CONTRACTS / REMEDIES Copyright February State Bar of California

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1 Copyright February State Bar of California Owens, a homeowner, approached Carter, a licensed contractor, to discuss construction of a new garage attached to Owens' home. After several meetings, Owens and Carter signed the following Carter will build a two-car garage, with overall dimensions of 30' (width) by 25' (depth). Included within the overall dimensions will be a storage area at the rear. Storage area to be 30' by 4', and divided from the remainder of the garage by a wall containing a door. Wooden siding, paint, and roof will be matched to Owens' home. Carter will commence work on March 15 and will complete job no later than April 30. Owens agrees to pay $8,500 upon completion. The time for performance of these obligations shall be of the essence. The contract was signed on January 15, and Carter arrived on the job site on March 15 to begin work. Several weeks later, Carter learned that roofing shingles of the exact type and color used on Owen' home were difficult to obtain. Therefore, he used shingles made of other material which were of even higher quality than those originally planned but which, although very close, did not precisely match those on the roof of Owens' home. Carter completed the garage on May10 and presented Owens with a bill in the amount of $8,500. Later on the same evening, Owens placed his car in the garage only to learn that the length of his car did not permit the garage door to close. Upon closer inspection he discovered that the storeroom in the back of the garage was 30' by 6', two feet deeper than planned. As a result, the garage parking area was only 19' in depth. While this would be sufficient for most automobiles, it was several inches too short to accommodate Owens' large car. The cost of removing and relocating the dividing wall would be $800. The cost of removing and replacing the shingles with others matching Owen's home would be $2,200. Owens has refused to pay any part of Carter's bill, citing as reasons Carter's failure to (1) complete the job by April 30; (2) use matching shingles; and (3) build a garage and storeroom of the dimensions called for by the What are Carter's rights and liabilities? Discuss.

2 Copyright February Scott F. Pearce, Esq. Outline I. Carter s Rights: Contract Theory of Liability A. Formation: No Problems B. Breach by Owens: Refusal to Pay C. Owens Defense to Breach: Carter s Breaches 1. The storage area was the wrong size. 2. The project was finished 10 days late. 3. The shingles do not match perfectly. D. Carter s Defenses to Breach 1. Matching shingles were difficult to obtain. 2. The substitute shingles were higher quality. 3. The delay may have been caused by the unanticipated shingle problem. 4. Carter has no defense to his storage area size mistake. E. Conclusion: Both parties are in breach. II. Carter s Remedies - Restitution A. The Contract Price: $8,500 B. Carter s recovery reduced by the cost to relocate the storage wall: $800 C. Carter s recovery may be reduced by the cost to replace the shingles: $2,200 D. Carter s recovery may be reduced by some amount for the late completion. E. Conclusion: Carter gets at least $5,500 - less any damages for the delay.

3 Copyright February Scott F. Pearce, Esq. Answer I. Carter s Rights: Contract Theory of Liability Carter is a licensed contractor who constructed a new garage attached to Owens home. Carter s theory of liability will be in contract, and he will sue for damages. At a minimum, Carter is likely to obtain a recovery in restitution in order to avoid unjustly enriching Owens. This is a service contract, so common law will govern the dispute. A. Formation: No Problems Carter and Owens signed a written contract after several meetings. The contract evidences their bargained for exchange and it satisfies the Statute of Frauds. Carter agreed to build the garage according to specific dimensions and with materials that match the rest of the house, and to be finished by April 30. Owens agreed to pay $8,500 upon completion. Neither party denies the existence of the contract, so there is no need to discuss defenses to formation. B. Breach by Owens: Refusal to Pay Carter finished building the garage and presented Owens with a bill for the agreed upon price. Owens refused to pay any part of Carter s bill. Unless Owens has a valid defense, he will be found to have breached the C. Owens Defense to Breach: Carter s Breaches Owens will defend his refusal to pay as being justified by three different breaches by Carter. 1. The storage area was the wrong size. The contract provided that the storage area was supposed to measure 30 by 4 feet, leaving 21 feet for the vehicle, but instead Carter built the storage area to measure 30 by 6 feet. Most cars would fit in the remaining 19 feet, but Owens large car will not fit. This is a material breach of the contract, but it is not sufficient for Owens to deny paying anything to Carter in most jurisdictions. As discussed below, it will cost $800 to remove and relocate the dividing wall. Carter s mistake about the size of the storage area is far from being a total breach of

