Constructive conditions and substantial performance

A country house, built for upwards of seventy seven thousand dollars, finished in June nineteen fourteen. The owner moves in. Nine months later he discovers that some of the plumbing pipe, buried in the walls, is not the brand the specification named. The specification said all wrought iron pipe must be well galvanized, lap welded pipe of the grade known as standard pipe of Reading manufacture. Some of it came from other factories.
The owner's architect orders the builder to do the work anew. That means tearing out substantial parts of the finished house to reach pipe encased in its walls. The builder refuses, asks for the certificate that the final payment is due, three thousand four hundred and eighty three dollars, and is refused. The builder sues for the balance. The owner says the contract was not performed, so nothing is owed.
So here is the question. The builder did not do exactly what it promised. Does that mean the owner need not do what he promised? Think about it before I go on, and hold on to two facts the court found. The pipe was the same in quality, appearance, market value and cost. And the substitution was neither fraudulent nor wilful, the oversight of a subcontractor that even the owner's architect failed to notice.
And now the question I keep asking. What exactly did these people promise each other? The builder promised a house to a specification. The owner promised seventy seven thousand dollars. Last lecture the condition was written in the contract. Today nobody wrote a condition. The question is whether the law writes one for them, and how strictly.
Here is the first line for the board. Constructive conditions. Where the parties exchange promises, each party's performance is a condition of the other's, implied by law, in the order the parties would reasonably intend. The builder builds, then the owner pays. An English case of seventeen seventy three, Kingston against Preston, is where the idea took hold, and it is why a party who has not performed cannot demand that the other side perform.
Second line. A constructive condition is satisfied by substantial performance. Because the law implied the condition, the law also decides how much performance satisfies it, and the answer is enough that a trivial and innocent shortfall does not defeat the other party's duty. The injured party keeps his duty to pay, and gets damages for the defect.
Third line. The measure of those damages. Ordinarily the cost of completing or replacing. But where that cost is grossly out of proportion to the good it would achieve, the difference in value of the thing as built and as promised. And a limit on all of it. The wilful transgressor gets no mercy, and the parties can, by clear words, make any term an express condition.
Fourth line, for goods, and it runs the other way. Section two six oh one. If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, or accept the whole, or accept any commercial unit or units and reject the rest. The perfect tender rule.
Softened by section two five oh eight, which lets the seller cure a rejected tender within the contract time, or within a further reasonable time if he had reasonable grounds to believe the tender would be acceptable.
Now the case. Jacob and Youngs against Kent, New York Court of Appeals, nineteen twenty one, Judge Cardozo. He began by refusing to pretend. The courts never say that one who makes a contract fills the measure of his duty by less than full performance. They do say, however, that an omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture.
Then the distinction that organises the module. Some promises are so plainly independent that they can never by fair construction be conditions of one another. Others are so plainly dependent that they must always be conditions. Others, though dependent and thus conditions when there is departure in point of substance, will be viewed as independent and collateral when the departure is insignificant.
Where does the line fall? Cardozo said it could not be settled by a formula. We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. And the presumption. There will be no assumption of a purpose to visit venial faults with oppressive retribution. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable.
Two limits, in the same paragraph. This is not to say that the parties are not free by apt and certain words to effectuate a purpose that performance of every term shall be a condition of recovery. And the willful transgressor must accept the penalty of his transgression. For him there is no occasion to mitigate the rigor of implied conditions. The transgressor whose default is unintentional and trivial may hope for mercy if he will offer atonement for his wrong.
Then the damages. In the circumstances of this case, we think the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing.
And his example, which every student remembers. Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that through the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowance is not the cost of reconstruction.
The builder got its balance. Judge McLaughlin dissented, and his dissent is fair warning. The builder, he said, did not perform its contract. The failure was either intentional or due to gross neglect, and the owner had a right to the pipe he specified, whatever the reason he wanted it. The majority answered that the owner may have that right, by saying so, in words that make it a condition. Silent, he gets damages.
Now Wisconsin, nineteen sixty, and a house built from a stock plan. Plante against Jacobs. The builder failed to finish several items worth about sixteen hundred dollars, which were credited to the owners. The owners claimed twenty more defects and said there was no substantial performance, because strict compliance would cost twenty five to thirty per cent of the price.
