Contract Law and Getting the Benefit of Your Bargain
First, read Jacob & Youngs, Inc. v. Kent, appearing in your text beginning (Word file attached below).
Second, assume that Jim Jones, a Massachusetts builder, contracted with Betty Smith to build a house. Betty designed the house herself and contracted with Jim to do the construction. Betty’s design that she gave to the builder called for the interior of the living room to be 20 feet long by 12 feet wide. Defendant built the living room so that the exterior dimensions were 20’ by 12’, making the interior dimensions 19’ by 11’. By the time Betty realized the discrepancy, she had already moved into the house. It was only when she starting setting up her living room with her furniture that she realized the furniture did not fit. At that point, she measured the room and discovered the problem.
Betty had already paid all but $5,000 of the $120,000 construction contract. She refused to pay the remaining $5,000. Jim Jones, the builder, then sued her for the $5,000.
At trial, Betty entered the blueprints into evidence. They clearly showed a living room with the interior dimensions of 20’ by 12’. The builder’s attorney called an expert to the stand who testified that the market value of the house was the same whether the living room was 20’ by 12’ or 19’ by 11’. At the close of the evidence, the jury found for the defendant home owner. The builder’s attorney filed a motion for a judgment notwithstanding the verdict (JNOV), arguing that the verdict should be set aside and a judgment entered for the plaintiff in the amount remaining on the contract. The court is about to hear arguments on that motion.
Assume that, you’re representing the builder, Jim Jones – (the moving party). Then you will to argue with a defendant representing the homeowner, Betty Smith (the responding party).
You have to show your paragraph of the research of main argument first.
Secondly paragraph, you have to show you points of argument .
Last paragraph, you’ll show the points for rebuttal argument.
(Totally are three paragraphs)
Jacob & Youngs, Inc. v. Kent
230 N.Y. 239, 129 N.E. 889 (1921)
The plaintiff built a country residence for the defendant at a cost of upwards of $77,000, and now sues to recover a balance of $3,483.46, remaining unpaid. The work of construction ceased in June, 1914, and the defendant then began to occupy the dwelling. There was no complaint of defective performance until March, 1915. One of the specifications for the plumbing work provides that “all wrought iron pipe must be well galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture.” The defendant learned in March, 1915, that some of the pipe, instead of being made in Reading, was the product of other factories. The plaintiff was accordingly directed by the architect to do the work anew. The plumbing was then encased within the walls except in a few places where it had to be exposed. Obedience to the order meant more than the substitution of other pipe. It meant the demolition at great expense of substantial parts of the completed structure. The plaintiff left the work untouched, and asked for a certificate that the final payment was due. Refusal of the certificate was followed by this suit.
The evidence sustains a finding that the omission of the prescribed brand of pipe was neither fraudulent nor willful. It was the result of the oversight and inattention of the plaintiff’s subcontractor. Reading pipe is distinguished from Cohoes pipe and other brands only by the name of the manufacturer stamped upon it at intervals of between six and seven feet. Even the defendant’s architect, though he inspected the pipe upon arrival, failed to notice the discrepancy. The plaintiff tried to show that the brands installed, though made by other manufacturers, were the same in quality, in appearance, in market value and in cost as the brand stated in the contract — that they were, indeed, the same thing, though manufactured in another place. The evidence was excluded, and a verdict directed for the defendant. The Appellate Division reversed, and granted a new trial.
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. . . .
Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier. The decisions in this state commit us to the liberal view, which is making its way, nowadays, in jurisdictions slow to welcome it. Where the line is to be drawn between the important and the trivial cannot be settled by a formula. “In the nature of the case precise boundaries are impossible” (2 Williston on Contracts, sec. 841). The same omission may take on one aspect or another according to its setting. Substitution of equivalents may not have the same significance in fields of art on the one side and in those of mere utility on the other. Nowhere will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract. There is no general license to install whatever, in the builder’s judgment, may be regarded as “just as good.” The question is one of degree, to be answered, if there is doubt, by the triers of the facts, and, if the inferences are certain, by the judges of the law. 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. Then only can we tell whether literal fulfillment is to be implied by law as a condition. 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. That question is not here. This is merely to say that the law will be slow to impute the purpose, in the silence of the parties, where the significance of the default is grievously out of proportion to the oppression of the forfeiture. 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.
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. . . . It is true that in most cases the cost of replacement is the measure. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value. . . . The rule that gives a remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance, has been developed by the courts as an instrument of justice. The measure of the allowance must be shaped to the same end.
The order should be affirmed, and judgment absolute directed in favor of the plaintiff upon the stipulation, with costs in all courts.
MCLAUGHLIN, J. (dissenting). I dissent. The plaintiff did not perform its contract.
