## Facts

- Owners (the Hesses) hired a contractor (Eastlake Construction Company, Inc.) to build a five-unit condominium intended to house their mentally disabled adult children.
- Eastlake sued to recover $13,719 allegedly due under the construction contract.
- The Hesses counterclaimed for (1) breach of contract based on multiple construction defects and (2) violations of the Washington Consumer Protection Act (CPA), RCW 19.86.
- The trial court found Eastlake breached the contract and awarded the Hesses damages for certain defects, offset by the unpaid contract balance.
- For defective kitchen cabinets, the trial court denied full replacement cost as “unreasonable economic waste” and instead awarded the difference in value between specified cabinets and those installed.
- The trial court denied damages on nine other asserted breaches, reasoning they did not cause “substantial damage” or “substantial loss of value.”
- The trial court dismissed the CPA claim for failure to satisfy the CPA “public interest” requirement, focusing on a lack of “inducement.”
- The Court of Appeals increased the contract-damages award but affirmed dismissal of the CPA claim.
- Both sides sought review in the Washington Supreme Court.

## Issues

1. What measure of damages governs construction-contract breaches producing remediable and irremediable defects: cost of repair/completion or diminution in value, and under what standard?
2. Whether the CPA “public interest” requirement was correctly rejected, including whether “inducement” and “potential for repetition” must be evaluated.

## Decision

- The court adopted Restatement (Second) of Contracts § 348 as the governing approach to damages for defective or incomplete construction performance.
- The court affirmed certain damage items already awarded but remanded for the trial court to reassess disallowed or mismeasured items under § 348, including the cabinet remedy and additional defect claims.
- The court reversed the dismissal of the CPA claim and remanded for findings on whether the “inducement” and “potential for repetition” components of the public-interest requirement were satisfied.
- The court declined to address additional arguments it found without merit.

## Legal Principles

- For defective or incomplete construction performance, damages are measured under Restatement (Second) of Contracts § 348.
- The owner may recover the reasonable cost to remedy defects (cost of repair/completion) unless that cost is clearly disproportionate to the probable loss in value.
- When repair would be clearly disproportionate (economic waste), damages may be limited to diminution in market value attributable to the breach.
- Construction defects need not cause “substantial” damage or a major loss of value to be compensable; the proper inquiry is whether repair costs are proportionate to the loss in value and the contractual expectation.
- In a private CPA action arising from a contract dispute, courts must allow proof on the CPA public-interest requirement, including whether the challenged conduct induced the transaction and whether it has a potential for repetition affecting other consumers.

## Conclusion

The Washington Supreme Court adopted Restatement § 348 to govern construction-defect damages through a proportionality-based choice between cost of repair and diminution in value, and it revived the owners’ CPA claim by requiring a factual determination of inducement and potential for repetition under the public-interest requirement.


Eastlake Constr. Co. v. Hess, 102 Wn.2d 30, 686 P.2d 465 (Wash. 1984)