Vol. 84, No. 8, August 2011
For most people, contracting with a builder to construct a house is a wonderful event, hallmarked by personal choice and aesthetic freedom. Depending on a person’s financial wherewithal, and within the bounds of local zoning laws, one can customize construction of virtually every component. If all goes as planned, the builder will transform what on paper is an amalgam of wood, brick, glass, and mortar into the proverbial dream home.
But as noted by iconic musician Sir Mick Jagger, “You can’t always get what you want.” Construction does not always go as planned. Some errors are cosmetic, relating to nonstructural components. Perhaps the contractor mistakenly orders granite countertops from Rome, Ga., instead of Rome, Italy, installs faux wood-laminate flooring instead of custom hardwood floors, or uses exterior brick of a color and texture different than the owner’s choice. Some errors are structural. Perhaps a wall is erected in the wrong place, floor joists are defectively installed, or a basement floor is unevenly poured.
In ensuing litigation over the defects, an owner most often wants to maximize recovery by getting enough money to fully repair the defects. On the other hand, a contractor generally wants to minimize damages by arguing that because the alleged defects have little or no effect on the structure’s value, and the repair costs are disproportionately higher than any loss in value, the court should invoke what is commonly known as the economic-waste doctrine and award damages based on diminished value rather than the cost to repair. The doctrine’s crux is that it would constitute economic waste to base damages on the cost to repair if the repairs substantially destroy what has already been built or are unnecessary because the defect does not really lessen the structure’s value.
Sometimes, a contractor proposes a far less costly, yet equally effective, repair alternative than that proposed by the owner. Under such circumstances, a court may invoke the economic-waste doctrine to in essence tell an owner that, again in the words of Mick Jagger, even though you may not get what you want, “You get what you need.” Such was the case for Ricky Zanow, whose house was built with cosmetically defective bricks. He sought $344,000 from the brick manufacturer and supplier to replace the bricks. In Champion Cos. of Wisconsin Inc. v. Stafford Development LLC,1 the Wisconsin Court of Appeals, applying the economic-waste doctrine, limited Zanow’s recovery to the $11,000 cost to restain, rather than replace, the bricks. The court found that restaining, at a cost far less than that for replacement, would put Zanow in as good a position as if the contract had been fully performed.
This article, with the Champion Cos. case as a backdrop, highlights the development and application of the economic-waste doctrine in Wisconsin construction defect cases and discusses practical ramifications for owners, contractors, and their attorneys.
Cost to Repair: Priority Measure. With respect to damages for defects and omissions in the performance of a building contract, a party is entitled to have what he or she contracts for or its equivalent.2 In 1899, the Wisconsin Supreme Court noted that “[t]he proper rule for measuring recoverable difference between substantial and complete performance of a building contract is not necessarily the cost of tearing down the defective work and rebuilding it so as to conform to the contract. It is the reasonable cost of remedying defects, so far as that can be done practicably, and the diminished value of the building so completed because of defects not so remediable.”3
A typical construction defect case is one in which “a building contract is substantially performed but the building contains defects which constitute a breach of the contract. In such cases many defects can be repaired at no economic waste and while it might cost slightly more to repair the defects than it would have cost to construct the building properly in the first place, the cost of the repair normally is a proper measure of damages.”4 Generally, the damages measure is the cost to repair the defect or complete the omission “and with this money, the aggrieved party can specifically correct the defects and supply the omissions.”5
Diminished Value: Economic-waste Measure. Application of these general rules becomes more complicated when there is an issue as to whether repairing or replacing defective construction would be economically wasteful.6 Courts will conclude that repairs result in “economic waste” when they either result in “unreasonable destruction of the work done” or the cost of the repairs is “materially disproportionate to the value of the corrections.”7 If reconstruction and completion in accordance with the contract involves unreasonable economic waste, then the damages measure as to those defects is “diminished value” – “the difference between the value the building would have had if properly constructed and the value that the building does have as constructed.”8 In short, the rule is the following: “[g]ive priority to the cost of repair rule when those items are repairable without economic waste and to the diminished value rule as a secondary rule to cover those defects, the correction of which would involve economic waste.”9
