By Adam Whiteman, Commercial Collection Attorney
Proving up damages in a residential construction defect case can be tricky business. Whereas the general rule is that the cost of repairing the defective work might seem the appropriate path to proving up damages, this is not the case when correction of the work would require a substantial tearing down and rebuilding of the structure, in which case the measure of damages is the difference in value between the work if it had been performed according to the contract and that which was actually performed.
In the case of Witty v. C. Casey Homes, Inc., 430 N.E.2d 191 (1 st Dist. 1981), the plaintiff alleged that contrary to the specifications in their building contract for a new home, which called for“face brick veneer,” the defendant contractor substituted defective ordinary brick. At trial, the plaintiffs called an engineer as a witness who testified about the defects in the brick and that “it would cost $50,000 or more to replace the face brick in the residence.”The trial court determined that the plaintiff had applied the incorrect measure of damages on the case and denied their request for repair damages. The appellate court affirmed, and the plaintiff went back to their defective home empty handed.
The court initially set out the general rule as follows:
As a general rule, the measure of damages or the credit due the purchaser, when performance by the builder has been less than full performance, is the cost of correcting the defects or completing the omission.
But then the court explained:
But this general rule only applies where the correction or completion would not involve unreasonable destruction of the work done by the contractor and the cost thereof would not be grossly disproportionate to the results obtained. If to repair the defects or omissions would require a substantial tearing down and rebuilding of the structure, the measure of damages is the difference in value between the work if it had been performed according to the contract and that which was actually performed.
The court used the phrase “dimunition in value” to describe “the difference in value between the work if it had been performed according to the contract and that which was actually performed”. Because the plaintiff in the Witty case had failed to introduce any evidence of “diminution in value”, their complaint was denied. In other words, the court determined that the plaintiffs failed to prove the proper measure of damages. See also Park v. Sohn, 89 III.2d 453 (1982) (stating rule of damages calculation).
How, then, does one go about proving dimunition in value? For this, expert testimony will be required.
In Knowles V. Westbrook Builders Ltd., 544 N.E.2d 121 (3rd Dist. 1989), the plaintiffs sued their builder for failing to complete the home it had been contracted to build in conformity with applicable building codes. In proving up their damages, the plaintiffs provided evidence of both the cost to repair the defects as well as the lost value of the home given the existing defects. The expert witnesses who presented this testimony included a real estate appraiser and an architect. The jury verdict in plaintiffs favor was affirmed, the evidence being deemed sufficient to prove damages.
As a litigator, if you are presented with a case where the cost of repairs would exceed the dimunition in value of the defective structure, then it is prudent to submit evidence of both the cost of repairs and the dimunition of value since you cannot reach the question of dimunition of value until you have first shown it exceeds the cost of repairs, the jury should then be instructed to consider both elements of damages. Thus, where the question of dimunition will be addressed, the jury should be instructed that, “it must first consider costs of repair, and that it could go to diminution of value only if it found (1) the cost of correcting the defects was unreasonably disproportionate to the benefit of the purchaser, or (2) if correcting the defects would entail an unreasonable destruction of the builder’s work.” Wells v. Minor, 578 N.E.2d 1337, 1343 (4th Dist. 1991)
The lesson here is to be very careful about how you prepare for trial in regards to a residential construction defect. Nothing would be worse than spending the time and money to construct what you believe is the foundation for a winning case, only to see it come tumbling down because you did not present proper evidence of damages.
Adam Whiteman is a commercial collection attorney who practices in Chicago. He is a member of the Commercial Banking, Collections & Bankruptcy Section Council.