Groves v. John Wunder Co. , 205 Minn. 163 ( 1939 )

¹] Reported in 286 N.W. 235. Action for breach of contract. Plaintiff got judgment for a little over $15,000. Sorely disappointed by that sum, he appeals.

In August, 1927, S. J. Groves Sons Company, a corporation (hereinafter mentioned simply as Groves), owned a tract of 24 acres of Minneapolis suburban real estate. It was served or easily could be reached by railroad trackage. It is zoned as heavy industrial property. But for lack of development of the neighborhood its principal value thus far may have been in the deposit of sand and gravel which it carried. The Groves company had a plant on the premises for excavating and screening the gravel. Near by defendant owned and was operating a similar plant.

In August, 1927, Groves and defendant made the involved contract. For the most part it was a lease from Groves, as lessor, to defendant, as lessee; its term seven years. Defendant agreed to remove the sand and gravel and to leave the property "at a uniform grade, substantially the same as the grade now existing at the roadway * * * on said premises, and that in stripping the overburden * * * it will use said overburden for the purpose of maintaining and establishing said grade."

Under the contract defendant got the Groves screening plant. The transfer thereof and the right to remove the sand and gravel made the consideration moving from Groves to defendant, except that defendant incidentally got rid of Groves as a competitor. On defendant's part it paid Groves $105,000. So that from the outset, on Groves' part the contract was executed except for defendant's right to continue using the property for the stated term. (Defendant had a right to renewal which it did not exercise.)

Defendant breached the contract deliberately. It removed from the premises only "the richest and best of the gravel" and wholly failed, according to the findings, "to perform and comply with the terms, conditions, and provisions of said lease * * * with respect to the condition in which the surface of the demised premises was required to be left." Defendant surrendered the premises, not substantially at the grade required by the contract "nor at any uniform grade." Instead, the ground was "broken, rugged, and uneven." Plaintiff sues as assignee and successor in right of Groves.

As the contract was construed below, the finding is that to complete its performance 288,495 cubic yards of overburden would need to be excavated, taken from the premises, and deposited elsewhere. The reasonable cost of doing that was found to be upwards of $60,000. But, if defendant had left the premises at the uniform grade required by the lease, the reasonable value of the property on the determinative date would have been only $12,160. The judgment was for that sum, including interest, thereby nullifying plaintiff's claim that cost of completing the contract rather than difference in value of the land was the measure of damages. The gauge of damage adopted by the decision was the difference between the market value of plaintiff's land in the condition it was when the contract was made and what it would have been if defendant had performed. The one question for us arises upon plaintiff's assertion that he was entitled, not to that difference in value, but to the reasonable cost to him of doing the work called for by the contract which defendant left undone.

1. Defendant's breach of contract was wilful. There was nothing of good faith about it. Hence, that the decision below handsomely rewards bad faith and deliberate breach of contract is obvious. That is not allowable. Here the rule is well settled, and has been since Elliott v. Caldwell, 43 Minn. 357,45 N.W. 845, 9 L.R.A. 52, that where the contractor wilfully and fraudulently varies from the terms of a construction contract he cannot sue thereon and have the benefit of the equitable doctrine of substantial performance. That is the rule generally. See Annotation, "Wilful or intentional variation by contractor from terms of contract in regard to material or work as affecting measure of damages." 6 A.L.R. 137.

Jacob Youngs, Inc. v. Kent, 230 N.Y. 239, 243, 244,129 N.E. 889, 891, 23 A.L.R. 1429, is typical. It was a case of substantial performance of a building contract. (This case is distinctly the opposite.) Mr. Justice Cardozo, in the course of his opinion, stressed the distinguishing features. "Nowhere," he said, "will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract." Again, "the willful transgressor must accept the penalty of his transgression."

2. In reckoning damages for breach of a building or construction contract, the law aims to give the disappointed promisee, so far as money will do it, what he was promised. (9 Am. Jur., Building and Construction Contracts, § 152.) It is so ruled by a long line of decisions in this state, beginning with Carli v. Seymour, Sabin Co. 26 Minn. 276, 3 N.W. 348, where the contract was for building a road. There was a breach. Plaintiff was held entitled to recover what it would cost to complete the grading as contemplated by the contract. For our other similar cases, see 2 Dunnell, Minn. Dig. (2 ed. Supps.) §§ 2561, 2565.