The defendant had a right to contract for what he wanted. He had a right before making payment to get what the contract called for. It is no answer to this suggestion to say that the pipe put in was just as good as that made by the Reading Manufacturing Company, or that the difference in value between such pipe and the pipe made by the Reading Manufacturing Company would be either “nominal or nothing.” Defendant contracted for pipe made by the Reading Manufacturing Company. What his reason was for requiring this kind of pipe is of no importance. He wanted that and was entitled to it. It may have been a mere whim on his part, but even so, he had a right to this kind of pipe, regardless of whether some other kind, according to the opinion of the contractor or experts, would have been “just as good, better, or done just as well.” He agreed to pay only upon condition that the pipe installed were made by that company and he ought not to be compelled to pay unless that condition be performed.
The issue of not performing to the letter of the contract is one area where the UCC, instead of liberalizing the rules, has tightened them. Under Section 2-601, the UCC states that failure in any respect to supply conforming goods means that the buyer is free to accept the goods, reject them, or accept part and reject part. This is known as the perfect tender rule. The only relief from this rule involves the following exceptions: (1) if the parties agree to overlook the lack of conformity; (2) if “cure” is possible — that is, if the time for performance has not yet expired, the seller notifies the buyer of his intent to rectify the matter, and he then does so; and (3) in some cases of commercial impracticability.
If the goods cannot be returned without their perishing, they must be sold in order to minimize the seller’s losses. UCC § 2-603. If substandard goods are accepted and retained, the buyer can seek damages that amount to the difference between the value of the goods promised and the value of the goods received. UCC § 2-714.
TERMINATION OF CONTRACTUAL DUTIES
A contract is typically discharged by performance. However, there are times when the parties may agree to end their agreement prior to complete performance. Also, at times a court may declare a party’s obligations over when performance is impossible or commercially impracticable.
Complete performance ends both parties’ obligations. At times, however, a party will perform most but not all of the required duties. If the party substantially performs, that party is in breach of contract and is liable for damages caused by the breach. However, the other party is not relieved of his or her obligations. If, however, the failure to perform is seen as a material breach, it is a breach of contract that excuses the other party from any obligations. Whether the performance is so complete as to amount to only a minor breach or so insufficient as to constitute a material breach is often a difficult question. In the next case the court grapples with what to do when a construction contract is not fully performed.
Contractual obligations can be ended by agreement through rescission, novation, or accord and satisfaction. Rescission involves an agreement by both parties to cancel the contract. Rescission is generally viewed as appropriate if the contract is still completely executory. If one side has performed, a rescission will not be enforced unless the other side gives consideration for the rescission.
In a novation, a third party is substituted for one of the original parties. This creates a new contract and as such differs from assignments or delegations. Because it is a new contract, it must be supported by new consideration.
Finally, the parties may enter into an accord and satisfaction. An accord is an agreement to do something different than originally promised. The satisfaction is the performance of the accord. For example, if John owes Sally $4,000 and they agree that Sally will accept John’s Rolex watch in payment instead, their agreement is the accord. If John gives Sally his watch, there is a satisfaction. If he does not, then Sally can still sue John for the $4,000.
In some states an accord and satisfaction is only effective in cases of an unliquidated debt. A debt is liquidated if the amount owed is undisputed. It is unliquidated if there is a good-faith dispute as to the amount owed. For example, if Sam agreed to paint Jill’s living room a brilliant yellow “to her satisfaction” and Jill thought the living room ended up a dull yellow, Jill might argue she did not owe Sam anything as the final paint color did not match her expectations. Sam, of course, would argue he should be paid the full contract price. Therefore, the amount owed would be in dispute. If they were able to reach a compromise somewhere between the full contract price and nothing, then that would be an accord, and the lesser payment made would be the satisfaction.
3.When Performance Is Impossible
A party can assert the defense of impossibility of contractual performance. This occurs when one party either dies or becomes too sick to carry through with the contractual responsibilities. It also could occur when the object to be sold is destroyed or stolen before the agreed-on transfer takes place or when there is a change in the law that makes the contract illegal. A party that hopes to win under the defense of impossibility must show that the contract cannot be performed, not simply that the party cannot perform it. For example, assume Mariann, who lives in Hampshire County, Massachusetts, agrees to sell 200 bushels of the apples she grows that year to William for $10 a bushel. But a week before the harvest, a tornado destroys her entire crop. It is now impossible for her to complete the contract and she is discharged from her contractual obligations and William is simply out of luck (and apples). However, assume instead that Mariann had agreed to sell 200 bushels of apples harvested that year from Hampshire County, Massachusetts, to William for $10 a bushel. Mariann had been planning on buying the apples from local farms for $8 a bushel, thereby ensuring a profit for herself of $2 a bushel. However, that same tornado destroys all of her apples and the majority of the apples grown that year in Hampshire County, forcing up the price of apples to $40 a bushel. If she has to buy 200 bushels of apples at $40 a bushel and then resell them to William for $10, not only will she not make a profit, she will incur a huge loss. Mariann may want to claim that it is now impossible for her to perform the contract, but she will not succeed. It has become difficult, and expensive, but not impossible.