4 2. The project was finished 10 days late. The agreement between Owens and Carter had a time is of the essence clause, which Carter has breached. This is a less serious breach than Carter s mistake about the size of the storage area, and it is not nearly serious enough to justify Owens refusal to pay anything under the Owen is likely to be limited to nominal damages for this breach; certainly he will not altogether escape liability under the contract because Carter was late in completing performance. 3. The shingles do not match perfectly. The agreement provided that the wooden siding, paint and roof would be matched to Owens home. Carter used superior shingles than those on the rest of Owens home but they did not precisely match them. It is unlikely that the contract will be interpreted to require a perfect match, but the facts are not specific enough to determine how noticeable the difference between the garage and house roofing shingles. If the court determines that the difference between the shingles is insignificant, Carter may not be in breach at all, or his breach may be judged slight. In such an event, Owens will be limited to nominal damages. If the difference between the shingles is significant, Carter will be materially in breach of the agreement. D. Carter s Defenses to Breach 1. Matching shingles were difficult to obtain. Carter started the job on March 15, two months after the agreement was executed. Several weeks later, he learned that it was difficult to obtain roofing shingles that were an exact type and color match. Carter might attempt to assert an impossibility defense, but his failure to look for the shingles for so long likely would defeat this defense. 2. The substitute shingles were higher quality. It is true that Carter did not select the non-matching shingles in order to make money. The shingles he used are superior to the ones originally planned. As discussed above, the contract might be interpreted in such a manner as to render the substitute shingles acceptable. The fact that Carter used superior shingles does tend to prove that Carter was acting in good faith. 3. The delay may have been caused by the unanticipated shingle problem. Carter might argue that he should be excused from liability for breaching the time is of the essence clause because of the delay in obtaining shingles. Because Carter waited for months to even look for the required shingles, this is unlikely to be a good defense. Carter finished 10 days late, and the truth is that as far as Owens is concerned the project will not be finished until Owens is able to use the garage for its intended purpose - housing his car when he is at home.

5 4. Carter has no defense to his storage area size mistake. Carter failed to build the storage area to the dimensions in the specifications. The storage area might be solid and well-constructed, but it is the wrong size. The dividing wall now makes it impossible for the garage to contain Owens large car. Carter has no defense to this material breach. E. Conclusion: Both parties are in breach. Owens failure to pay Carter s bill is a material breach of his contract with Carter. Owens will prove that Carter has breached their contract in at least one material way - the mis-sized storage area. Carter s failure to use exactly matching shingles may be deemed a second material breach. II. Carter s Remedies - Restitution A. The Contract Price: $8,500 Carter wants full payment under the The fact that Carter materially breached the agreement when he made the interior of the garage the correct depth means that he will be unable to pursue his action for breach and will be limited to suit in quasi Restitution is Carter s only remedy even if the shingles are found to be acceptable under the terms of the agreement. B. Carter s recovery reduced by the cost to relocate the storage wall: $800 The mis-located storage wall is Carter s most serious breach of this contract, because it renders the garage unable to satisfactorily perform its intended use. His recovery will be reduced by this amount. C. Carter s recovery may be reduced by the cost to replace the shingles: $2,200 If the substitute shingles are found to be an inadequate match, they will constitute a material breach of the contract and they will be replaced in order to give Owens the benefit of his bargain. In this event, Carter s restitution recovery will be reduced by the price to replace, $2,200. D. Carter s recovery may be reduced by some amount for the late completion. No facts are present to show that Owens has suffered any real damage as a result of the delay in completing his new garage. If Owens can prove specific damages, Carter s recovery would be reduced by that amount. E. Conclusion: Carter gets at least $5,500 - less any damages for the delay. Carter has substantially performed his contract with Owens, and he will be entitled to restitution. Assuming that the shingles have to be replaced, and knowing that the wall will have to be moved, the least Carter will obtain is $5,500, less any damages Owens can prove as a result of the delay in completing the project. If the substitute shingles are acceptable under the terms of the contract, Carter will be entitled to $7,700, less any damages Owens can prove for the delay.