Contracts Quiz 2nd Semester 1995

8. How does the “American Repair Doctrine” differ from the rule of absolute liability in the case of building construction contracts? Why does an objective view of the consideration obviate the need to rely on the doctrinal approach and still arrive at the correct bottom line?

The doctrine of absolute liability is best reflected by the Bennett case. There the court read the contract as including an unconditional promise on the part of the builder to erect the building Thus, all of the risks associated with erecting the building were to be borne by the builder. The “American Repair Doctrine” is best exemplified by Butterfield. There the court stated that since both parties had obligations to contribute various performance to the construction of the building, that there was an implied condition that if it became “impossible” to finish the building (read: the cost of erecting the building grew to outside of the parties’ contemplation) they would both be discharged from further obligation. Thus, the risks of non-completion of the building were shared between the builder and the owner. Use of these doctrinal approaches can lead to artificial results if the builder decides to make the transaction “cooperative” by providing some work for the owner to do. Under a strict interpretation of the American Repair Doctrine, that builder would then have lessened his liability because he would be discharged from his obligation if it became commercially impracticable. The most accurate way to approach this problem is by an objective reading of the consideration under the reliance principle. By assessing the parties’ conduct, one can better get at the heart of the transaction and determine how subtly the risks have been redistributed, and arrive at the correct bottom line in case of discharge or breach.

9. Identify the typical protectable interests that a builder and a landowner may have arising out of a contract to build a house. What do they represent?

 

 

Builder’s Interests

Interest

Represents

Expectation

The contract price for the construction of the building or any part thereof.

Reliance

The cost of materials purchased for constructing the building.

Owner’s Interests

Interest

Represents

Expectation

The value of the building or any part thereof upon completion of the contract.

Restitution

Any installments made which represent unjust enrichment to the builder.

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