A homeowner contracts with a roofing company to replace their roof for $20,000. The contract specifies that the company will use 'Grade A architectural shingles.' After the roof is installed, the homeowner discovers the company used 'Grade B architectural shingles,' which are slightly less durable but visually indistinguishable and still meet local building codes. The cost difference between Grade A and Grade B shingles for the entire roof is $500. To replace the entire roof with Grade A shingles would cost $18,000. What is the most likely measure of the homeowner's damages?
- A$500 (difference in value between Grade A and Grade B shingles).
- B$18,000 (cost to replace the entire roof).
- C$20,000 (the full contract price).
- DNominal damages, as the roof is functionally sound.
Show answer & explanationAnswer & explanation
Correct answer: A. $500 (difference in value between Grade A and Grade B shingles).
When a breach results in a defect that can be remedied without undue economic waste (e.g., tearing down and rebuilding), damages are typically measured by the cost of repair. However, if the cost of repair is disproportionate to the diminution in value (economic waste), the damages are measured by the diminution in value. Here, replacing the entire roof for $18,000 to correct a $500 difference in shingle quality is economic waste; thus, the diminution in value ($500) is the appropriate measure.
Why the other options are wrong
- B. This would constitute economic waste, as the cost to replace ($18,000) is vastly disproportionate to the actual diminution in value ($500).
- C. The full contract price is not a measure of damages for a partial breach; the homeowner received a roof, just not exactly as specified.
- D. The homeowner suffered actual damages, quantified by the difference in value, so nominal damages are inappropriate.
Damages for Construction Defects (Economic Waste)
In construction contracts, damages for defective performance are typically cost of repair. However, if the cost of repair is grossly disproportionate to the diminution in value of the property (resulting in economic waste), damages are limited to the diminution in value (the difference in value between the performance promised and the performance received).
- Default measure: Cost of repair.
- Exception: Economic waste doctrine.
- Economic waste if repair cost is disproportionate to value loss.
- If economic waste, damages = diminution in value.
Memory trick: Remedies heal the contract wound, putting the injured party back where they would have been.