Construction Defect – When can diminution in value be used as damages in a construction defect case?

Posted on Oct 4 2012 9:43AM by Attorney, Jason A. Lee

Brief Summary:  Diminution in value can be appropriate damages in a construction defect case under Tennessee Law depending on the facts of the case.  This is especially true when the defendant fails to introduce evidence showing the feasibility or cost of repairs to fix the defect in question.


Analysis:  The recent Tennessee Court of Appeals decision of Dan C. Ray v. Sadler Homes, Inc., No. M2011-01605-COA-R3-CV, 2012 WL 2150752 (Tenn. Ct. App. 2012) involved a construction defect case about the sale of a new home.  Soon after the plaintiffs purchased the home they started to have hollow spots in the hardwood floors, leaking from the air conditioning, and uneven sagging flooring. Ray at 1.  After the defendant, Sadler Homes, Inc., was advised of the problems, Sadler Homes discovered that a load bearing beam was left off the construction plans and was not installed during construction.  Ray at 1.  Additionally, the home had been “stretched” from the construction plans “meaning the home was somewhat wider and longer and had more square footage than specified in the construction plans.”  Ray at 1.


After several repairs were conducted, the defendants refused to continue to conduct more repairs despite the fact the homeowner continued to experience more problems. Ray at 1. Sadler Homes’ representative testified that the plaintiff’s “were never going to be satisfied” which is one of the reasons he stopped making repairs. Ray at 2.  As a result, the case went to trial and the trial court found there was a breach of contract, breach of warranty and a knowing violation of the Tennessee Consumer Protect Act “based upon evidence that the house was built by an experienced contractor who stretched the house and left out a load bearing beam.”  Ray at 2.  The trial court found total damages of $90,000.00 based on diminution in value and also awarded additional attorney’s fee damages under the Tennessee Consumer Protection Act.


Sadler Homes contended an award based on diminution in value was inappropriate in this case.  Sadler Homes requested that the court find instead that the appropriate damages should be the cost to repair.  The Tennessee Court of Appeals found the following: 


The purpose of assessing damages in a breach of contract suit is to place the plaintiff, as nearly as possible, in the same position he would have had if the contract had been performed.  When a contractor fails to perform in a workmanlike manner, generally, the measure of damages will be the cost of repair.  However, diminution in value may be used as the measure of damages in certain circumstances, for example, when the cost of repair is disproportionate or the repairs are not feasible.


(emphasis added) Ray at 4.  (citations omitted).  The appellate court found the defendant did not put on any proof regarding the feasibility of making repairs and actually ceased making repairs to the home.  Ray at 4.  Further, the defendant did not put on any evidence of the cost to repair the home.  As a result, the Court found that “based upon the unique facts of this case and the failure of Sadler Homes to introduce competent evidence to show that the deficiencies in the home could be repaired without compounding the problems, and at a price less than the diminution in value, we affirm the trial court's determination that diminution in value was the appropriate measure of damages.” Ray at 5.

This case shows how important it is to make sure that proper damages evidence is introduced at trial from a defense perspective.  The fact no evidence was introduced on the feasibility or cost of repair, basically forced the court’s hand to find damages for diminution of value were appropriate in this context.

TAGS: Damages, Construction Law
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Jason A. Lee is a Member of Burrow Lee, PLLC. He practices in all areas of defense litigation inside and outside of Tennessee.

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Jason A. Lee, Member of Burrow Lee, PLLC
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