Breach of Contract and Remedies Case No. 101 DAMAGES FOR SUBSTANTIAL PERFORMANCE
ID: 374806 • Letter: B
Question
Breach of Contract and Remedies Case No. 101 DAMAGES FOR SUBSTANTIAL PERFORMANCE INA CONSTRUCTION CONTRACTI/ECONOMIC WASTE lacob & Youngs, Inc. y. Kent Court of Appeals 230 N.Y. 239, 129 NE. 889 (1921) FACTS: Plaintiff Jacob & Youngs, Inc. Jacob) contracted to build a home for defendant George E. Kent (Kent) for approximately $77,000.00. One of the plumbing specifications in the contract required that the pipe be of the grade known as "standard pipe of Reading manufacture." In March 1915, Kent learned that some of the pipe was not Reading but instead was made by other manufacturers. Kent demanded that the pipe be replaced to conform to contract specifications. Some of the pipe was exposed and accessible in the basement but most of it was encased in the walls and thus not reasonably accessible. Replacement of the pipe would therefore have required demolition of various parts of the structure at considerable expense. Jacob did not replace the pipe and in this action sought to recover the unpaid balance of the contract price, $3,483.46. Jacob was able to demonstrate that its use of the wrong pipe was neither willful nor fraudulent but rather was the result of an oversight. Additionally Jacob proved that no difference existed in quality, appearance, and market value between the Reading brand specified in the contract and the brands that were installed. ISSUE: Where a contractor completes the building of a home but deviates from the contract requirements, albeit in an insignificant way, and the cost to correct the work so that it conforms with the contract would be substantial, is the measure of damages the cost to correct the work so that it conforms with the contract requirements or the difference in value? DECISION: The difference in value; judgment for Jacob. REASONING: When a contractor deviates from the required performance yet substantially performs, the contractor is entitled to the contract price less damages for the improper performance. The usual measure of damages is the cost of completion. If, however, the cost of completion would result in economic waste, that is, the benefit gained would be slight compared to the cost, the proper measure of damages is the difference in value of the building as constructed and the value if the building had been built consistent with contract specifications. In this case Jacob had substantially performed. To require Jacob to demolish substantial parts of the structure in order to replace pipe with new pipe of the same general quality thus would constitute economic waste. would far exceed the value, if any, added to the structure andExplanation / Answer
Cost of completion in the given case, does not reflect the difference in the quality or the value of the building if original conditions of the contract is met. If the pipe of the given company is used, then it adds value to the asset and its market price will also be high. If the cost of completion is considered, then this difference in the value at the market level is not considered and the owner of the building will be in loss.
Cost of completion only focuses upon the difference in the price of input materials such as pipes, but it does not consider the difference in value, quality and the useful life of the building due to the change of input materials. Hence, it will be incorrect to use the cost of completion method to identify the damage.