Jim Whitney

Case brief: Groves v. Wunder

Case name:	Groves v. John Wunder Co
Court:	Supreme Court of Minnesota
Citation; Date:	205 Minn. 163 (1939)

Trial court:
Plaintiff:	S.J. Groves & Sons Company
Defendant:	John Wunder Co.

Facts of the case:

“In August, 1927, S. J. Groves & Sons Company, a corporation (hereinafter mentioned simply as Groves), owned a tract of 24 acres of Minneapolis suburban real estate. It was served or easily could be reached by railroad trackage. It is zoned as heavy industrial property. But for lack of development of the neighborhood its principal value thus far may have been in the deposit of sand and gravel which it carried. The Groves company had a plant on the premises for excavating and screening the gravel. Near by defendant owned and was operating a similar plant.

In August, 1927, Groves and defendant made the involved contract. For the most part it was a lease from Groves, as lessor, to defendant, as lessee; its term seven years. Defendant agreed to remove the sand and gravel and to leave the property "at a uniform grade, substantially the same as the grade now existing at the roadway . . . on said premises, and that in stripping the overburden . . . it will use said overburden for the purpose of maintaining and establishing said grade."

Under the contract defendant got the Groves screening plant. The transfer thereof and the right to remove the sand and gravel made the consideration moving from Groves to defendant, except that defendant incidentally got rid of Groves as a competitor. On defendant's part it paid Groves $105,000. So that from the outset, on Groves' part the contract was executed except for defendant's right to continue using the property for the stated term. (Defendant had a right to renewal which it did not exercise.)”

Procedural history (remedy sought, prior history, grounds for appeal, etc., as available):

The lower courts had ruled in favor of John Wunder Co., allowing for defendant’s breach of contract for gravel work

Court opinion (including key issues and arguments):

“Defendant's breach of contract was wilful. There was nothing of good faith about it. Hence, that the decision below handsomely rewards bad faith and deliberate breach of contract is obvious. That is not allowable. Here the rule is well settled, and has been since Elliott v. Caldwell, 43 Minn. 357, . . . that where the contractor wilfully and fraudulently varies from the terms of a construction contract he cannot sue thereon and have the benefit of the equitable doctrine of substantial performance. . . . In reckoning damages for breach of a building or construction contract, the law aims to give the disappointed promisee, so far as money will do it, what he was promised. . . It is so ruled by a long line of decisions in this state, beginning with Carli v. Seymour, Sabin & Co. 26 Minn. 276, . . . where the contract was for building a road. There was a breach. Plaintiff was held entitled to recover what it would cost to complete the grading as contemplated by the contract. The "economic waste" declaimed against by the decisions applying that rule has nothing to do with the value in money of the real estate, or even with the product of the contract. The waste avoided is only that which would come from wrecking a physical structure completed, or nearly so, under the contract. The cases applying that rule go no further. . . . Absent such waste, as it is in this case, the rule of the Restatement of Contracts, @ 346, is that "the cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance." That means that defendants here are liable to plaintiff for the reasonable cost of doing what defendants promised to do and have wilfully declined to do.”

Disposition of case:

“The judgment must be reversed with a new trial to follow.”

ECONOMIC ANALYSIS OF THE CASE

The Court’s decision was clearly inefficient from an economic perspective. Defendant’s breach of contract was efficient in that the social cost of completing the gravel contract would exceeded the social benefit, and in that costs exceeded benefits, Defendant should have been allowed to breach the contract. It is clear, however, that the Court held to the standard of the intent of the contract, in that it held the completion of gravel leveling above economic efficiency.