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O'Flaherty Heim Birnbaum Kirchner & Curtis Ltd. > Business & Real Estate Law > Economic Waste Rule Does Not Require Evidence Of Diminished Value

Economic Waste Rule Does Not Require Evidence Of Diminished Value

The economic waste rule limits a plaintiff’s recovery even if no party offers evidence of the property’s diminished value.   Damages in a lawsuit over injury to property may be calculated by determining the cost to repair or restore the property or the property’s diminished value – the difference between the value of the property if it had conformed with the contract and its value as constructed or delivered.  The plaintiff is entitled to the smaller amount and the economic waste rule provides that when faced with multiple measures of damages, a fact finder may determine whether a proposed repair would result in unreasonable destruction of the property and thus constitute economic waste and not base damages on the wasteful measurement.

On December 22, 2010, the Court of Appeals released an opinion in the case Champion Companies of Wisconsin, Inc. v. Stafford Development, LLC, 2011 WI App 8.  In a case regarding bricks used in construction of a building, the Court held that plaintiff is not entitled to $344,000 in damages to replace defective bricks which could be repaired for $11,000 even though no credible evidence was offered regarding the diminished value of the property at issue.   In Champion, defective bricks were used in the construction of a home.  The home builder sued the company he purchased the bricks from and offered evidence that the bricks were worthless and that the only solution was to replace them all at a cost of $344,000.  Defendant offered evidence that it would cost less than $7,500 to correct the defect by re-staining the house.  Neither party offered credible evidence as to the property’s diminished value.  After finding that the bricks were defective, the circuit court applied the economic waste rule and entered judgment based on defendant’s evidence of $7,500 to re-stain the bricks. 

On appeal, plaintiff asserted that the court misapplied the economic waste rule because there was no credible evidence of the property’s diminished value offered and thus, the economic waste rule did not apply.  The Court of Appeals rejected that argument and ruled that the economic waste rule applies even when no evidence of diminished value is offered by either party and the fact-finder is always free to consider whether or not a given repair constitutes economic waste.   Thus, it was not error for the circuit court to determine that replacing all of the bricks would constitute economic waste and award damages accordingly, even in the absence of evidence of the property’s diminished value.

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