Nick Smallman
Peter Whitley
David Alpert
Courtney Mandel
Team 1 (Plaintiff)
Foreman (p) v. R and L Builders (d)
(1995)
Introduction
Both parties signed a $100,000 contract with specific, expressly provided
conditions, and the defendant has deliberately breached this contract. It was not until
after construction was completed that the plaintiff discovered he had not received what he
paid for. The defendant had been contracted to build a pool and a building to enclose it
in. The plaintiff clearly specified in the contract, and the defendant had agreed, that the
depth of the pool should be 7 feet 6 inches deep. The defendant did not meet this
requirement; instead, the maximum depth of the pool was only 6 feet 9 inches. The
defendant did not encounter any unforeseen event that rendered fulfilling his contractual
obligation impossible. To achieve the terms promised in the contract, it will now cost the
plaintiff $33,000 to demolish the existing pool and reconstruct the pool that should have
been built in the first place. The defendant purposefully breached the contract he signed,
and we argue the he must be held liable for damages. Since there is no question that the
contract was breached, the only question we have to address is whether the plaintiff is
entitled to (1) the reasonable cost of doing the work the defendant was supposed to
perform under the contract or (2) the difference between the value of the pool as it is now
and the value of the pool as it would have been had the defendant performed. It is
tempting to think that the plaintiff should be awarded damages equal to market value (2);
however, with a look at previous litigation and future efficiency, it is clearly not the
correct remedy in this case.
Nick Smallman
Peter Whitley
David Alpert
Courtney Mandel
Economic Analysis
Richard Posner summarizes that contract law has “five distinct economic
functions: (1) to prevent opportunism, (2) to interpolate efficient terms either on a
wholesale or retail basis (gap-filling versus ad hoc interpretation), (3) to punish avoidable
mistakes in the contracting process, (4) to allocate risk to the superior risk bearer, and (5)
to reduce the costs of resolving contract disputes.” While these are all reasonable
functions, he concedes, “contract law cannot readily be used to achieve goals other than
efficiency, as a ruling that fails to interpolate the efficient term will be reversed by the
parties in their subsequent dealings.” Therefore, it is essential that contract law focuses
on imposing liability to create incentives for value-maximizing conduct in the future.
Pigouvian solutions to externalities directly translate to contract law. As David Friedman
describes:
If I want to breach the contract, I must pay you enough to make you as well
off as if I had fulfilled it. By making me liable, the law forces me to take account
of all the costs due to my action. If my gain from breaching is more than your
loss, I should breach and will. If not, I shouldn't and won't. The legal term for this
rule is "expectation damages." If I breach, I must pay you enough to give you the
result you expected from my performance.
This is the correct rule if our only concern is efficient breach; however, we must also take
into account the incentives created by ruling for expectation damages and compare it to
our other options.
In the current case, the defendant breached the contract and in doing so
relinquished his first option to avoiding the costs associated with breaching a contract,
fulfilling it. Now, to rule in his favor and award no damages would leave an incentive for
future builders to cut corners, not honor stipulations in contracts, and breach. More
simply, it would decrease the value of contracts. Ruling for damages equal to market
value is also the wrong choice. The construction of the pool on the plaintiff’s private
Nick Smallman
Peter Whitley
David Alpert
Courtney Mandel
property is subjective building. The fact that it is personal and the plaintiff cares about
the completion of his pool makes it clear that market value will no suffice in this case.
The best remedy for the willful breach in this case is to award cost of performance
damages, previous cases support this ruling.