The economic-waste doctrine has long been recognized in Wisconsin. In 1905, the Wisconsin Supreme Court stated, “In case of entire neglect to furnish an item of labor or material, or in case of a defect which may be easily remedied without taking down and reconstructing a substantial portion of the building this allowance should equal the reasonable expense of supplying or correcting the defect. In case of a defect which could only be remedied by taking down and reconstructing some substantial portion of the building the allowance should be the amount which the building is worth less, by reason of the defect, than the contract price.”10 That same year, the court noted, “So far as the imperfections can be remedied without any great sacrifice of work and material wrought into the subject of the contract and the proprietor’s property, the contract price is to be reduced by so much as will measure the reasonable cost of applying such remedy, and otherwise the contract price is to be rebated to the extent of the diminished value of the subject contract by reason of the defects.”11
The economic-waste concept is not unique to Wisconsin jurisprudence, having been recognized and applied by a majority of jurisdictions. Although Wisconsin courts had already addressed the concept in several cases, Justice Benjamin Cardozo’s opinion in the 1921 New York case of Jacob & Youngs Inc. v. Kent12 led to national recognition of the doctrine. Justice Cardozo ruled that when a contractor constructing a “country residence” installed plumbing comprised of piping different than that requested by the owner, the damages measure was “not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing.” Justice Cardozo applied the diminution-in-value standard because the substituted pipe was comparable in quality and appearance to the pipe the owner requested, and to replace the pipe with the pipe originally specified “meant the demolition at great expense of substantial parts of the completed structure.” In noting that the damages measure is difference in value when the “cost of completion is grossly and unfairly out of proportion to the good to be attained,” he gave an example: “Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that through the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowance is not the cost of reconstruction.”13
Mark R. Hinkston, Creighton 1988 cum laude, practices with Dye, Foley, Krohn & Shannon S.C., Racine. His practice is primarily devoted to business and construction litigation. He can be reached at com mrh dfks-law dfks-law mrh com.
Neither Justice Cardozo in Jacob & Youngs Inc. v. Kent nor the Wisconsin Supreme Court in its early cases expressly used the term “economic waste.” Indeed, in 1931, in J.G. Jansen Inc. v. Rilling, the Wisconsin Supreme Court referred to what we now know as the economic-waste doctrine as the “diminished value rule.”14 The first apparent national reference to the term economic waste as it relates to construction-contract damages came a year later via section 346(1)(a) of the Restatement (First) of Contracts, which noted that as breach-of-contract damages for “defective or unfinished construction,” a person can get judgment for either “the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste” or “the difference between the value that the product contracted for would have had and the value of the performance that has been received by the plaintiff, if construction and completion in accordance with the contract would involve unreasonable economic waste.” The first express reference by the Wisconsin Supreme Court to the term economic waste came 28 years later in Plante v. Jacobs,15 involving a claim by homeowners for faulty workmanship and incomplete construction.
No Hard-and-fast Rules. In J.G. Jansen Inc. v. Rilling,16 the Wisconsin Supreme Court noted that while the damages rule in defect cases is “quite clear,” the “only difficulty arises in the application of the rule to the facts of the particular case.”17 It also stated that whether facts justify the cost-to-repair measure or the diminished-value measure is to be determined by the trial court “from all of the facts and circumstances in the particular case,” and “no hard-and-fast rules can be laid down” as to which measure applies in a given case.18 Currently, 80 years after J.G. Jansen, despite the fact that Wisconsin courts have revisited and applied the economic-waste doctrine on several occasions, there still appear to be no hard-and-fast rules to determine the potential for economic waste. In a general sense, courts endeavor to consider “the relationship between the cost of repair or reconstruction and the value of the corrections.”19
Many cases involve a combination of items that can be repaired without economic waste and others that cannot. Generally, courts will separate minor defects that can be easily rectified from substantial structural defects that may justify a diminished-value measure,20 unless doing so would result in confusion.21 A prime example of such separation is Plante v. Jacobs, in which the Wisconsin Supreme Court noted that “[w]hether a defect should fall under the cost-of-replacement rule or be considered under the diminished-value rule depends upon the nature and magnitude of the defect.”22 The court upheld the trial court’s ruling that the owners could recover the cost to repair certain items (ceiling-plaster cracks, mud jacking, patio floor, and a nonstructural patio wall) because they did not involve unreasonable economic waste. However, it held that a misplaced living room wall was “clearly under the diminished-value rule” because “to tear down the wall now and rebuild it in its proper place would involve a substantial destruction of the work, if not all of it, which was put into the wall and would cause additional damage to other parts of the house and require replastering and redecorating the walls and ceilings of at least two rooms.” The court held that in view of such “unreasonable and unjustified” economic waste, and the fact that the owners suffered no legal damage because experts testified that the wall misplacement had no effect on market price, the diminished-value measure mandated no award for that item.
