Stan Martin | Commonsense Construction Law LLC | April 28, 2016
From the Iowa Court of Appeal comes an interesting question and decision. If the construction project is not properly performed, and creates no benefit or improvement for the owner, what is the measure of the owner’s damages? The answer: the amount paid by the owner for the unfruitful endeavor.
The project was construction of a pond. Or rather, construction of what was supposed to be a pond, but which failed to hold water – a rather critical element of any man-made water feature. The owner paid the contractor $116,962.13 for the original construction, plus an additional $4,028.33 for related work. The contractor later billed the owner for an additional $93,600 for its efforts in trying to resolve the pond’s inability to retain water. At the original trial, the contractor sought to recover its additional costs, and the owner sought to recover the cost of putting the land back in the condition that existed prior to the unsuccessful creation of a water-filled pond. The original trial resulted in the court holding that neither party could recover from the other.
The appellate court noted:
- There was no evidence of additional work to be done that would result in a functioning pond.
- There was no evidence of diminution in value or profitability of the property.
- There was no evidence that the work already done had enhanced the value of the property.
- Removal of the pond structure would have no economic benefit to the owner, and no apparent effect on the value or use of the property.
The court also noted the prevailing standard for contract damages: to put the damaged party in the position it would have been in had no wrong been incurred. Historically, and typically for construction cases, this has been the cost of remedial work. Or when the cost of remedial work is grossly disproportionate to the damage to the property, diminution in value is the proper measure.
But here there was no remedial work that would bring about the desired outcome, and there was no diminution in value of the property. The court reasoned: “Because the pond does not function, it is of no value. While the land’s value was not diminished by the pond’s construction, it was also not benefited. In other words, [the owner]’s position has not improved in exchange for the $120,990.46 it spent. This cost, for which it received no benefit, is the amount of [the owner]’s damages.” The court cited to cases in two other states of similar import, where the work done was of no value to the property owner, and the owner’s damages were thus the out of pocket costs incurred. The case is Reilly Constr. v. Bachelder, Inc., 2016 Iowa App. LEXIS 411 (April 27, 2016), available here (Lexis subscription required).