Brief Fact Summary.
Plaintiffs hired Defendant to build a house and Plaintiff mortgaged a portion of the price. Plaintiffs found defects and incomplete construction in the house. Plaintiffs sued Defendant for breach of contract. Defendant countersued to foreclose the mortgage, claiming that Plaintiff had defaulted by not paying. The trial court found in favor of Plaintiffs in both actions and awarded Plaintiffs $73, 068.75, which was the cost of repairing the construction defects. The superior court and the appellate court affirmed. Defendant appealed arguing that the damages awarded to Plaintiffs should have been reduced by $43,000, the amount of the mortgage.
Synopsis of Rule of Law.
When a buyer receives a defective or incomplete building, any part of the price that is unpaid is deducted from the cost of completion that is awarded to the buyer.
Generally, when a builder breaches a bilateral construction contract by an unexcused failure to render substantial performance, he cannot maintain an action on the contract to recover the unpaid balance of the contract price because substantial performance, a constructive condition of the owner's duty to pay the balance, has not been satisfied.View Full Point of Law
Paul L Gould, Inc. (Defendant) contracted to build a house for P.A. Takis and Ourania Argentinis (Plaintiffs), where Plaintiffs mortgaged $43,000 of the purchase price. After Plaintiffs moved into the house, they noticed that some of the construction was incomplete and that there were numerous defects in what was constructed.
Whether part of a price that is unpaid on a building may be deducted from the cost of completion that is awarded to the buyer when the buyer receives a defective or incomplete building.
Yes. The court of appeals’ ruling is reversed on the issue of damages only and the case is remanded with an instruction to reduce the damages awarded to Plaintiff by $43,000. When a buyer receives a defective or incomplete building, any part of the price that is unpaid is deducted from the cost of completion that is awarded to the buyer.
Compensatory damages in a breach of contract action are meant to put the injured party in the place he would have been in absent the breach, therefore, he is not entitled to any amount that would compensate him for more than what he bargained for. While the lower courts were correct to find that Plaintiffs had not defaulted on the mortgage, this does not mean that Plaintiffs do not have to pay the mortgage. The lower courts’ decisions unjustly enriched Plaintiffs by compensating them such that they were in a better place than they would have been absent Defendant’s breach. If Defendant had performed the contract completely and correctly, Plaintiffs would have had to pay the mortgage. Under the compensatory damages model, there is no reason that they should be relieved of that payment. Plaintiffs’ award should have been reduced by $43,000, the amount of their unpaid mortgage.