Damages

• Author: Stephen A. Hess
• Pages: 667-702

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4.0 INT RODU CTI ON

A. Over view of Chapter

The general principles that govern the award of damages in claims involving

construction disputes are no different from those employed in other cases. At

the same time, the application of these principles to construction claims pro-

vides special considerations that make the assessment of damages a matter of

substantial complexity that requires attention to the particular circumstances

surrounding construction contracts.

This chapter begins with a brief review of the most important measures

of damages utilized in construction cases (Section 24.02). It then sets out the

particular application of these rules in the calculation and proof of damages in

the construction setting (Section 24.03) and discusses speci c legal doctrines

that serve to mitigate or bar construction claims (Section 24.04). The chapter

concludes by discussing contractual and other limitations on a party’s liability

for construction damages (Section 24.05). The function of this chapter is not to

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Damages

STE PHEN A. HE SS

C H A P T E R

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668 CO N S T R UC T I O N L AW

provide an exhaustive treatment of all the intricacies of damage doctrines and

the calculations of damages—it would take several books from a construction

law library to cover those matters in sufcient detail for the working construc-

tion lawyer—but rather to introduce the student to the most important con-

cepts in construction law damages.

B. “Me asures o f Damage s” vers us “Cause o f Actio n”

This chapter is concerned with the calculation of damages once a claim is

proven and does not discuss in detail the various substantive claims that a

party may try to establish related to a construction project. Although a specic

“cause of action” may be closely intertwined with a related “measure of dam-

ages,” it is important to understand the distinction between the two concepts.1

A cause of action is a set of precise elements that a claimant must satisfy

to establish its entitlement to relief. Once the cause of action is proven and the

claimant has established its entitlement to relief, the amount of relief to which

the aggrieved party is entitled is dened by the measure of damages. As the

following discussion suggests, most causes of action are associated with a par-

ticular measure of damages.

However, some causes of action leave the claimant with the right to choose

among various measures of damage with respect to quantum meruit below.

Moreover, as the reader will see, courts may modify a presumed measure of

damages (or substitute an alternative measure of damages) where the pre-

sumed measure of damages would result in injustice to one of the parties, as in

the case of economic waste.

Finally, the careful reader will learn that judicial opinions are not always

careful to distinguish between causes of action and measures of damages. Any

person who delves into the world of “unjust enrichment” or “quantum meruit”

will learn quickly that those phrases can be used to refer to causes of action,

to measures of damages, or to both at the same time. This is not a matter of

sloppy writing or muddled thinking by the courts. Rather, it is a consequence

of the very close relationship between causes of action and damages, and with

a little experience in this arena, an attorney can uidly move between the ana-

lytically distinct concepts.

1. See, e.g., Pepi Corp. v. Galliford, 254 S.W.3d 457, 2007 WL 441582 (Tex. Ct. App. 2007), in a

dispositive issue related to competing statutes of limitations, the court held that a subcontractor’s

claim against a property owner was a quantum meruit claim founded on general principles of

unjust enrichment, rather than an independent cause of action for unjust enrichment—which

cause Texas recognizes.

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4.0 GENER AL MEASUR ES OF DAMAGES

The function of this section is twofold. First, it brings together a summary of

several measures of damages that students often encounter in different courses.

Second, it provides some glimpse into how the common measures of damages

play out in the context of construction cases.

A. Breach of Co ntract a nd Relat ed Claim s

By far the most common claims related to construction projects are those

involving breach of contract.

1. Expectation Interest (Breach of Contract)

Generally, “a party is entitled to have what he contracts for or its equivalent,”2

which is another way of saying that a party is entitled to the “benet of his

bargain.” When a breach by the opposing party deprives the claimant of the

benet of that bargain, a court will endeavor to protect that benet; in other

words, the goal in fashioning a remedy for the breach of most contracts “is to

award a sum that will put the non-breaching party in as good a position as he

would have been in had the contract been performed.”3 In literature, this is

generally referred to as a party’s “expectation interest” in the fruit of its con-

tract. Generally, “rights of the parties with respect to a breach of contract are

xed at the time of breach, and damages are measured as of that time.”4

Although this single measure of damages applies to most breach of con-

tract cases, the specic rules that apply toward calculating a party’s “benet

of the bargain” may vary, depending on whether the claimant is an owner, a

design professional (or construction manager), or a contractor (or subcontrac-

tor). The following discussion summarizes the typical damages that each of

these parties may seek to recover. At the same time, the reader should bear

in mind that the general measure of damages that applies to each is still the

same—the parties all want to get the benet of their respective bargains—but

the manner of calculating that benet differs from one party to the next.

a. Owner’s Damages

From the perspective of understanding damage claims, the owner of a building

or construction project can be understood as contracting for three specic ben-

ets related to its project. First, the owner expects the contract to be completed

for the contract price. Second, the owner expects the project to be completed

2. Charlotte v. Skidmore, Owings and Merrill, 407 S.E.2d 571, 580 (N.C. App. 1991).

3. Hernandez v. Westoak Realty & Inv., Inc., 771 S.W.2d 876, 880 (Mo. Ct. App. 1989).

4. Fairway Builders, Inc. v. Malouf Towers Rental Co., Inc., 603 P.2d 513 (Ariz. Ct. App. 1979).