§15.5 Owner's Damages Components

• Jurisdiction: Washington

§15.5 OWNER'S DAMAGES COMPONENTS

There are many types of damages available to an owner when a contractor is in default or the contract is terminated. Some examples of these damages are set forth in the example below.

Example:

Types of Damages Available to Owner " Expectation Damages " Cost of Repairs for Nonconforming Work " Cost to Complete/Change in Value " Cost of Delay (Liquidated or Actual) " Lost Profits

In Washington, whether or not the contract has been substantially performed or the contractor has achieved substantial completion may affect the damages available to the owner. Eastlake Constr. Co. v. Hess, 102 Wn.2d 30, 40, 686 P.2d 465 (1984). With substantial completion, the cost to complete is recoverable. Id. Without substantial completion, the measure of damages is based on the change in value. Id. at 45-48.

(1) Expectation damages

In Washington, contract damages ordinarily are based on the injured party's expectation interest. "The purpose of expectation damages is to return the injured part to 'as good a pecuniary position as [she] would have if the' breaching party would have performed properly." Floor

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Exp., Inc. v. Daly, 138 Wn. App. 750, 754, 158 P.3d 619, 622 (2007) (quotingEastlake Constr., 102 Wn.2d at 39 (citing Diedrick v. Sch. Dist. 81, 87 Wn.2d 598, 610, 555 P.2d 825 (1976))); see also Panorama Vill. Homeowners Ass'n v. Golden Rule Roofing, Inc., 102 Wn. App. 422, 427, 10 P.3d 417 (2000). Thus, expectation damages include any incidental or consequential damages that flowed naturally from the breach. Floor Exp, 138 Wn. App. at 754.

An owner may recover its expectation damages as long as such are not clearly excessive. These damages are increased by incidental or consequential damages, such as site cleanup and so forth. The damages are decreased by any cost avoided by termination, and usually this amount consists of the unpaid contract balance.

Expectation damages may be described as shown in the example below.

Example:

Expectation Damages Loss of Value to Owner PLUS Incidental/Consequential Damages LESS Any Cost Avoided by Termination = Net Owner Expectancy

An owner's expectation damages are limited, however, by the concept of economic waste. Restatement (Second) of Contracts §347 (1981); 1 Robert E. Kehoe, Jr., Jury Instructions for Contract Cases §9.12 (1995 & Supp. 2000). Economic waste occurs when the cost to repair deficiencies in construction is dramatically disproportionate to the added value of the repairs, absent an unsafe condition. Essentially, economic waste relieves a contractor of performing work that is commercially impractical. Bernard A. Reinert, Limitations on Recoverable Damages, Construction Law., Apr. 1998, at 5. There is no specific calculation for determining whether the doctrine of economic waste applies.

Nevertheless, as the court in Eastlake Construction Co. explained:

If an award based on the cost to remedy the defects would clearly be excessive and the injured party does not prove the actual loss in value to him, damages will be based instead on the difference between the market price that the property would have had without the defects and the market price of the property with the defects.

102 Wn.2d at 48. As a result, if an owner's claimed expectation damages are clearly excessive, the damages are limited to what is referred to as the "diminution of market price."

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Example:

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