Measure of Damages for Real Property

It is practically an article of faith that the measure of damages for damage to real property is the difference in market value before and after the injury to the premises. Yet, courts have also found that the cost of restoration of the premises also may be an important measure of damages. This article will explore how these measures were developed and the circumstances under which they apply. It will undertake this exploration through the law of three states: Illinois, New York and California.

I. Illinois.

Much of the law in this area was developed at the turn of the last century, and the cases from that time period are instructive. The seminal Illinois case in the area is Fitzsimons & Connell Co. v. Braun, 199 Ill. 390 (1902). In Fitzsimons, the company had entered into a contract with the city to construct a tunnel intended for the use of the city in supplying the inhabitants with water, near, through, or under the premises of the property owner. The property owner claimed that the dynamite explosions caused damage to its building. The Court held that in determining the proper measure of the property owner’s damages, the following precepts would be applied:

• We think the costs of repairing the building and restoring it to its proper condition was the true measure of the damages. …” [T]hat valuation should be adopted which will be most beneficial to the injured party, for he is entitled to the benefit of the premises intact and to the value of any part separated. The damages for injury done to a house are measured by the cost of restoring it to its previous condition.”  199 Ill. at 398.

Thus, the Illinois Supreme Court’s holding in Fitzsimons was that damages are measured by the cost of restoring the property to its previous condition.

The cases of Donk Bros. Coal & Coke Co. v. Slata, 133 Ill. App. 280 (4th Dist. 1907) and Donk Bros. Coal & Coke Co. v. Novero, 135 Ill. App. 633 (4th Dist. 1907) both involved suits by landowners who claimed that subsidence caused by mining operations under their properties caused the ground to sink and subside, and the buildings thereon to settle, twist, crack and cave in. In both instances, the court affirmed judgments in favor of the landowners. In enunciating the applicable rule for the measure of damages, the court quoted the holding in Fitzsimons. As set forth in Donk Bros. Coal & Coke Co. v. Novero, 135 Ill. App. at 636:

• As a general rule, the measure of damages in actions for injuries to real property is the difference in market value before and after the injury to the premises… To this rule there are exceptions, and in some cases the cost of repair or of restoring the premises to their original condition is the true and better rule to apply. Id. The valuation should be adopted which will be most beneficial to the injured party, for he is entitled to the benefit of the premises intact and to the value of any part separated. *** Fitzsimons & Connell Co. v. Braun, 199 Ill. 390.

Thus, in determining whether the measure of damages is the difference in market value before and after the property damage occurred or the cost to restore the premises to its previous position, the court held that “the cost of repair or of restoring the premises to their original condition is the true and better rule to apply.” Id.

This rule was found to apply in Gerrard v. Porcheddu, 243 Ill. App. 562 (3rd Dist. 1927). There the neighbors operated a fireworks company on land that adjoined the owner’s property. They tested fireworks on their premises by shooting or firing them. The owner had complained of fire damage before the fire that destroyed his house. The court held that the throwing of something onto the land of another, which set a fire or caused damage, was a trespass. Citing Fitzsimons, the court also held that the damages for injury done to a house are measured by the cost of restoring it to its previous condition.

However, the Fitzsimons holding was questioned in Peck v. Chicago R. Co., 270 Ill. 34, 40 (1915). In that case, owners of a three-story brick building sued a railway when the railway’s reconstruction of a tunnel under a river resulted in damages to their building. Water from the river flowed into the excavation, permeated the soil, and undermined the owners’ lot. Dynamite jarred the building. The commissioner of buildings notified the owners that their building was in danger of immediate collapse and was, therefore, closed. The owners claimed that the railway, in making a public improvement in the street under lawful authority from the city, damaged their property for public use. The Court held that “the measure of damages is the difference in value of the property before and after the improvement.” The Court declined to apply its own previous holding in Fitzsimons, stating, “In Fitzsimons & Connell Co. v. Braun & Fitts, 199 Ill. 390, it is stated that the cost of repairing the building and restoring it to its former condition was the true measure of the damages; but this is at variance with the rule which has been frequently announced by this court.” The Court concluded, that, regardless, “the rule was immaterial, because there it conclusively appeared that the cost of restoration was greater than the value of plaintiff’s property.” Peck v. Chicago R. Co., 270 Ill. at 40. This rule that the measure of damages will be the cost of restoration unless that exceeds the market value of the property was recently applied in Meade v. Kubinski, 277 Ill. App. 3d 1014, 1022 (3rd Dist. 1996) which held, “Where the expense of restoration exceeds the diminution in the market value of the property caused by the lessee’s nonperformance, the diminution in fair market value is the proper measure of damages.”

