American Standard, Inc. v. Schectman

• Decision Date: 15 May 1981
• Citation: 80 A.D.2d 318,439 N.Y.S.2d 529
• Parties: AMERICAN STANDARD, INC. and Westinghouse Air Brake Company, Respondents, v. Harold SCHECTMAN and United States Fire Insurance Company, Appellants, And a Third-Party Action.
• Court: New York Supreme Court — Appellate Division

Page 529

439 N.Y.S.2d 529

80 A.D.2d 318

AMERICAN STANDARD, INC. and Westinghouse Air Brake Company Respondents, v. Harold SCHECTMAN and United States Fire Insurance Company Appellants, And a Third-Party Action.

Supreme Court, Appellate Division Fourth Department.

May 15, 1981.

Kavinoky, Cook, Sandler, Gardner, Wisbaum & Lipman, Buffalo, for appellants; Wayne Wisbaum, Buffalo, of counsel.

Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo, for respondents; Victor Fuzak, Buffalo, of counsel.

Before SIMONS, J. P., and HANCOCK, DOERR, DENMAN and SCHNEPP, JJ.

HANCOCK, Justice.

Plaintiffs have recovered a judgment on a jury verdict of $90,000 against defendant for his failure to complete grading and to take down certain foundations and other subsurface structures to one foot below the grade line as promised. Whether the court should have charged the jury, as defendant Schectman requested, that the difference in value of plaintiffs' property with and without the promised performance was the measure of the damage is the main point in his appeal. ¹ We hold that the request was properly denied and that the cost of completion--not the difference in value--was the proper measure. Finding no other basis for reversal, we affirm.

Until 1972, plaintiffs operated a pig iron manufacturing plant on land abutting the Niagara River in Tonawanda. On the 26-acre parcel were, in addition to various industrial and office buildings, a 60-ton blast furnace, large lifts, hoists and other equipment for transporting and storing ore, railroad tracks, cranes, diesel locomotives and sundry implements and devices used in the business. Since the 1870's plaintiffs' property, under several different owners, had been the site of various industrial operations. Having decided to close the plant, plaintiffs on August 3, 1973 made a contract in which they agreed to convey the buildings and other structures and most of the equipment to defendant, a demolition and excavating contractor, in return for defendant's payment of $275,000 and his promise to remove the equipment, demolish the structures and grade the property as specified.

We agree with Trial Term's interpretation of the contract as requiring defendant to remove all foundations, piers, headwalls, and other structures, including those under the surface and not visible and whether or not shown on the map attached to the contract, to a depth of approximately one foot below the specified grade lines. ² The proof from plaintiffs' witnesses and the exhibits, showing a substantial deviation from the required grade lines and the existence above grade of walls, foundations and other structures, support the finding, implicit in the jury's verdict, that defendant failed to perform as agreed. Indeed, the testimony of defendant's witnesses and the position he has taken during his performance of the contract and throughout this litigation (which the trial court properly rejected), viz., that the contract did not require him to remove all subsurface foundations, allow no other conclusion.

We turn to defendant's argument that the court erred in rejecting his proof that plaintiffs suffered no loss by reason of the breach because it makes no difference in the value of the property whether the old foundations are at grade or one foot below grade and in denying his offer to show that plaintiffs succeeded in selling the property for $183,000--only $3,000 less than its full fair market value. By refusing this testimony and charging the jury that the cost of completion (estimated at $110,500 by plaintiffs' expert), not diminution in value of the property, was the measure of damage the court, defendant contends, has unjustly permitted plaintiffs to reap a windfall at his expense. Citing the definitive opinion of Chief Judge Cardozo in Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 129 N.E. 889, he maintains that the facts present a case "of substantial performance" of the contract with omissions of "trivial or inappreciable importance" (p. 245, 129 N.E. 889), and that because the cost of completion was "grossly and unfairly out of proportion to the good to be attained", (p. 244, 129 N.E. 889), the proper measure of damage is diminution in value.

