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As a result of poor construction, a jury awarded judgment against a contractor in favor homeowners for recovery of the full cost of necessary repair to the home plus damages for emotional distress caused by the contractor’s negligent performance. $50,000 was awarded to each spouse for emotional distress. This was a highly unusual result since courts almost always require that there be actual physical injury to a person before that individual can recover for non-physical damages such as emotional distress.

The judgment was appealed and the appellate court reversed the judgment as to emotional distress, holding that where there is a commercial contract, that contract is to set forth the remedies available to the parties and that separate actions in tort (negligence) are not permissible. According to the court, the available damages for defective construction are limited to the cost of repairing the home, including lost use or relocation expenses, or the diminution in value.

Probably what led the lower courts to allow the initial judgment was the factual situation of the case. According to the testimony, “The house leaked from every conceivable location. Walls were saturated in an upstairs bedroom, two bedrooms downstairs, and the pool room. Nearly every widow in the house leaked. The living room filled with three inches of standing water. In several locations water ‘poured in streams’ from the ceilings and walls. The ceiling in the garage became so saturated . . . . the plaster liquefied and fell in chunks to the floor.” The contractors attempts at repair failed to resolve the problems. Repair efforts included window caulking which melted and ran down the windows and walls, the use of jackhammers and sledgehammers to cut holes in exterior walls and ceilings, and various other procedures.

Inspection by another contractor determined that in addition to defects in the roof, exterior stucco, windows and waterproofing, there were serious structural problems. The foundation for the main structural beam of the house, for example, could carry a load of only 2,000 pounds instead of the 12,000 pounds that was required. During the entire repair process the homeowners continued to live in the house, while work was done around them. It is said that bad facts make bad law and it appears that these facts certainly influenced the jury and the lower appeal court to permit remedies for the homeowner that are typically unallowable.

In discussing the facts of this case, the appellate court explained several basic contract law principles that are important in analyzing the damages claimed in any case. As explained by the court, contract damages are generally limited to those that are within the contemplation of the parties. The reason for this is that it furthers contractual relations by enabling parties to estimate their financial risks in advance. Enforcement of the intentions of the parties is the key to the remedies for breach of contract. Tort law for negligence actions, on the other hand, is intended to vindicate social policy.

In this case, the issue then was whether a negligent breach of contract should give rise to both a breach of contract case and a tort case, since negligence was the basis for the breach of contract. More specifically, the court considered whether a negligent breach of contract would support an award of damages for emotional distress — either as tort damages for negligence or as consequential or special damages for breach of contract.

The court stated: “Our previous decisions detail the reasons for denying tort recovery in contract breach cases; the different objectives underlying tort and contract breach; the importance of predictability in assuring commercial stability in contractual dealings; [and] the potential for converting every contract breach into a tort, with accompanying punitive damage recovery.” Where there is a contract, the court stated that a party cannot recover for tort damages unless the act that breached the contract was also a tortious act such as negligence that breached a duty that the defendant had under law even in the absence of the contract.

In the final analysis, on the breach of contract cause of action, the court held that emotional distress damages in connection with property damages are not compensable since there was not also physical personal injury. And on the tort action the court stated that damages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract.

On a personal note, having gone through the process of building a home, the author of this newsletter article particularly appreciates the wisdom shared by the court concerning what expectations such a homeowner should have. As so well put by the court: “[The homeowners] may have hoped to build their dream home and live happily ever after, but there is reason that tag line belongs only in fairly tales. Building a home may turn out to be a stress-free project; it is much more likely to be the stuff of urban legends — the cause of bankruptcy, marital dissolution, hypertension and fleeting fantasies ranging from homicide to suicide.”

Barry Erlich v. John Menezes; Ron Rebalo, et al., 21 Cal. 4th 543; 981 P.2d 978 (1999).

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 2, No. 1 (Jan 2000).