II. New York.

New York has followed a similar path to that of Illinois. In Hartshorn v. Chaddock, 135 N.Y. 116 (N.Y. 1892), a landowner filed a wrongful obstruction action against his neighboring riparian owner for obstructing a stream, which caused the landowner’s land to flood. His soil washed away, and his personal property was destroyed. The trial court awarded the landowner damages, including the cost of the soil that had been washed away by the flood. On appeal, the court rejected the riparian owner’s claim that the damages award was improper. The court first noted that irrespective of negligence or malice, the riparian owner was liable for the resulting damages because of his willful act of diverting the waters of the natural stream. The court then held that in order to assess damages, proof of the cost of restoring the land to its former condition or proof of the diminution in the market value of the lot were both admissible.

Hartshorn has been applied in a number of New York cases. For example, in Benavie v. Baker, 420 N.Y.S.2d 735 (N.Y. App. Div. 2d Dep’t 1979), the trial court held that the only measure of damages to be applied regarding the damaged shade trees was the diminution of the value of the property occasioned by the loss thereof. The property owner suggested that the replacement cost of the trees was an equally acceptable measure of damages. The court reversed the judgment and remanded the case for a new trial on the issue of damages resulting from the destruction of the shade trees. The court, following Hartshorn, concluded that damages to the greenery should have been awarded on the basis of either the replacement cost of the damaged trees or the diminution of the property owner’s property value resulting from the damage, whichever was less.

In Jenkins v. Etlinger, 55 N.Y.2d 35 (N.Y. 1982), the issue was whether it was the property owner’s burden to present proof of both measures of damages for permanent injury to real property. The court stated that the proper measure of damages for permanent injury to real property was the lesser of the decline in market value and the cost of restoration. The court noted that the property owner only presented evidence of the cost of restoration. The court ruled that the property owner met his obligation to provide evidence of the amount of the injury. The court further ruled that the property owner was only required to present evidence as to one measure of damages, and that measure would be used when neither party presented evidence going to the other measure. In so doing, the court stated, “As a ‘mitigation’ issue, the burden falls upon the defendant to prove that a lesser amount than that claimed by plaintiff will sufficiently compensate for the loss. Jenkins v. Etlinger, 55 N.Y.2d at 39.

Thus, New York law is similar to that of Illinois, in that the measure of damages for destruction of real property is the lesser of market value or of restoration. However, New York has additionally held that it is the plaintiff’s burden to prove only one of these measures, and it is then the defendant’s burden to prove that a lesser amount under a different measure will sufficiently compensate the plaintiff for the loss.

III. California.

In 1930, the California Supreme Court adopted the market value measure of damages in a case involving riparian rights. In Le Brun v. Richards, 210 Cal. 308, 319 (Cal. 1930), the Court held, “As to the amount of damages suffered by the plaintiffs the case was apparently tried by both parties upon the theory that the proper measure of damages was the cost of repair, whereas the correct rule is that the measure of damages for injuries to real property is the difference, if any, in its market value before and immediately after the injury.” Yet, California courts have not applied that rule exclusively. In a case involving flood damage, Mozzetti v. City of Brisbane, 67 Cal. App. 3d 565, 575 (Cal. App. 1st Dist. 1977), the court found that there is no fixed, inflexible rule for determining the measure of damages for injury to, or destruction of, property, and whatever formula is most appropriate in the particular case will be adopted. There, in a case involving damage to plaintiff’s property due to defendant’s negligence, the court held that the general rule is that if the cost of repairing the injury and restoring the premises to their original condition amounts to less than the diminution in value of the property, then such cost is the proper measure of damages; and if the cost of restoration will exceed such diminution in value, then the diminution in value of the property is the proper measure.

Thus, California law on the subject of the measure of damages to real property is most similar to that of Illinois. Both states hold that the general rule is that if the cost of repairing the injury and restoring the premises to their original condition amounts to less than the diminution in value of the property, such cost is the proper measure of damages; but if the cost of restoration will exceed such diminution in value, then the diminution in value of the property is the proper measure. New York takes an additional step beyond the courts of Illinois and California, holding that where a plaintiff only proves one of these measures of damages, it is the defendant’s burden to prove that a lesser amount under a different measure of damages will sufficiently compensate the plaintiff for the loss.