Compensatory Damages - Breach of Contract by Supplier of Goods, Services, or

Construction

Case: American Standard, Inc. v. Schectman (1981, NY) [pp. 941-946]

Facts: Parties entered into K. Pl would sell all their industrial equipment to
Df in exchange for $275k plus Df's promise to remove all equipment, demolish the
structures and grade the property as specified. Df failed to do the specified
grading work as agreed. Pl got judgment for $90,000, the cost of completing the
grading. Df appeal, arguing that the diminution in value rule should be used, and
as such, only $3,000 should be awarded.
○ Df argument for using diminution in value rule:
§ Facts here show that there was substantial performance with omissions
of "trivial or inappreciable importance"
§ Cost of completion was grossly and unfairly out of proportion to the
value that Pls would get ($90k vs. $3k)
§ Jacobs and Young case - Reading pipe

Issue: Whether the lower court was correct in determining that the correct
measure of calculating damages is the by using the cost of performance. - Yes.

Holding: Affirmed.

Reasoning:
○ The owner has a right to make "improvements" on his value, even if doing
so would diminish its market value. The Df can't say this his performance would
not be beneficial to the Pl. The Pl specifically contracted to have this done, so
there is a value.
§ If you contract to have a big neon orange platinum flamingo put on
your lawn and that would decrease the value, the contractor can’t just breach and
say there are no damages b/c of the diminution in value rule.
○ The grading was not incidental to Pl's purpose of entering into K
§ Here the Df contracted to do this work as consideration for the
equipment received.
○ If the cost of completing the work is $90k, Df cannot assert that there
was substantial performance with omissions of "trivial or inappreciable
importance"
§ (from Jacobs and Young case) to use the diminution in value rule, the
contract must not have been breached intentionally and must show substantial
performance made in good faith.
□ Df did not attempt the work in good faith, but instead said he
was not obliged to perform. Therefore he breached in bad faith, and this was
intentional.

RULE: The owner has a right to make "improvements" on his value, even if doing so
would diminish its market value.

Notes
• If the purpose is for art (aesthetic), then court can't say what the value is.
○ But Prof says here, the purpose was not aesthetic. It was to make it look
nice so they can sell the property, but they already sold it for only $3k less.