## Facts

- Homeowners contracted with a general contractor to build a custom home in Chemung County, New York, for a base price of $247,000 plus approximately $42,000 in additional features.
- The homeowners retained an architectural firm to prepare design drawings and, on the contractor’s advice, retained a professional engineer to prepare construction documents and conduct periodic inspections to ensure conformity with the drawings.
- During construction, the homeowners objected to a dormer over the main entrance; it was removed and rebuilt, then ultimately removed again as unsatisfactory, leaving the entrance unfinished.
- After moving in, the homeowners discovered the roof was centered over the library rather than the living room as shown in the drawings.
- The roof misplacement altered the home’s roof proportions, enlarged the overhang over the main entrance, and prevented use of entrance pillars as depicted in the drawings.
- The homeowners sued the contractor and the engineer for breach of contract based on nonconformity with the design drawings.
- After a nonjury trial, the court awarded $73,182.66 as the cost (plus related costs and interest) necessary to replace the roof and bring the home into conformity with the drawings.
- Defendants appealed, arguing the home was substantially performed and that replacement-cost damages would be unreasonable economic waste, so damages should be limited to diminution in value.

## Issues

1. In a construction-contract breach involving a custom home that deviates from design drawings, whether damages should be measured by the cost to replace defective work to conform to the contract or by diminution in value under the economic-waste doctrine.
2. Whether ordering roof replacement to correct the deviation constituted unreasonable economic waste where defendants asserted substantial performance in good faith.

## Decision

- The Appellate Division affirmed the judgment, including the $73,182.66 award, with costs.
- The court applied the default construction-contract measure of damages—cost to properly complete or replace defective construction—because the economic-waste exception did not apply on these facts.
- The court held the roof deviation was not a trivial defect given its effect on the home’s proportions and the intended entrance design.
- The court concluded that requiring correction by replacing the roof would not result in unreasonable economic waste and therefore upheld replacement-cost damages rather than diminution-in-value damages.

## Legal Principles

- The general measure of damages for breach of a construction contract is the difference between the amount due on the contract and the amount necessary to properly complete the job or replace defective construction, as appropriate.
- If a contractor’s breach is unintentional and constitutes substantial performance in good faith, and correcting the defect would cause unreasonable economic waste, damages may instead be limited to the difference between the property’s value as built and its value if properly completed.
- A significant deviation affecting the intended appearance and functional design of a custom structure may warrant cost-of-replacement damages when correction is consistent with the contract’s objective and does not amount to unreasonable economic waste.

## Conclusion

The court affirmed an award of roof-replacement damages for a material deviation from custom-home design drawings, holding that the cost-to-correct measure governed because the defect meaningfully affected the contracted-for design and correction was not unreasonable economic waste.


Lyon v. Belosky Constr., Inc., 247 A.D.2d 730 (N.Y. App. Div. 3d Dep’t 1998)