Never before, so far as our decisions show, has it even been suggested that lack of value in the land furnished to the contractor who had bound himself to improve it any escape from the ordinary consequences of a breach of the contract.

A case presently as interesting as any of our own is Sassen v. Haegle, 125 Minn. 441, 147 N.W. 445, 446,32 L.R.A.(N.S.) 1176. The defendant, lessee of a farm, had agreed to haul and spread manure. He removed it, but spread it elsewhere than on the leased farm. Plaintiff had a verdict, but a new trial was ordered for error in the charge as to the measure of damages. The point was thus discussed by Mr. Justice Holt [125 Minn. 443] :

"But it is also true that the landlord had a perfect right to stipulate as to the disposal of the manure or as to the way in which the farm should be worked, and the tenant cannot evade compliance by showing that the farm became more valuable or fertile by omitting the agreed work or doing other work. Plaintiff's pleading and proof was directed to the reasonable value of performing what defendant agreed but failed to perform. Such reasonable cost or value was the natural and proximate damages. The question is not whether plaintiff made a wise or foolish agreement. He had a right to have it performed as made, and the resulting damage, in case of failure, is the reasonable cost of performance. Whether such performance affects the value of the farm was no concern of defendant."

Even in case of substantial performance in good faith, the resulting defects being remediable, it is error to instruct that the measure of damage is "the difference in value between the house as it was and as it would have been if constructed according to contract." The "correct doctrine" is that the cost of remedying the defect is the "proper" measure of damages. Snider v. Peters Home Bldg. Co. 139 Minn. 413, 414, 416,167 N.W. 108.

"Value of the land (as distinguished from the value of the intended product of the contract, which ordinarily will be equivalent to its reasonable cost) is no proper part of any measure of damages for wilful breach of a building contract. The reason is plain.

The summit from which to reckon damages from trespass to real estate is its actual value at the moment. The owner's only right is to be compensated for the deterioration in value caused by the tort. That is all he has lost.² But not so if a contract to improve the same land has been breached by the contractor who refuses to do the work, especially where, as here, he has been paid in advance. The summit from which to reckon damages for that wrong is the hypothetical peak of accomplishment (not value) which would have been reached had the work been done as demanded by the contract.

The owner's right to improve his property is not trammeled by its small value. It is his right to erect thereon structures which will reduce its value. If that be the result, it can be of no aid to any contractor who declines performance. As said long ago in Chamberlain v. Parker, 45 N.Y. 569, 572:

"A man may do what he will with his own, * * * and if he chooses to erect a monument to his caprice or folly on his premises, and employs and pays another to do it, it does not lie with a defendant who has been so employed and paid for building it, to say that his own performance would not be beneficial to the plaintiff."

To the same effect is Restatement, Contracts, § 346, p. 576, Illustrations of Subsection (1), par. 4.

Suppose a contractor were suing the owner for breach of a grading contract such as this. Would any element of value, or lack of it, in the land have any relevance in reckoning damages? Of course not. The contractor would be compensated for what he had lost, i. e., his profit. Conversely, in such a case as this, the owner is entitled to compensation for what he has lost, that is, the work or structure which he has been promised, for which he has paid, and of which he has been deprived by the contractor's breach.

To diminish damages recoverable against him in proportion as there is presently small value in the land would favor the faithless contractor. It would also ignore and so defeat plaintiff's right to contract and build for the future. To justify such a course would require more of the prophetic vision than judges possess. This factor is important when the subject matter is trackage property in the margin of such an area of population and industry as that of the Twin Cities.

For purposes of measuring damages for breach of construction contracts, those with municipal corporations (see City of St. Paul v. Bielenberg, 164 Minn. 72, 204 N.W. 544) are no exception to the general rule. No sound reason is assigned why they should be. We have seen no case indicating their supposed exceptional character as a factor of decision. If these so-called public contracts were in the suggested special category for measuring damages, a municipal corporation would be dealt with more favorably than the ordinary litigant. But courts cannot be more generous with one class of litigants than with another. Such partiality runs counter to the law's demand for equal treatment of litigants who stand on the same footing both as to right and as to remedy.

