Erlich v. Menezes, 981 P.2d 978

California Supreme Court

1999

Chapter

20

Title

Contract Remedies

Page

844

Topic

Non-economic and Non-compensatory Damages

Quick Notes

Basically emotional distress damages are not allowed in relation to a breach of contract. 

Book Name

Contracts Cases, Discussions, and Problems.  Blum Bushaw, Second Edition.  ISBN:  978-0-7355-7069-6.

Issue

o         Whether Emotional Distress damages is allowed in relation to a breach of contract?  No.  Lot of public policy reasons.

Procedure

Trial

o         The jury found Menezes breached his contract with the Erlichs by negligently constructing their home and awarded $406,700 as the cost of repairs.

o         Each spouse was awarded $50,000 for emotional distress, and Barry Erlich received an additional $50,000 for physical pain and suffering and $15,000 for lost earnings.

Appellant

o         Affirmed

Supreme

o         Reversed Emotional Distress Damages

Facts

Rules

Reason

Pl Erlich

Df Menezes

What happened?

o         Erlich contracted with Menezes , a general contractor, to build their "dream house" on their ocean-view lot.

o         After Erlich moved in, it rained and the house had severe leaks that caused the house literally fall apart.

o         The Erlichs did try to remedy the situation were to no success.

Inspected By another General Contractor

o         It turned out that the home was structurally unsound

Suffered Emotional Distress

o         The husband suffered severe emotional distress and developed a permanent heart condition, as a result.

Trial Court

o         The jury found Menezes breached his contract with the Erlichs by negligently constructing their home and awarded $406,700 as the cost of repairs.

o         Each spouse was awarded $50,000 for emotional distress, and Barry Erlich received an additional $50,000 for physical pain and suffering and $15,000 for lost earnings.

Appellant (2 to 1 Decision)

o         The appellate court affirmed.

o         Dissent said the Pl - were not entitled to recover damages for their ED.

Supreme Court

o         The court reversed and remanded

o         Holding that the available damages for defective construction are limited to the cost of repairing the home, or the diminution in value; and emotional distress damages in connection with property damages are not compensable.

Case under Tort Theory Analysis

o         Tort damages are permitted in contract cases ONLY when there has been a violation of a duty completely independent of the contract, or where the breach is both intentional and intended to harm.

o         None of these factors were present.

o         Tort damages for emotional distress are not available where the Pl - suffers only property damages or economic loss.

o         Negligent construction did no cause physical injury.

o         No one was hit by a falling beam.

o         They lived there for 5 years.

o         The only physical injury alleged was one plaintiff's heart disease, which flowed from the emotional distress and not directly from the negligent construction.

Dream House Leaving Happily Ever After

o         No reasonable homeowner can embark on a building project with certainty that the project will be completed to perfection.

Consequential Damages for Emotional Distress Analysis

o         Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at the time; consequential damages beyond the expectations of the parties are not recoverable.

Contract is like a Mini-Universe

o         Each voluntarily chooses his contracting partner, each trusts the other's willingness to keep his word and honor his commitments, and in which they define their respective obligations, rewards and risks.

o         Under such a scenario, it is appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive; this is the function of contract law.

Recovery Damages for Emotion Distress from a Breach Of Contract

o         Damages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract in California.

o         Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.

o         The Restatement specifically notes the breach of a contract to build a home is not "particularly likely" to result in "serious emotional disturbance.

Cases that permit Recovery for Emotion Distress

o         Cases permitting recovery for emotional distress typically involve mental anguish stemming from more personal undertakings the traumatic results of which were unavoidable.

o         Except cases involving contracts.

Pl Argue for a Broader Notion of Damages

o         Pl - urge the court to permit emotional distress damages in cases of negligent construction of a personal residence when the negligent construction causes gross interference with the normal use and habitability of the residence.

Courts - Public Policy Reasoning

o         Such a rule would make the financial risks of construction agreements difficult to predict.

o         Contract damages must be clearly ascertainable in both nature and origin.

o         A contracting party cannot be required to assume limitless responsibility for all consequences of a breach and must be advised of any special harm that might result in order to determine whether or not to accept the risk of contracting.

Narrow Range Of Exceptions

o         Where emotional tranquility is the contract's essence.

o         A rule which focuses not on the risks contracting parties voluntarily assume but on one party's reaction to inadequate performance, cannot provide any principled limit on liability.

Courts Conclusion

o         The Erlichs received more than $400,000 in traditional contract damages to correct the defects in their home.

Court of Appeal Reverse for Public Policy Concerns

o         We conclude the balance of policy considerations--the potential for significant increases in liability in amounts disproportionate to culpability, the court's inability to formulate appropriate limits on the availability of claims, and the magnitude of the impact on stability and predictability in commercial affairs--counsel against expanding contract damages to include mental distress claims in negligent construction cases.

Rules

Consequential Damages for Emotional Distress Analysis

o         Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at the time; consequential damages beyond the expectations of the parties are not recoverable.

Recovery Damages for Emotion Distress from a Breach Of Contract

o         Damages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract in California.

o         Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.

o         The Restatement specifically notes the breach of a contract to build a home is not "particularly likely" to result in "serious emotional disturbance.

Class Notes