Above all, the wall between the living room and the kitchen had been built in the wrong place, narrowing the living room by more than a foot. Moving it would cost about four thousand dollars. Real estate experts said it made no difference to the market price.
The Supreme Court of Wisconsin found substantial performance. The test of what amounts to substantial performance seems to be whether the performance meets the essential purpose of the contract. Substantial performance as applied to construction of a house does not mean that every detail must be in strict compliance with the specifications and the plans. Something less than perfection is the test of specific performance unless all details are made the essence of the contract. This was not done here.
And the damages, item by item. Small defects that could be fixed without tearing down what had been built, plaster cracks, a patio wall, went at the cost of repair. The misplaced wall went under the diminished value rule. To tear down the wall now and rebuild it in its proper place would involve a substantial destruction of the work, and would cause additional damage to other parts of the house. Such economic waste is unreasonable and unjustified.
And since the experts agreed the misplacement had no effect on market price, the owners recovered nothing for it. Their particular desire for specified room size, the court said, was not satisfied. It was also not compensable.
Now goods, where the rule is the opposite, and you must not mix them. A buyer of goods is entitled to perfect tender. A delivery that fails in any respect can be rejected. There is no substantial performance for a crate of parts. What there is, instead, is cure.
If the buyer rejects and the time for delivery has not run out, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. And even after the date, a seller who reasonably believed the tender would be acceptable gets a further reasonable time to substitute a conforming tender.
Why the difference? Cardozo gave the reason in the pipe case. There will be harshness sometimes and oppression in the implication of a condition when the thing upon which labor has been expended is incapable of surrender because united to the land, and equity and reason in the implication of a like condition when the subject-matter, if defective, is in shape to be returned. Pipe in a wall cannot be handed back. A crate can.
Now let's change one fact. The builder's foreman knew the owner had specified Reading pipe because the owner's brother-in-law owned the Reading company, and used Cohoes pipe anyway to save a few dollars. Does the builder recover the balance? Choose an answer before I go on.
No. Cardozo said it in so many words. The willful transgressor must accept the penalty of his transgression. Substantial performance is mercy for the innocent and the trivial. A deliberate substitution, however small the price difference, is neither, and the builder who makes it has not performed the condition on which payment depends. The owner may withhold the balance, and the builder is left to argue restitution, which is next lecture.
Change one fact again. The Wisconsin house was custom designed, and the owners had written into the specifications that the living room dimensions were of the essence. Choose.
Now the wall matters. The Wisconsin court said something less than perfection is the test unless all details are made the essence of the contract, and here one detail has been. Substantial performance is much harder to find, and even if found, the damages measure shifts, because the owners have told the builder in advance that this room, at this size, is what they are paying for. A court will not call rebuilding economic waste when the parties said the dimension was essential.
Change one fact a third time. A buyer orders five hundred cases of goods. Four hundred and ninety nine arrive perfect and one case is dented. Choose.
Goods, so perfect tender. The buyer may reject the whole, accept the whole, or accept the four hundred and ninety nine and reject the one. But the seller who ships early has time to cure, and even after the date a seller who reasonably thought the delivery acceptable gets a reasonable time to substitute.
And the buyer's rejection must be in good faith. A buyer who rejects five hundred cases over one dent because the market has dropped is not exercising the right the Code gave him. He is using it as a pretext, and good faith is Module Nine's neighbour, taught in Module Ten.
Here is what people get wrong here, and why it is tempting. The first mistake is thinking substantial performance excuses the breach. It does not. The builder in New York was still liable for the defect. What it saves is the builder's right to be paid. The second mistake is applying substantial performance to goods. A sale of goods is perfect tender plus cure, and the exam will punish the mixture.
The third mistake is forgetting wilfulness. The doctrine is built on the innocent, trivial mistake, and the cases say so on every page. A knowing substitution is not innocent.
Here is the rule, in one breath. Where promises are exchanged, each performance is an implied condition of the other, satisfied by substantial performance, so a trivial and innocent shortfall leaves the other party bound and liable only in damages, at the cost of repair unless that is grossly disproportionate and then at the difference in value. A wilful default forfeits the doctrine, clear words can make any term a condition, and for goods tender must be perfect, subject to cure. Now, five questions.