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

Construction

Case: Rivers v. Deane (1994, NY) [pp. 933-936]

209 A.D.2d 936, 619 N.Y.S.2d 419

Summary: K for construction of an addition to Pl's home. The structure built was
unsafe and unusable, and Pl's brought suit for breach of K. The NY Supreme Court
awarded damages based on Cardozo's difference in value rule, which was the
diminution in value caused by the breach. The appellate court disagreed, and said
that the difference in value rule only applies when builder's failure to perform
under a construction K is "both trivial and innocent". Here, however, the defect
arising from the breach "is so substantial as to render the finished building
partially unusable and unsafe." So the measure of damages is instead the market
price of completing or correcting the performance.

Rule: Cardozo's difference in value rule only applies when builder's failure to
perform under a construction K is both trivial and innocent; damages are measured
by the diminution in value of the building (b/c otherwise there would be
unreasonable economic waste). When the breach causes a defective or unfinished
construction, then the measure of damages is instead the market price of
completing or correcting the performance.

Notes:
○ How to determine if there is unreasonable economic waste?
§ Depends on the trier of facts. Then court will decide, based on
reason and logic.
§ If there is a doubt/dispute if there is waste, it should be resolved
against the breaching party
○ § 347 adopts a partially subjective test for the measurement of damages
based on the expectation interest.
§ Damages are loss in value to the Pl caused by the breach, plus
incidental and consequential damages, less costs saved.
§ Contrasts with objective view of UCC, that looks at market or cover
price and compares that.
○ § 348 where the breach results in defective or unfinished construction,
but the value to Pl (347, subjective test), is not proved with sufficient
certainty.
§ Damages may be recovered based on the diminution in value, or
reasonable cost of correcting defects or completing it
□ If it happens that the cost of correcting a defect is
disproportionate to the probable loss in value to the Pl (where the cost of
correcting is much more than the increase in value to the Pl - subjective), the
award shouldn’t be made.
® This is b/c if Pl would be awarded these damages , the Pl
will not pay to correct the defects, b/c it will cost him more to do that than the
resulting increase in value to Pl.
□ So instead, the damages would be the objective diminution in
value of market price.