Over the ensuing half-century since Plante, Wisconsin courts have considered the economic-waste doctrine in several cases. Defects that justified a cost-to-repair measure have included repair of an uncovered overhang, uncaulked windows, and a defective windowsill23 as well as painting, drywall, and stair repair.24 Defects warranting a diminished-value measure have included failures to install a roof truss, construct a concrete floor, and build a roof to specifications25 as well as the failure to build a level foundation.26 Courts also have found economic waste (thus rejecting cost to repair) when the owner wanted to replace pine trim with oak and replace steel siding with another pattern of steel siding,27 when misalignment of a house could not “be fixed without tearing down the entire home,”28 and when a floor and heating system could be modified rather than torn out and replaced.29
Champion Cos.: Guarding Against Replacement Windfall. Although the majority of economic-waste cases involve a situation in which a proposed repair would necessitate substantial destruction, in some cases a contractor may assert that the cost of repair constitutes an “unreasonable expenditure.”30 When applied in such context, economic waste is to some extent a misleading expression.31 Although preventing economic waste is the ostensible motive in cases in which the repair wreaks unreasonable havoc, the doctrine is applied in cases of disproportionate repair cost not specifically to prevent economic waste but to prevent owners from garnering a windfall. As noted by the Wisconsin Supreme Court, “[t]he rationale for [the] rule is to ensure a property owner only recovers her actual loss. Where, for example, a property’s value is decreased to $0, the owner should recover the lost value of her property, but awarding the cost of repair in excess of that value would give the property owner a windfall and be an inefficient use of economic resources.”32
The latest appellate pronouncement on the economic-waste doctrine, and an insightful example of the concern over homeowner windfall, came in Champion Cos. of Wisconsin Inc. v. Stafford Development LLC.33 Champion sued Ricky Zanow and Zanow’s company for nonpayment of a final invoice for bricks supplied by Champion to construct Zanow’s $800,000 home. Zanow asserted claims against Champion and the brick manufacturer, alleging that the bricks were defective. He sought $344,000 to replace the bricks. The manufacturer argued that the proper remedy was to repair the bricks by restaining them, which would cost less than $7,500. The trial court, after finding that the defects did not affect the home’s durability or structural integrity and that replacement would constitute economic waste, awarded $11,000 for the brick restaining cost.
On appeal, Zanow argued that the trial court erroneously applied the economic-waste rule by not requiring the other parties to credibly prove that there was minimal diminution in value because of the defects. The court of appeals first noted that neither party offered credible evidence as to the diminished value of the residence and that without evidence as to the property’s diminished value, the trial court was presented with only two cost estimates – the $344,000 cost of replacing the bricks or the $7,500 cost of restaining the bricks. “The application of the economic waste rule is not limited solely to a comparison of the diminished value measure of damages versus a cost to repair measure of damages. A fact finder presented with estimates for both a cost of repair and a cost to restore may determine whether the repair or restore option would result in unreasonable destruction to the property.”
The court of appeals affirmed the trial court, holding that a fact-finder may, but is not required to, consider evidence of the diminished value of property in assessing damages. It noted that the trial court “used economic reasoning to conclude that because repairing the bricks by re-staining them and replacing the bricks would lead to substantially similar results at different costs, damages should be awarded for the less expensive option. The circuit court was not wrong to say that awarding $344,000 in damages (replacing the bricks) to correct something that could be corrected for $11,000 (re-staining the bricks) would constitute unreasonable economic waste.” It concluded that the trial court, “in finding that the defect in the bricks was cosmetic, properly concluded that re-staining the bricks placed Zanow in as good a position as if the contract had been fully performed” and that because “the economic waste rule does not require an estimate of the diminished value of the property,” it affirmed the trial court’s judgment.