The geneology of the error pervading the argumentcontra is easy to trace. It begins with Seely v. Alden, 61 Pa. 302,100 Am. D. 642, a tort case for pollution of a stream. Resulting depreciation in value of plaintiff's premises, of course, was the measure of damages. About 40 years later, in Bigham v. Wabash-Pittsburg T. Ry. Co. 223 Pa. 106, 72 A. 318, the measure of damages of the earlier tort case was used in one for breach of contract, without comment or explanation to show why. That case was followed in Sweeney v. Lewis Const. Co.66 Wash. 490, 119 P. 1108, and Sandy Valley Elkhorn Ry. Co. v. Hughes, 175 Ky. 320, 194 S.W. 344, with no thought given to the anomaly of using in a case in contract a standard ordinarily applicable only in cases of tort. The Washington case, by the way, is sui generis. The contract was to waive damages for the lowering of a street grade. So it adopted as matter of express contract the measure of damages applicable in cases of trespass.

It is at least interesting to note Morgan v. Gamble, 230 Pa. 165,79 A. 410, decided two years after the Bigham case. The doctrine of substantial performance is there correctly stated, but plaintiff was denied its benefit because he had deliberately breached his building contract. It was held that:

"Where a building contractor agrees to lay an extra strong lead water pipe, and he substitutes therefor an iron pipe, he will be required to allow to the owners in a suit upon the contract, not the difference [in value] between the iron and lead pipes, but the cost of laying a lead pipe as provided in the agreement."

To show how remote any factors of value were considered, it was also held that:

"Where a contractor of a building agrees to construct two gas lines, one for natural gas, and one for artificial gas, he will not be relieved from constructing both lines, because artificial gas was not in use in the town in which the building was being constructed."

The objective of this contract of present importance was the improvement of real estate. That makes irrelevant the rules peculiar to damages to chattels, arising from tort or breach of contract. Crowley v. Burns Boiler Mfg. Co. 100 Minn. 178,187, 110 N.W. 969, 973, dealt with a breach of contract for the sale of a steam boiler. The court observed:

"If the application of a particular rule for measuring damages to given facts results in more than compensation, it is at once apparent that the wrong rule has been adopted."

That is unquestioned law, but for its correct application there must be ascertainment of the loss for which compensation is to be reckoned. In tort, the thing lost is money value, nothing more. But under a construction contract, the thing lost by a breach such as we have here is a physical structure or accomplishment, a promised and paid for alteration in land. That is the "injury" for which the law gives him compensation. Its only appropriate measure is the cost of performance.

It is suggested that because of little or no value in his land the owner may be unconscionably enriched by such a reckoning. The answer is that there can be no unconscionable enrichment, no advantage upon which the law will frown, when the result is but to give one party to a contract only what the other has promised; particularly where, as here, the delinquent has had full payment for the promised performance.

3. It is said by the Restatement, Contracts, § 346, Comment b:

"Sometimes defects in a completed structure cannot be physically remedied without tearing down and rebuilding, at a cost that would be imprudent and unreasonable. The law does not require damages to be measured by a method requiring such economic waste. If no such waste is involved, the cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance."

The "economic waste" declaimed against by the decisions applying that rule has nothing to do with the value in money of the real estate, or even with the product of the contract. The waste avoided is only that which would come from wrecking a physical structure completed, or nearly so, under the contract. The cases applying that rule go no further. Illustrative are Buchholz v. Rosenberg, 163 Wis. 312, 156. N.W. 946; Burmeister v. Wolfgram, 175 Wis. 506, 185 N.W. 517. Absent such waste, as it is in this case, the rule of the Restatement, Contracts, § 346, is that "the cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance." That means that defendants here are liable to plaintiff for the reasonable cost of doing what defendants promised to do and have wilfully declined to do.

It follows that there must be a new trial. The initial question will be as to the proper construction of the contract. Thus far the case has been considered from the standpoint of the construction adopted by plaintiff and acquiesced in, very likely for strategic reasons, by defendants. The question has not been argued here, so we intimate no opinion concerning it, but we put the question whether the contract required removal from the premises of any overburden. The requirement in that respect was that the overburden should be used for the purpose of "establishing and maintaining" the grade. A uniform slope and grade were doubtless required. But whether, if it could not be accomplished without removal and deposit elsewhere of large amounts of overburden, the contract required as acondition that the grade everywhere should be as low as the one recited as "now existing at the roadway" is a question for initial consideration below.

The judgment must be reversed with a new trial to follow.

So ordered.

² So also in condemnation cases, where the owner loses nothing of promised contractual performance.