract defendant got the Groves screening plant. The transfer thereof and the right to remove the sand and gravel made the consideration moving from Groves to defendant, except that defendant incidentally got rid of Groves as a competitor. On defendant's part it paid Groves $105,000. So that from the outset, on Groves' part the contract was executed except for defendant's [205 Minn. 165] right to continue using the property for the stated

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term. (Defendant had a right to renewal which it did not exercise.)

Defendant breached the contract deliberately. It removed from the premises only ‘ the richest and best of the gravel’ and wholly failed, according to the findings, ‘ to perform and comply with the terms, conditions, and provisions of said lease * * * with respect to the condition in which the surface of the demised premises was required to be left.’ Defendant surrendered the premises, not substantially at the grade required by the contract ‘ nor at any uniform grade.’ Instead, the ground was ‘ broken, rugged, and uneven.’ Plaintiff sues as assignee and successor in right of Groves.

As the contract was construed below, the finding is that to complete its performance 288,495 cubic yards of overburden would need to be excavated, taken from the premises, and deposited elsewhere. The reasonable cost of doing that was found to be upwards of $60,000. But, if defendant had left the premises at the uniform grade required by the lease, the reasonable value of the property on the determinative date would have been only $12,160. The judgment was for that sum, including interest, thereby nullifying plaintiff's claim that cost of completing the contract rather than difference in value of the land was the measure of damages. The gauge of damage adopted by the decision was the difference between the market value of plaintiff's land in the condition it was when the contract was made and what it would have been if defendant had performed. The one question for us arises upon plaintiff's assertion that he was entitled, not to that difference in value, but to the reasonable cost to him of doing the work called for by the contract which defendant left undone.

1. Defendant's breach of contract was wilful. There was nothing of good faith about it. Hence, that the decision below handsomely rewards bad faith and deliberate breach of contract is obvious. That is not allowable. Here the rule is well settled, and has been since Elliott v. Caldwell, 43 Minn. 357, 45 N.W. 845,9 L.R.A. 52, that, where the contractor wilfully and fraudulently varies from the terms of a construction contract, he cannot sue [205 Minn. 166] thereon and have the benefit of the equitable doctrine of substantial performance. That is the rule generally. See Annotation, ‘ Wilful or intentional variation by contractor from terms of contract in regard to material or work as affecting measure of damages,’ 6 A.L.R. 137.

Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 243, 244, 129 N.E. 889, 891, 23 A.L.R. 1429, is typical. It was a case of substantial performance of a building contract. (This case is distrinctly the opposite.) Mr. Justice Cardozo, in the course of his opinion, stressed the distinguishing features. ‘ Nowhere,’ he said, ‘ will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract.’ Again, ‘ the willful transgressor must accept the penalty of his transgression.’

2. In reckoning damages for breach of a building or construction contract, the law aims to give the disappointed promisee, so far as money will do it, what he was promised. 9 Am.Jur. Building and Construction Contracts, § 152. It is so ruled by a long line of decisions in this state, beginning with Carli v. Seymour, Sabin & Co., 26 Minn. 276, 3 N.W. 348, where the contract was for building a road. There was a breach. Plaintiff was held entitled to recover what it would cost to complete the grading as contemplated by the contract. For our other similar cases, see 2 Dunnell, Minn. Dig. (2 ed. & Supp.) §§ 2561, 2565.

Never before, so far as our decisions show, has it even been suggested that lack of value in the land furnished to the contractor who had bound himself to improve it any escape from the ordinary consequences of a breach of the contract.

A case presently as interesting as any of our own, is Sassen v. Haegle, 125 Minn. 441, 147 N.W. 445, 446, 52 L.R.A.N.S., 1176. The defendant, lessee of a farm, had agreed to haul and spread manure. He removed it, but spread it elsewhere than on the leased farm. Plaintiff had a verdict, but a new trial was ordered for error in the charge as to the measure of damages. The point was thus discussed by Mr. Justice Holt [ 125 Minn. page 443, 147 N.W. page 446, 52 L.R.A.N.S., 1176]: [205 Minn. 167] ‘ But it is also true that the landlord had a perfect right to stipulate as to the disposal of the manure or as to the way in which the farm should be worked, and the tenant cannot evade compliance by showing that the farm became more valuable or fertile by omitting the agreed work or doing other work. Plaintiff's pleading and proof was directed

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to the reasonable value of performing what defendant agreed but failed to perform. Such reasonable cost or value was the natural and proximate damages. The question is not whether plaintiff made a wise or foolish agreement. He had a right to have it performed as made, and the resulting damage, in case of failure, is the reasonable cost of performance. Whether such performance affects the value of the farm was no concern of defendant.’

Even in case of substantial performance in good faith, the resulting defects being remediable, it is error to instruct that the measure of damage is ‘ the difference in value between the house as it was and as it would have been if constructed according to contract.’ The ‘ correct doctrine’ is that the cost of remedying the defect is the ‘ proper’ measure of damages. Snider v. Peters Home Building Co., 139 Minn. 413, 414, 416, 167 N.W. 108.

Value of the land (as distinguished from the value of the intended product of the contract, which ordinarily will be equivalent to its reasonable cost) is no proper part of any measure of damages for wilful breach of a building contract. The reason is plain.

The summit from which to reckon damages from trespass to real estate is its actual value at the moment. The owner's only right is to be compensated for the deterioration in value caused by the tort. That is all he has lost.1 But not so if a contract to improve the same land has been breached by the contractor who refuses to do the work, especially where, as here, he has been paid in advance. The summit from which to reckon damages for that wrong is the hypothetical peak of accomplishment (not value) which would [205 Minn. 168] have been reached had the work been done as demanded by the contract.

The owner's right to improve his property is not trammeled by its small value. It is his right to erect thereon structures which will reduce its value. If that be the...

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