Generally, if an owner claiming defects proffers evidence regarding the cost of repairs, it is the contractor’s burden to provide evidence about diminution in value so that the trier of fact can consider both measures of damages.34 In Champion Cos., the appeals court rejected Zanow’s argument that this burden applies not only in the traditional case in which the cost to repair is compared to diminished value but also in cases in which the court compares the cost of repair (restaining) with the cost of replacement.
The Champion Cos. case highlights what some commentators see as a need to allow homeowners to present evidence of the subjective value that they attach to a particular feature and have that value factored into the economic-waste equation,35 as the drafters of the Restatement (Second) of Contracts have done. Section 347 of the Restatement (Second) of Contracts bases damages in part on the “loss in the value” to an owner caused by the other party’s failure or deficiency. Section 348 of the Restatement (Second) of Contracts provides that if an owner is unable to prove loss in value, the owner may recover damages based on 1) the diminution in the market price of the property caused by the breach, or 2) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to the owner.
A minority of courts, not including Wisconsin, have focused on the owners’ subjective value and then rejected the diminished-value measure and awarded the cost to repair. Most such courts cite the aesthetic value and special significance an owner imputes to certain home components.36 As a Florida court noted, in stating that it was sympathetic to replacement or repair of defective work, “If a proud householder, who plans to live out his days in the home of his dreams, orders a new roof of red barrel tile and the roofer instead installs a purple one, money damages for the reduced value of his house may not be enough to offset the strident offense to aesthetic sensibilities, continuing over the life of the roof.”37
Although the Wisconsin Supreme Court in Plante recognized that “[t]here may be situations in which features or details of construction of special or of great personal importance, if not performed, would prevent a finding of substantial performance of the contract,”38 no Wisconsin appellate court has used subjective-owner value as a measuring criterion in a construction-defect case. However, Wisconsin courts have recognized personal value in basing damages on cost to repair or replace in other contexts, such as in cases involving the destruction of trees. For example, in awarding damages based on the cost to replace fruit trees on a farm rather than on any diminished value, the supreme court noted that a real estate owner “has a right to enjoy it according” to the owner’s “own taste and wishes” and the “disturbance of that arrangement, therefore, might not impair the general market value.” Thus, the owner “might be wholly unable to prove any considerable damages merely in the form of the depreciation of the market value of the land.”39
Homeowners, contractors, and their attorneys should be aware of various practical factors when handling damages issues in construction-defect actions.
Homeowners. Residential construction defect cases are emotionally trying for most homeowners, many of whom have recently suffered through the challenging vigors of the problematic project that brings them to court. It is a reality that the nonowner trier of fact in construction defect cases, who must decide whether to apply the economic-waste rule of law, will not have the same emotional investment. Thus, some homeowners may be particularly surprised (and devastated) when a court applies the economic-waste doctrine to hold that they do not get repair costs because the repair is unreasonable in effect or price. They may view such a ruling as a complete minimization of their preferences and expectations and as an unfair exoneration of the contractor.
Defects cases involving errors or incompleteness as to aesthetic or nonstructural items that are costly to repair, and will not lead to diminished value if not repaired, pose the risk of an either/or scenario (either repair cost or diminished value, which may be zero). Owners should be aware of steps they may undertake before starting construction and during the project to minimize the risk that the economic-waste doctrine will be applied to reject a cost-to-repair recovery.
Before starting a project, and with the understanding that Wisconsin courts have not specifically recognized the Restatement (Second) of Contracts subjective-value methodology in defect cases, owners still may consider expressly stating in the contract that specific components are of particular, unique importance to them and that if a breach occurs, damages will be based on the cost to repair and not diminished value. If the day comes when Wisconsin adopts the Restatement (Second) test, this would help satisfy the owner’s burden to prove personal value. Including such language also may mitigate against a charge by the contractor at trial that the owner’s claims that certain omitted or incomplete items were of special importance were conjured up after suit was filed merely to avoid the potentially unpalatable impact of the economic-waste doctrine.
