Rethinking Jacob & Youngs v. Kent.

• Author: Goldberg, Victor P.

Contents Introduction I. The Pre-Jacob & Youngs v. Kent Law A. Substantial Performance and Willfulness B. The Lack of an Architect's Certificate C. Cost Versus Value of Completion II. Back to Jacob & Youngs v. Kent III. The Lessons of Jacob K Youngs v. Kent A. Cost Versus Value of Completion B. The Architect's Certificate Conclusion Introduction

Most living lawyers have run into Jacob & Youngs, Inc. v. Kent (1) in their legal education. It has long been a staple in Contracts casebooks. (2) While the result has been widely applauded, in recent years there has been some push-back. Professor Kenneth Ching has recently criticized both Cardozo's argument and the result. (3) Professor Robert Scott in a number of papers, some coauthored, has also concluded that the result was wrong. (4) Yet given the state of New York law at the time Cardozo's result was correct. Moreover, I will argue, the outcome is one that parties would adopt today. Ironically, despite the usual characterization of New York as being formalistic and having "hard" rules, its "soft" position on one question played a significant role.

The core facts are simple. Kent, a very wealthy lawyer, hired Jacob & Youngs to build a mansion. The contract price was about $77,000. (5) The contract required that Kent make the final payment of $3,483.46 upon the architect providing a certificate acknowledging completion. (6) The architect refused to award the certificate because the contract required that all the pipes be Reading Pipe, but a substantial amount of pipes installed were of other brands. The architect ordered that Jacob & Youngs replace the nonconforming pipe even though that would have required tearing down significant portions of the structure at a great cost. The contractor refused to do so, Kent refused to make the final payment, and Jacob & Youngs sued. (7)

In a 4-3 decision, Cardozo held that the contractor had substantially performed and that the mistake was inadvertent. He stated:

We think the evidence, if admitted, would have supplied some basis for the inference that the defect was insignificant in its relation to the project. 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. (8) Cardozo continued: "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." (9) A finding of substantial performance meant that the contractor would receive the final payment less an allowance: "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." (10)

McLaughlin, in dissent, painted a very different picture: "The plaintiff did not perform its contract. Its failure to do so was either intentional or due to gross neglect which, under the uncontradicted facts, amounted to the same thing, nor did it make any proof of the cost of compliance, where compliance was possible." (11) If the error were minor and inadvertent, he would have found that there had been substantial performance, but the deviation was neither. He rejected the contractor's claim that the difference in value between Reading pipe and other pipe was either nominal or nothing. (12) The contractor could not substitute something just as good. The dissent quoted at length an 1858 decision, Smith v. Brady: (13)

I suppose it will be conceded that every one has a right to build his house, his cottage or his store after such a model and in such style as shall best accord with his notions of utility or be most agreeable to his fancy. The specifications of the contract become the law between the parties until voluntarily changed. If the owner prefers a plain and simple Doric column, and has so provided in the agreement, the contractor has no right to put in its place the more costly and elegant Corinthian. If the owner, having regard to strength and durability, has contracted for walls of specified materials to be laid in a particular manner, or for a given number of joists and beams, the builder has no right to substitute his own judgment or that of others. Having departed from the agreement, if performance has not been waived by the other party, the law will not allow him to allege that he has made as good a building as the one he engaged to erect. He can demand payment only upon and according to the terms of his contract, and if the conditions on which payment is due have not been performed, then the right to demand it does not exist. To hold a different doctrine would be simply to make another contract, and would be giving to parties an encouragement to violate their engagements, which the just policy of the law does not permit. (14) McLaughlin's reference to the uncontradicted facts is misleading. The record contained almost no facts since the trial judge had not allowed any proof. The rejection of those facts was precisely the reason for the Appellate Division's reversal. (15)

The lack of facts was not for want of trying. Plaintiff's counsel would ask: "Do you know X?" Answer: "Yes." Question: "What is X?" Objection. Sustained. (16) This pattern was repeated twenty times. So it is not surprising that the facts were uncontradicted. But the appeal was based on the Appellate Court's finding that the facts (all 20 X's) were wrongly excluded. The reversal was upon a question of law, not facts. McLaughlin just ignored the legal question and was content to rely on his characterization of the limited facts that had made it into the record. (17)

Of course, Cardozo did not have the facts either. Yet unlike the Appellate Division, his decision did not simply remand for retrial. Professor Ching writes:

Cardozo took the extremely aggressive approach of not merely remanding for a new trial, but of directing a verdict in favor of Jacob & Youngs, largely on the grounds that substantial performance had occurred. But how could Cardozo know substantial performance occurred? There was virtually no evidence on this very issue! (18) Actually, there was a factual basis, albeit not in the record. There had been a previous trial. In that trial the judge let the facts in and the jury found for Jacob & Youngs. (19) The trial judge, however, held that "[i]t was error to submit the case to the jury, and for that reason the verdict should be set aside, and also for the reason that it was against the weight of evidence." (20) There is no indication as to why a second trial was necessary. (21) Perhaps the existence of that factual record was the basis for Kent's decision to stipulate that a finding for the plaintiff would be dispositive: "[Defendant hereby stipulates and agrees that if the said order of the Appellate Division be affirmed, judgment absolute shall be rendered against him in favor of the above-named plaintiff." (22) Cardozo was not being aggressive; he was merely doing what the parties had agreed to.

That only explains why Cardozo could render a final judgment in the case. It does not justify that judgment. The decision raised a number of issues. Why should the plaintiff's willfulness matter? Why settle for substantial performance? If the law is to find substantial performance, what should be subtracted from the contract price--the value of completed performance, the cost of completion, or something else? Finally, there is the dog that didn't bark. The contract made the final payment conditional on the architect's certificate. No certificate, no payment it would seem. Neither Cardozo nor McLaughlin even raised that argument; what happened?

Before moving on to these questions, I should make four observations. First, there was an easier way to get to the result. The specifications included the following: "Where any particular brand of manufactured article is specified, it is to be considered as a standard. Contractors desiring to use another shall first make application in writing to the Architect, stating the difference in cost, and obtain their written approval of the change." (23) Plaintiff's brief noted: "Under this provision of the contract, pipe of Reading Manufacture was to be regarded simply as 'standard'. Plaintiff, having furnished pipe equal in all respects thereto complied with this provision of the contract. Its only failure was in inadvertently omitting to get the approval of the architect." (24) If Jacob & Youngs could prove that the non-Reading pipe met the standard, then its breach was only the failure to get the architect's written approval. Damages for this failure would be nominal since there would have been no basis for the architect to withhold approval.

Second, in discussing the Restatement (Second) of Contracts illustration in [section] 229, which is based on Jacob & Youngs, Scott & Kraus make this argument:

It is, of course, possible that the drafting was careless or made in ignorance of the legal implications of making a contractual obligation a condition rather than a promise. But such a conclusion would require some objective evidence to override the strong presumption that commercially sophisticated parties such as ... the contractor, exercise reasonable care in executing their agreements and know or should know the legal implications of the express contractual language to which they agree. (25) The legal implications depend on both the contract language and the law of the relevant jurisdiction. If, in fact, the pre-existing New York law imposed constraints on the contractual language, the parties should be presumed to have the knowledge of both the contract...