American Standard, Inc. contracted with Schectman to dismantle and remove a steel mill and deliver a completed piece of land. Schectman failed to grade the property as required by the contract. The cost to complete grading was $90,000, but it only decreased the property's value by $3,000. American Standard sought damages equal to the cost of performance, arguing that the grading was an integral contract term.
Should damages be awarded based on the cost of performance or the diminution in value due to the breach of contract?
In determining damages for breach of contract, where the breach involves a failure to complete contractual performance, courts often consider whether the remedy should focus on restoring the injured party to the position they would have occupied had the contract been fully performed or based on the diminution in the value of the promised performance.
The court awarded damages based on the cost of performance, requiring Schectman to pay for the full cost to adhere to the contracted land grading obligation.
The court reasoned that the contract explicitly required specific performance of grading due to its significance to American Standard. The contract was interpreted in light of both parties clearly intending for that specific result, not merely categorically improving land value. There was no indication that the cost of completion was grossly disproportionate to the contract's purpose, which justified awarding the full performance cost.
American Standard v. Schectman is significant in contract law as it underscores the importance of the performance aspect in contractual obligations. The outcome illustrates that specific performance, even if economically inefficient, can be prioritized to honor the specific expectations and agreements of the contractual parties. For law students, this case highlights judicial emphasis on honoring the letter of a contract, ensuring that parties are held accountable to their explicit agreements.
American Standard, Inc. v. Schectman demonstrates the judiciary's commitment to upholding contractual obligations faithfully to the express terms into which parties enter. The case pinpoints the critical consideration of specific performance, especially where contracts specify exhaustive duties that exceed mere economic terms, emphasizing the necessity of actual performance as initially agreed.