The potential for an assertion that an owner is exaggerating his or her wishes just to avoid a diminished-value finding is especially likely when the owner knew of the defect during the project but did nothing about it.40 Thus, an owner should be aware of what is transpiring on the project and immediately point out (and document) any irregularities so that they can be corrected during construction, if possible. The owner also should present evidence that he or she intends to use any potential money damages recovery for the proposed repairs and not something else.
In most situations not involving immediate safety or health concerns, an owner facing steep repair costs will pursue the contractor for money before making the repairs (as opposed to making the repairs and then seeking reimbursement). Many economic-waste cases involve high-end custom homes whose affluent owners may choose to “repair first, then sue.”41 In such cases, while presumably the contractor could still argue that a particular cost was unreasonable when compared to diminished value, any windfall argument – premised on a fear that the owner will take the money and run – will fall by the wayside.
Contractors. Perhaps understandably, contractors learning of the economic-waste doctrine have a converse reaction to that of owners: they are pleased to learn that despite their omission, they can avoid liability if they just prove “no harm, no foul.” But contractors should not be lulled into thinking that all they have to do is find an appraiser who will opine that an omission will result in no diminished value. They need to recognize that there are three scenarios in which an owner’s damages will not be limited to diminished value: 1) when repairs must be made to abate a dangerous or hazardous condition (such as when a landowner had a legal duty to remediate damages she suffered when gasoline leaked from an underground storage tank on her property42 and when a school district needed to build a retaining wall for student safety);43 2) when a defect results from a contractor’s bad faith;44 and 3) when repairs will not restore the property to its pre-defect value.
A case in which the court addressed the third exception (when repairs will not fully restore a structure’s value) is Hawes v. Germantown Mutual Insurance Co.,45 involving damages for a collapsed basement wall. The Wisconsin Court of Appeals rejected the contractor’s argument that the homeowner’s recovery was the lesser of the cost to repair or diminished value, but not both. The court noted that an award of diminished-value damages in addition to repair costs is “in the nature of special damages” and “reflects evidence that the repairs, when made, will not restore the property to its pre-collapse value.” The court recognized that the collapsed wall would have to be disclosed to prospective purchasers and that because the new wall (built by the same mason that built the failed wall) has design defects that may cause it to fail again, this also may have to be disclosed. Thus, the court of appeals held that the trial court did not err in awarding cost of repair or in finding that even after these repairs have been made, market value will be impaired.
Contractors should be careful about any attempt to contract away an owner’s right to recover repair costs, especially in the home improvement context. Section ATCP 110.06(2) of the Wisconsin Administrative Code (part of the Home Improvement Trade Practices Act) provides that a seller (contractor) may not enter into a contract whereby the buyer (owner) waives the right to assert against the contractor any claim the owner may have under the contract. It is anticipated that owners may argue that a provision waiving repair costs and limiting damages to diminished value contravenes this regulation.
Attorneys. Attorneys for both contractors and owners should be keenly aware of the need for and importance of appropriate expert testimony in construction defect cases. Owners’ counsel should recognize that although the client-owners may profess having much construction expertise as a result of their involvement with the project, such experience alone will not qualify them as expert witnesses on the issues of defects, the feasibility of repair versus replacement, or the costs to repair or replace. Wisconsin courts permit nonexpert owners to testify as to the value of their real property,46 but not as to the feasibility and cost of repair versus replacement because this requires “technical or other specialized knowledge beyond that of the ordinary layperson.”47 Thus, it behooves counsel to retain not just any contractor to opine on these issues, but an appropriately qualified construction expert possessing “the specialized knowledge needed to offer an opinion on the feasibility and cost of repair, as opposed to replacement.”48
Owners’ counsel should communicate with their retained experts to make sure that any proposed repair protocol (and the cost of the same) is indeed a realistic and necessary approach. Less sophisticated experts, unaware of the economic-waste doctrine, may believe they are doing counsel and the owner a favor by providing a high repair estimate. Yet overzealous experts who err on the side of extravagant repair proposals with a large price tag may find themselves walking the case right into the economic-waste trap.
It generally will be the contractor’s burden to prove economic waste so as to justify the diminished-value measure of damages. In cases in which a contractor retains an appraiser to offer such an opinion, owner’s counsel should also consider hiring an appraiser, not only to challenge the findings of the contractor’s appraiser but also to come up with a diminished-value amount, just in case the court applies the economic-waste doctrine and holds that damages should be based on diminished value. Thus, although a nonexpert owner of real property can testify as to its fair market value, a professional real estate appraiser should be used instead because the real issue is not fair market value alone but the impact of defects and proposed repairs on such value.
