Contracts
80 A.D.2d 318 (N.Y. App. Div. 1981)
Study notes for American Standard, Inc. v. Schectman: professor notes, cold call prep, exam angles, and memory aids.
Damages for breach of contract are awarded based on the cost of performance rather than the diminution in value.
In this landmark case, the court clarified the standard for determining damages in breach of contract cases, particularly when the performance can be quantified in terms of its cost. Professors often emphasize the significance of awarding damages based on the cost of performance rather than the diminution in value of the property. This ruling serves to uphold the expectation interest of the non-breaching party and incentivizes proper performance of contractual obligations. It's important to understand the implications of this decision on future contracts and how it defines the limits of recoverable damages.
Moreover, the case highlights the principle that when the cost to complete work is reasonable and reflects what was contractually promised, the court will typically avail the injured party the cost incurred to remedy the breach. The decision is pivotal for understanding how courts navigate between the sometimes conflicting principles of protecting parties' expectations while also ensuring fairness by not awarding damages that exceed the actual loss caused by the breach.
Cost to Cure: When a breach occurs, count the cost—performance must finish what you sought.
| Case | Distinction |
|---|---|
| Hadley v. Baxendale | Hadley focuses on foreseeability and the reasonable contemplation of damages, while Schectman emphasizes the cost of performance as a measure of damages. |
| Ranchers Exploration, Inc. v. Merit Energy Co. | Ranchers involves the issue of lost profits, contrasting with Schectman’s focus on remedial costs to complete performance. |
Awarding damages based on the cost of performance encourages parties to fulfill their contractual obligations and provides a clear standard for calculating damages.
This approach may lead to disproportionate damages that do not accurately reflect the actual harm suffered, potentially imposing excessive costs on the breaching party.
This case often appears on exams as an application of the principle of expectation damages in contract law, and students may be asked to discuss the implications of using cost of performance versus diminution in value.