Morin Building Products Inc. v. Baystone Construction Inc. (1983) – Personal
Enjoyment
The specifics of the case are not the focus; instead, it is the way the judges
reached their decision that applies to the current case. The defense may argue that the
plaintiff’s pool as constructed at 6 feet 9 inches does not affect its overall quality. It is
safe to dive into, and there is no evidence that the pool’s value has decreased because of
the shortfall in depth. Because of this, it is arguable that a “reasonable person” would be
just as happy with a 6 feet 9 inch pool as a 7 feet 6 inch pool. However, as Posner states,
"the reasonable person standard is employed when the contract involves commercial
quality, operative fitness, or mechanical utility which other knowledgeable persons can
judge . . . The standard of good faith is employed when the contract involves personal
aesthetics or fancy...” There is nothing in the contract claiming that the plaintiff cares
about diving into his pool. He expressly asked for a 7 foot 6 inch pool for his personal
enjoyment and was given something other than what was agreed upon in the contract.
The law does not read into the contract an implied duty of reasonableness on the
plaintiff’s part. The defendant was building a pool for the sole enjoyment of plaintiff.
Therefore, it is up to the plaintiff to judge the adequacy of the building within the
stipulations of the contract.
Nick Smallman
Peter Whitley
David Alpert
Courtney Mandel
Hawkins v. McGee (1929) – Awarding Damages
After a lengthy appeals process, the Supreme Court ruled that the true measure of
damages would be the difference “between the value to (Hawkins) of a perfect hand such
as the jury found the defendant promised him, and the value of his hand in its present
condition.” The purpose of the law is "to put the plaintiff in as good a position as he
would have been in had the defendant kept his contract." The present case should be
similarly decided. Although there is no hair growing from the base of the pool, the
defendant has not delivered on his end of the contract. McGee was liable for the amount
sufficient to cover the cost of a new operation to correct the injury to the hand. Much the
same, the defendant in the current case should be held liable for and amount sufficient to
cover the cost of a new pool at the required depth – $33,000.
Peevyhouse v Garland Coal and Mining (1963) – Awarding Damages
The controversial ruling of the Peevyhouse case may be seen as an argument in
favor of the defendant. The majority opinion ruled that Peevyhouse should only be
awarded market value compensation for the breach in his contract. For our purposes, it is
first useful to view the dissenting opinion – the court cannot step outside of the contract
itself. There was a willful breach and damages should be accorded by reasonable cost of
what was promised. However, the majority opinion has some interesting things to say
when it comes to building contracts – the subject of the current case. Most importantly,
the judge states, “ the cost of performance of completion of the building as contracted is
ordinarily the measure of damages in actions for damages for the breach of such a
contract.” As cost of performance is the standard, it should be used in awarding damages
in our current case, and the defendant should be found liable for $33,000.
Nick Smallman
Peter Whitley
David Alpert
Courtney Mandel
Groves v. John Wunder Co. (1939) – Awarding Damages
The ruling in the Groves case set the precedence for the current issue at hand.
The majority concluded that the contract should be looked at like a construction contract
where the end product is the “uniform grade.” The Court also noted that the fact it was a
willful breach is important, and found that the proper award of damages is the cost of
setting things straight, or the cost of performance. On top of that, the ruling was
uninterested in the difference between market value and cost of completion. The land, if
improved would be worth only $12,000 more than it was before the contract, while it
would cost $60,000 to level the land. Since it would cost $60,000 to level the land,
Wunder was responsible to pay $60,000. Similarly, the end product in our case should
have been a pool with a depth of 7 feet 6 inches. The defendant willfully breached the
contract. The value of the pool may only increase by $4,000 by adding the deeper depth,
but the defendant is responsible to build what he said he would build in the contract.
Since it will cost $33,000 to fix the pool, the defendant should be responsible to pay
$33,000 in damages.
Conclusion
There is no question that the defendant breached the contract he signed with our
client. The precedence from previous cases combine to define a clear remedy for this
willful breach. As seen in the cases addressed above, when a personal (Morin Building
Products Inc. v. Baystone Construction Inc.) contract between two parties is breached, it
requires just compensation (Hawkins v. McGee, Peevyhouse v. Garland Coal and
Mining, and Groves v. John Wunder Co.) to enforce efficiency. Breaching contracts
cannot go unpunished, and the best remedy for this case is to award cost of completion
damages.