Some commentators suggest that in deciding whether to apply the economic-waste doctrine, a court should first ask the following, as Justice Cardozo apparently did in Jacob & Youngs Inc. v. Kent: Will the proposed repairs provide the same quality and appearance as that which the owner contracted for? If in a particular case, the answer is “Yes,” and the cost to repair or replace will greatly exceed any diminished value, or repair or replacement will cause disproportionate destruction (and none of the economic-waste exceptions apply),49 it is likely that the court will apply the economic-waste doctrine to reject repair or replacement damages. It becomes a more difficult issue when a plaintiff owner argues that even though, after repair or replacement, a component’s quality is the same as that contracted for, it falls far short of what the owner wanted aesthetically (the “appearance” factor).
Economic waste is in essence a legal term of art that in the construction defect context has defied specific pragmatic definition beyond repairs causing substantial destruction or repair costs disproportionate to value. Professor Corbin noted that whether the economic waste in any given case is unreasonable cannot be resolved by the application of any rule of law and “prevailing practices and opinions (the mores)” of men and women, “involving their emotions as well as reason and logic, must be taken into account.”50 But Wisconsin courts, like courts in most other jurisdictions, have generally not factored in owners’ emotions, reason, and logic – their subjective values or expectations. Instead, as in most other jurisdictions, the Wisconsin courts have done their best to work with and apply the economic-waste template melded through considering the issue in construction cases for more than a century. At some point, however, it is likely that a Wisconsin appellate court will have to decide whether and to what extent an owners’ personal choice and investment in a particular component – “what they want” – is taken into account. Unfortunately for Ricky Zanow, the Champion Cos. case did not present him with that opportunity.
1 Champion Cos. of Wis. Inc. v. Stafford Devel. LLC, 2011 WI App 8, 331 Wis. 2d 208, 794 N.W.2d 916.
2 De Sombre v. Bickel, 18 Wis. 2d 390, 398, 118 N.W.2d 868 (1963).
3 Ashland Lime, Salt & Cement Co. v. Shores, 105 Wis. 122, 133, 134, 81 N.W. 136 (1899).
4 W.G. Slugg Seed & Fertilizer v. Paulsen Lumber, 62 Wis. 2d 220, 214 N.W.2d 413 (1974).
5 Id. at 225-26.
6 Jacob v. West Bend Mut. Ins. Co., 203 Wis. 2d 524, 541, 553 N.W.2d 800 (Ct. App. 1996).
7 W.G. Slugg Seed, 62 Wis. 2d at 226.
9 Id. at 227. “Diminution in value and cost of repair are not two separate harms – they are two different ways of measuring the same harm. If the harm … is not covered as measured by diminished value, it is not covered as measured by cost of repair.” Vogel v. Russo, 2000 WI 85, ¶ 26, 236 Wis. 2d 504, 613 N.W.2d 177 (quoting New Hampshire Ins. Co. v. Vieira, 930 F.2d 696, 701-02 (9th Cir. 1991)).
10 Sherry v. Madler, 123 Wis. 621, 627, 101 N.W. 1095 (1905).
11 Manning v. School Dist. No. 6, 124 Wis. 84, 101, 102 N.W. 356 (1905). See also Buchholz v. Rosenberg, 163 Wis. 312, 314, 315, 156 N.W. 946 (1916) (“If the defect can be remedied without reconstructing a substantial part of the building or, as otherwise expressed, without great sacrifice of work and material already wrought into the building, the reasonable cost of correcting the defect should be allowed; if otherwise, the diminished value of the building, on the basis of the contract price, by reason of the defect…”); J.G. Jansen Inc. v. Rilling, 203 Wis. 193, 201, 232 N.W. 887 (1931) (“It is equally apparent that the departure from the specifications as found by the court cannot be remedied without taking down and reconstructing a substantial portion of the building or without great sacrifice of work and material wrought into the building”); Mohs v. Quarton, 257 Wis. 544, 44 N.W.2d 580 (1950) (“Here again counsel concedes that some of the defects were structural and incapable of being remedied without reconstructing a substantial part of the building at great sacrifice of work and material already wrought into the building”).
