## Facts

- Owners of a 26-acre former pig-iron plant site contracted with a demolition/excavation contractor in 1973 to (1) remove equipment, (2) demolish structures, and (3) grade the land to specified lines.
- Under the contract’s scope as construed at trial and accepted on appeal, the contractor was required to remove foundations, piers, headwalls, and other structures, including subsurface obstructions (whether or not visible or mapped), to about one foot below the specified grade.
- The contractor failed to complete required grading and left numerous foundations, slabs, and other subsurface obstructions in place over a substantial area.
- A jury found breach and awarded $90,000 as the reasonable cost to complete the grading and removals; judgment (with interest and costs) was entered jointly and severally against the contractor and the surety.
- The owners later sold the property for $183,000, about $3,000 less than its fair market value in its unremediated condition.
- The contractor argued damages should be limited to the diminution in market value (about $3,000) rather than the cost of completion.

## Issues

1. In a demolition and grading contract where significant promised work was left undone, is the proper measure of damages the reasonable cost of completion or the diminution in the property’s market value?
2. Did the trial court err by refusing to instruct the jury that damages were limited to the difference in value with and without the promised performance?

## Decision

- The Appellate Division affirmed the judgment and the order denying the post-trial motion.
- The court held the proper measure of damages was the reasonable cost of completion, not diminution in value.
- The court upheld the refusal to charge the jury on diminution-in-value as the controlling measure.

## Legal Principles

- For breach of a construction-related contract, the injured party generally may recover the reasonable cost to complete or correct the work to obtain the promised performance, unless that cost is grossly disproportionate to the benefit to be obtained.
- The “economic waste” limitation associated with diminution-in-value damages is principally applied where the contractor has substantially performed in good faith and the defect is minor or correction would require undoing substantial proper work.
- When nonperformance is substantial and concerns performance central to the contract’s purpose, awarding cost-of-completion damages protects the promisee’s expectation interest even if market value changes little.
- A property owner may contract for work that does not increase market value; low diminution in value does not, by itself, cap damages at a nominal amount.
- Foreseeable completion costs may be charged to an experienced contractor who chose not to perform significant promised work.

## Conclusion

Because the contractor failed to perform a significant part of the demolition and grading work that formed the object of the bargain, the owners were entitled to the reasonable cost of completing the promised performance, notwithstanding that the property’s market value was only minimally affected.


American Standard, Inc. v. Schectman, 80 A.D.2d 318 (N.Y. App. Div. 4th Dep’t 1981)