Caseflicks

Appellate Division of the Supreme Court of the State of New York • 1981

American Standard, Inc. v. Schectman

80 A.D.2d 318 | 439 N.Y.S.2d 529 | 1981 N.Y. App. Div. LEXIS 10091

Full access

Unlock the video and quiz

The written brief is free to read below. Subscribe to watch the video explainer and take the quiz.

Create an account Log in

Takeaway

In short, this case confirms that a breaching contractor ordinarily owes the reasonable cost to complete promised work; a low market-value benefit does not itself establish the economic-waste exception.

Background

American Standard closed its pig-iron plant on a 26-acre industrial parcel in Tonawanda, New York. In 1973, it agreed to sell the plant buildings, equipment, and structures to demolition contractor Harold Schectman for $275,000. As part of the consideration, Schectman promised to demolish the improvements, remove foundations, piers, headwalls, and related structures to about one foot below specified grade lines, and leave a reasonably attractive vacant plot for resale.

Schectman did not remove substantial concrete and stone structures and foundations, some of which remained above the required grade. He maintained that the agreement did not obligate him to remove all subsurface foundations. American Standard sued for breach of contract. At trial, the court construed the contract to require the promised removal work, excluded Schectman's evidence that the property's market value was essentially unchanged, and instructed the jury to award the reasonable cost of completion. The jury awarded $90,000, and the judgment, including interest and costs, was entered for $122,434.60. Schectman appealed, principally challenging the damages instruction and the exclusion of his valuation evidence.

Issues

Issue #1

Whether the agreement required Schectman to remove subsurface foundations and other structures to approximately one foot below the specified grade lines.

Holding

Yes. The contract required removal of all such structures, including subsurface structures not visible or shown on the attached map, to about one foot below grade.

Reasoning

The contract's demolition and grading specifications stated that, except for identified exceptions, all structures and equipment, including foundations, piers, and headwalls, had to be removed to approximately one foot below the stated grade lines. Read in context, that language was not limited to visible structures or to items depicted on the map.

The evidence supported the jury's implicit finding that Schectman materially failed to meet those requirements. Witness testimony and exhibits showed both substantial departures from the grade lines and walls, foundations, and other structures remaining above grade. Schectman's own litigation position—that he had no duty to remove all subsurface foundations—reinforced the conclusion that the required work had not been performed.

Issue #2

Whether damages for Schectman's incomplete demolition and grading should be measured by the property's diminution in market value rather than the reasonable cost of completing the promised work.

Holding

No. The proper measure was the reasonable cost of completion, not diminution in value.

Reasoning

The ordinary remedy for defective or incomplete construction performance is the reasonable cost of replacing or completing the work. That measure compensates the owner for the direct and foreseeable consequence of the contractor's breach and ordinarily reflects what the parties contemplated when they contracted.

The diminution-in-value measure is a narrow exception for substantial, good-faith performance where correction would produce unreasonable economic waste. Jacob & Youngs v. Kent illustrates that exception: replacing equivalent plumbing pipe merely to obtain the specified brand would have required destructive and grossly disproportionate work, while producing only trivial benefit.

This case did not involve that form of economic waste. Schectman did not need to tear down or undo work completed in good faith; he simply needed to perform demolition and removal work that he had promised but left unfinished. A gap between completion cost and the resulting increase in market value, standing alone, is not economic waste.

The demolition, grading, and removal provisions were part of the bargained-for consideration for American Standard's transfer of its valuable plant and equipment. They were not merely incidental to the agreement's principal purpose. The fact that completing the work might add little to the resale price did not allow Schectman, who received consideration for that promise, to decide that performance would not benefit American Standard.

Schectman also could not invoke the equitable rationale of Jacob & Youngs because the jury's $90,000 cost-of-completion finding showed that the omissions were not trivial. Further, he did not make a good-faith attempt to complete the work and then commit an unintentional, minor default; instead, he consistently denied that the contract imposed the removal obligation at all.

Issue #3

Whether the trial court improperly excluded Schectman's evidence that American Standard later sold the property for only $3,000 less than its asserted fair market value.

Holding

No. The valuation evidence was irrelevant because diminution in value was not the applicable measure of damages.

Reasoning

Schectman's proposed evidence was offered to show that the breach caused little or no reduction in the land's market value. But once the court correctly determined that reasonable completion cost governed, evidence concerning resale price and market-value diminution did not bear on the damages issue the jury had to decide.

Because the promised performance remained materially incomplete and completion did not entail unreasonable economic waste, American Standard was entitled to prove the cost of obtaining that performance. The trial court therefore properly excluded the valuation proof and instructed the jury on cost of completion.