Groves Co. v. Wunder Co.

MN, 1939

Cost of performance over market value remedy

Screening: sifting dirt (to make concrete or glass, etc?)

P: Groves (gravel plant/screening company and owner of vacant land zoned for industry)

D: Wunder (gravel company and lessee of the Ps land)

Facts: D was to make Ps land flat by the end of the 7 year lease and included in the K was the P’s screening plant, which D got at the outset (P’s consideration). D was to leave the land uniform with the roadway and pay P $105K in advance. D breached deliberately.

To complete the performance 288K sq. yards of overburden needed to be excavated an deposited elsewhere (reasonable cost was $60K). But the reasonable value of the property after the leveling would be only $12,160. Trial court awarded the latter.

Issue: Is cost of completing a K to excavate/improve the land (cost of performance) or difference in land value the measure of damages of the breach?

Held: Cost of completing the K. Absent the economic waste exception (having to destroy and rebuild to fix the flaw—damages would be the value difference between what it is and what it should have been), the cost of remedying the defect is the amount awarded as reasonable compensation for failure to render the promised performance. §346. Remanded for new trial.

o Court denies D protection by the equitable doctrine of substantial performance (was in bad faith AND there was no substantial performance).

o No Precedent: Never before had lack of value in the land leased to the contractor bound to improve it provide an escape for him from the ordinary consequences of the a breach of excavation K. IT is not value of land at completion, but cost of performance/completion. Other reasoning:

o This is tort action: The land value remedy would be if it was a tort action of trespass or damage to real estate (the only right the owner would have is loss of value). Here, the thing lost is a promised and paid for alteration in the land.

o But here the K to excavate has been paid in advance.

o HYPO: If a contractor sues the owner for breach, value of the land would not even factor into it (only the profits lost).

o PP: The smaller land damages would encourage a faithless contractor

o MAIN ace in the hole for P is that they had already advanced payment to D.

Dissent: There is no case on point here. It is the agreement + the law that makes the obligation enforceable. If the defect is one that cannot be remedied without an expenditure for reconstruction disproportionate to the end to be attained, or without endangering unduly other parts of the building (cost of performance is too different from market value), then the damages will be measured not by the cost of remedying the defect, but by the difference between the value of the building as it is and what it would have been if built in conformity to the contract. (ME: He is just saying that here there IS an economic waste exception)

If cost of completion is not grossly and unfairly out of proportion to the good attained, the owner is entitled to the cost of completion. Must consider reasonable prospects of the finished product (market value) in deciding if cost of performance is a reasonable remedy.