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 (see 13 N.Y.Jur., Damages, §§ 46, 56; Chamberlain v. Parker, 45 N.Y. 569; Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Reprint 145; Restatement, Contracts, § 346). In the usual case where the contractor's performance has been defective or incomplete, the reasonable cost of replacement or completion is the measure (see, Bellizzi v. Huntley Estates, 3 N.Y.2d 112, 164 N.Y.S.2d 395, 143 N.E.2d 802; Spence v. Ham, 163 N.Y. 220, 57 N.E. 412; Condello v. Stock, 285 App.Div. 861, 136 N.Y.S.2d 507, mod. on other grds, 1 N.Y.2d 831, 1 N.Y.S.2d 216; Along-The-Hudson Co. v. Ayres, 170 App.Div. 218, 156 N.Y.S. 58; 13 N.Y.Jur., Damages, § 56, p. 502; Restatement, Contracts, § 346). When, however, there has been a substantial performance of the contract made in good faith but defects exist, the correction of which would result in economic waste, courts have measured the damages as the difference between the value of the property as constructed and the value if performance had been properly completed (see Jacob & Youngs, Inc. v. Kent, supra; H. P. Droher and Sons v. Toushin, 250 Minn. 490, 85 N.W.2d 273; Restatement, Contracts, § 346, subd. par. cl. p. 573; Comment b, p. 574; 13 N.Y.Jur., Damages, § 58; Ann. 76 A.L.R.2d 805, § 4, pp. 812-815). Jacob & Youngs is illustrative. There, plaintiff, a contractor, had constructed a house for the defendant which was satisfactory in all respects save one: the wrought iron pipe installed for the plumbing was not of Reading manufacture, as specified in the contract, but of other brands of the same quality. Noting that the breach was unintentional and the consequences of the omission trivial, and that the cost of replacing the pipe would be "grievously out of proportion" (Jacob & Youngs, Inc. v. Kent, supra, 230 N.Y. p. 244, 129 N.E. 889) to the significance of the default, the court held the breach to be immaterial and the proper measure of damage to the owner to be not the cost of replacing the pipe but the nominal difference in value of the house with and without the Reading pipe.

Not in all cases of claimed "economic waste" where the cost of completing performance of the contract would be large and out of proportion to the resultant benefit to the property have the courts adopted diminution in value as the measure of damage. Under the Restatement rule, the completion of the contract must involve "unreasonable economic waste" and the illustrative example given is that of a house built with pipe different in name from but equal in quality to the brand stipulated in the contract as in Jacob & Youngs, Inc. v. Kent (supra) (Restatement, Contracts, § 346, subd. par. cl. p. 573; Illustration 2, p. 576). In Groves v. John Wunder Co., 205 Minn. 163, 286 N.W. 235, plaintiff had leased property and conveyed a gravel plant to defendant in exchange for a sum of money and for defendant's commitment to return the property to plaintiff at the end of the term at a specified grade--a promise defendant failed to perform. Although the cost of the fill to complete the grading was $60,000 and the total value of the property, graded as specified in the contract, only $12,160 the court rejected the "diminution in value" rule, stating:

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 result, it can be of no aid to any contractor who declines performance. As said long ago in Chamberlain v. Parker, 45 N.Y. 569, 572: "A man may do what he will with his own, * * * and if he chooses to erect a monument to his caprice or folly on his premises, and employs and pays another to do it, it does not lie with a defendant who has been so employed and paid for building it, to say that his own performance would not be beneficial to the plaintiff."

(Groves v. John Wunder Co., supra, 205 Minn., p. 168, 286 N.W. 235).

The "economic waste" of the type which calls for application of the "diminution in value" rule generally entails defects in construction which are irremediable or which may not be repaired without a substantial tearing down of the structure as in Jacob & Youngs (see Bellizzi v. Huntley Estates, 3 N.Y.2d 112, 115, 164 N.Y.S.2d 395, 143 N.E.2d 802, supra; Groves v. John Wunder Co., supra; W. G. Slugg Seed & Fertilizer, Inc. v. Paulson Lbr., 62 Wis.2d 220, 214 N.W.2d...