12 Jacob & Youngs Inc. v. Kent, 230 N.Y. 239, 242-44, 129 N.E. 889 (1921).
13 Id. at 245.
14 J.G. Jansen, 203 Wis. 193.
15 Plante v. Jacobs, 10 Wis. 2d 567, 103 N.W.2d 296 (1960).
16 J.G. Jansen, 203 Wis. 193.
17 Id. at 200.
18 Id. at 201.
19 McKenzie v. Warmka, 81 Wis. 2d 591, 260 N.W.2d 752 (1977).
20 Stern v. Schlafer, 244 Wis. 183, 12 N.W.2d 678 (1943).
21 See Mohs v. Quarton, 257 Wis. 544, 44 N.W.2d 580 (1950) (holding that because separation of defects would lead to confusion, rule of diminished value could apply to all defects).
22 Plante, 10 Wis. 2d 567.
23 Tri-State Home Improvement Co. v. Mansavage, 77 Wis. 2d 648, 253 N.W.2d 474 (1977).
24 Lessor v. Wangelin, 221 Wis. 2d 659, 586 N.W.2d 1 (Ct. App. 1998).
25 W.G. Slugg Seed, 62 Wis. 2d 220.
26 Jansen v. Vils, 34 Wis. 2d 332, 340, 149 N.W.2d 551 (1967).
27 Caflisch v. Cross, No. 96-0396, 1996 WL 670646 (Wis. Ct. App. Nov. 21, 1996) (unpublished opinion).
28 Prather v. Crane, No. 03-1041, 2004 WL 51115 (Wis. Ct. App. Jan. 13, 2004) (unpublished opinion).
29 Metz v. Prism Corp Sw., No. 95-1899, 1996 WL 354138 (Wis. Ct. App. June 27, 1996) (unpublished opinion).
30 See Wiggins Constr. Co. v. Joint Sch. Dist., 35 Wis. 2d 632, 639, 151 N.W.2d 642 (1967) (noting that “[t]he finding of the trial court, if based on initially correct premises, was determined by the proper method of measuring damages, namely, what was the reasonable cost of remedying the defects as are remedial without unreasonable expenditure? ”).
31 See Restatement (Second) of Contracts § 348 cmt. c (1979) (“It is sometimes said that the award would involve ‘economic waste,’ but this is a misleading expression since an injured party will not, even if awarded an excessive amount of damages, usually pay to have the defects remedied if to do so will cost him more than the resulting increase in value to him”).
32 Nischke v. Farmers & Merchants Bank, 187 Wis. 2d 96, 118, 522 N.W.2d 542 (Ct. App. 1994). See also John D. Calamari & Joseph M. Perillo, Treatise on Contracts § 14-29, at 560-61 (1977) (“It seems apparent however, that the true rationale is that recovery for the cost of remedying the defect would involve unjust enrichment. In all likelihood, if the owner were to recover this amount in such circumstances he would pocket the recovery. Most likely he would not undertake to remedy the defect…. The end result would be that the owner would have a structure substantially in compliance with the contract and a sum of money far in excess of the pecuniary harm done to him. Economic waste, then, is merely a criterion by which one can determine whether or not the owner reasonably would remedy the defect or would utilize the building in its defective state. Another criterion is whether the owner’s purpose is to gratify personal taste and fancy. If so, he may be entitled to damages measured by the cost of completion even if this involves economic waste”).
33 Champion Cos., 2011 WI App 8, 331 Wis. 2d 208.
34 Engel v. Dunn County, 273 Wis. 218, 222, 77 N.W. 2d 408 (1956) (holding that “[t]he
absence of such evidence does not render evidence of cost of repairs insufficient to support a finding of damage in that amount.”).
35 See, e.g., Richard D. Schepp, A Call For Recognition Of Owners’ Subjective Valuations In Residential Construction Defect Cases, 1989 Wis. L. Rev. 1139, 1989; Carol Chomsky, Of Spoil Pits and Swimming Pools: Reconsidering the Measure of Damages for Construction Contracts, 75 Minn. L. Rev. 1445, 1451-60 (1991).
