The Iowa Court of Appeals recently decided a case that well illustrates how contractual damages are to be calculated: the non-breaching party is generally entitled to be placed in as good a position as he or she would have occupied had the contract not been breached, nothing more, nothing less.
The facts were typical. A farmer engaged a builder to construct a pole barn. The total cost for the barn, including supplies and labor, was supposed to be $265,210. The farmer paid the builder $238,689, and the builder erected the building. Before the doors were installed or the concrete work was completed, however, the farmer terminated the contract, alleging that the builder had failed to complete the building and that he had constructed portions in an unworkmanlike manner. The builder countersued for breach of contract.
After a bench trial, the court found that the farmer, not the builder, was responsible for the delay in the completion of the barn and that the builder had acted reasonably. The court did find that the builder had partially breached the warranty of workmanlike construction because the roof leaked. However, the court ruled that the farmer had materially breached the contract by frustrating the construction process and wrongfully terminating the contract before completion.
The trial court’s ruling was a bit muddled when it came to the damages awarded to the builder. The farmer argued that the value of the completed work was $145,300. He asked for a return of $93,389 in prepayments. The trial court did not award the return of any prepayments, finding that the builder had prepaid for materials and labor prior to the termination and that he would have completed the project had he been able to do so. The trial court awarded the farmer $32,486 as compensation for the leaking roof, but also awarded the builder an additional $32,701 for “extras” he performed.
On appeal, the court affirmed the portion of the ruling finding that the farmer had breached the contract. The court ruled, however, that the trial court improperly calculated damages. While the builder was entitled to profits he would have earned had the project been completed, he was not entitled to keep prepayments for materials and labor never provided to the farmer. For example, the builder could not be benefitted by the cancellation of the contract such that he was allowed to use insulation prepaid by the farmer to complete other jobs. The court could not determine which materials were actually prepaid by the farmer and received by the builder and which materials the builder had used for other jobs. The court remanded for the trial court to modify the judgment so that the builder would receive the benefit of the bargain, but not be placed in a better position than he would have been if the contract had not been broken. For example, if the builder had purchased interior doors for the project and still had them, the doors should be given to the farmer. If he no longer had them, then the builder should pay the farmer the purchase price of the doors.
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