36 See, e.g., Fox v. Webb, 268 Ala. 111 (1958) (“In regard to the case at bar it may be observed further that a distinction exists between a contract to construct a dwelling for the owner who plans to live therein and a contract to construct a commercial structure where the aesthetic taste of the owner is not so deeply involved. It seems to us that when an owner contracts to have a dwelling constructed he wants a particular structure, not just any structure that could be built for the same price. We, therefore, think that the trial court was correct in awarding damages equal to the amount required to reconstruct the dwelling so as to make it conform to the specifications, rather than adopting the difference in loan value on the dwelling as the measure of damages, as contended by appellant”); Advanced Inc. v. Wilks, 711 P.2d 524 (Alaska 1985) (“In some cases, such as where the property is held solely for investment, the court may conclude as a matter of law that the damage award can not exceed the diminution in value. Where, however, the property has special significance to the owner and repair seems likely, the cost of repair may be appropriate even if it exceeds the diminution in value”); Lyon v. Belosky Constr. Inc., 247 A.D.2d 730, 669 N.Y.S.2d 400 (3d Dist. 1998) (“It is clear from the record that the aesthetic appearance of the home, both inside and out, was of utmost importance to plaintiffs. Our review of the photographs of the home as constructed compared with the design drawings convinces us that plaintiffs did not get the benefit of their bargain and that requiring defendants to remedy the problem would not, under these particular circumstances, result in unreasonable economic waste”).
37 Gory Assoc. Inds. v. Jupiter Roofing, 358 So. 2d 93 (Fla. Ct. App. 1978).
38 Plante, 10 Wis. 2d at 571.
39 Gilman v. Brown, 115 Wis. 1, 7-8, 91 N.W. 227 (1902).
40 See, e.g., Plante, 10 Wis. 2d at 573 (“There is no evidence that defendants requested or demanded the replacement of the wall in the place called for by the specifications during the course of construction”).
41 Of course, such owners must be cognizant of Wis. Stat. section 895.07 (“Claims against contractors and suppliers”), which requires that owners provide written notice of defects and an opportunity to cure before proceeding with a defects claim.
42 Nischke, 187 Wis. 2d at 118 (“[W]e conclude that because Nischke is legally obligated to incur the costs of removing the hazard on her property, on retrial she may recover for those costs even though they exceed the property’s diminished value…. Similarly, the discharge of a hazardous substance is an environmental hazard to the citizens of Wisconsin. Nischke has a duty as a landowner in possession of discharged hazardous substances to take remedial measures to restore the environment”).
43 School Dist. v. Kunz, 249 Wis. 272, 24 N.W.2d 598 (1946) (“Damages were awarded on the basis of the cost of the retaining wall…. A reasonable argument could be made that in any case the cost of rectifying the damage is the proper measure even though it may exceed the diminution in value of the damaged property, but it is not necessary to go that far to support this judgment. The respondent school district, as a public agency, maintained its schoolhouse and schoolground in discharge of a governmental function. The caving away of portions of the schoolground endangered the safety of the children for whom the school was being maintained. Obviously, nothing less than the removal of the hazard would permit the district to function as it should. Supposing that the diminution in the commercial value of the schoolground were less than the cost of the wall, it would hardly be proper to saddle the difference upon the taxpayers of the district”).
44 De Sombre, 18 Wis. 2d 390.
45 Hawes v. Germantown Mut. Ins. Co., 103 Wis. 2d 524, 309 N.W.2d 356 (Ct. App. 1981).
46 Trible v. Tower Ins. Co., 43 Wis. 2d 172, 187, 168 N.W.2d 148 (1969).
47 See Wickman v. State Farm Fire & Cas. Co., 616 F. Supp. 2d 909, 920-21 (E.D. Wis. 2009) (noting “while the Wickmans may have learned a great deal from their experience in the design and construction of their house, the addition to it, and its replacement, they clearly lack the education, training or experience that would be needed to offer an expert opinion … on the question of what it would have cost to repair the home instead of demolishing it and building an entirely new home”).
48 Id. at 921.
49 See supra nn. 42-45.
50 5 Arthur L. Corbin, Contracts § 1089, at 492 (1964).