4.Due to Commercial Impracticability
As we saw from our discussion of consideration, freedom of contract allows parties to make and be held to a bad bargain. When circumstances change, leaving one party at a disadvantage, that party may ask to be excused from the contract under the doctrine of commercial impracticability. The argument is not that the contract is impossible to perform but rather that it has become too costly for one of the parties. If the change of circumstances should have been foreseen, then generally the courts will not supply any relief. For example, in one case a farm agreed to sell to a school district all the milk it required. During the course of the contract the price of raw milk increased by 23 percent. If the farm was required to abide by the terms of the contract, it would lose a substantial amount of money. The court held the farm to its contract, refusing to allow it to pass the increase on to the school district, because the rise in price was a foreseeable occurrence.8
There are three ways in which a person or corporation not a party to the contract can have a legal interest in enforcing part of the terms of that agreement. The most common of these is through the process of assignment. Third-party rights also arise through delegation and the creation of third-party beneficiaries.
An assignment occurs when one of the original parties to a contract transfers part or all of his or her interest to a third party. See Figure 8-7. For example, assume a consumer signs a sales contract with a furniture store. In the contract the consumer agrees to make certain monthly payments. The furniture store then assigns the right to receive those payments to a finance company, and in return the finance company gives the furniture store ready cash. The finance company now has a legal interest in receiving the monthly payments that the consumer agreed to pay to the store.
Figure 8-7Assignment of a Contract
Figure 8-8Delegation of Duties under a Contract
An assignment involves an assignor, an assignee, and an obligor. The assignee gets the same rights that the assignor had, but no more. The assignee is also subject to the same defenses as could have been raised against the assignor. Assignment is usually possible unless
1.the contract itself prohibits it,
2.the contract involves personal services, or
3.the assignment will materially alter the duties of the obligor.
Most duties can be delegated unless the contract prohibits it or the duty requires personal skill or special trust. The primary duty is not extinguished if the delegatee fails to perform. The original party remains obligated to fulfill the terms of the contract. See Figure 8-8.
Assignment and delegation happen after the contract is formed. However, if at the time the contract is formed one or both of the parties want to benefit a third party, a third-party beneficiary relationship is created. There are two types of beneficiaries: intended (creditor or donee) and incidental. See Figure 8-9.
Figure 8-9Third-Party Beneficiaries
Contracts often contain provisions in which one of the parties agrees to provide some direct benefit to a third party, or beneficiary. For example, in purchasing a house the buyer might agree to assume the seller’s current mortgage. In that case the mortgage lender is a third party that has been given a specific benefit under the terms of the contract; it is considered to be a creditor beneficiary. In a situation in which a father contracts with a bank to administer a trust fund for his children, those children would be considered donee beneficiaries.
If it is clear from the contract that the parties intended a third party to benefit, that party is an intended beneficiary. Consider two further examples: If in return for Sam’s watch John promises Sam to pay the $500 debt Sam owes to Jill, Jill becomes a creditor beneficiary. If in return for Sam’s car John promises Sam to give a $4,000 gift to Joan, then Joan is a donee beneficiary. In both cases the third party has a right to see that the contract terms are fulfilled, including the right to sue.
An incidental beneficiary is someone whom the original parties did not explicitly intend to benefit from the contract. An incidental beneficiary cannot enforce rights under the contract. For example, in the last example assume Bill is Joan’s husband. If Joan plans on taking the two of them on a vacation with the $4,000, Bill will benefit, but if John fails to deliver the money, Bill has no right to enforce the contract.
When one party fails to live up to the terms of a contract, a variety of remedies may be available to the other party. We have already discussed several actions that the parties can take on their own without court intervention: rescission, novation, and accord and satisfaction.
Alternatively, the nonbreaching party can go to court to seek monetary damages or specific performance. Specific performance is used in situations where there is no alternative comparable product available, such as a particular parcel of land or a rare piece of art. Under this remedy the injured party obtains a court order requiring the breaching party to fulfill the terms of the agreement. Specific performance is a wonderful remedy because the contracting party gets exactly what was contracted for. Also, there is no need to worry about collecting a judgment, the nonbreaching party need not expend time and effort to find another deal, and the actual performance may be more valuable than dollars. However, keep in mind that specific performance is possible only if dollars are inadequate. In addition, specific performance cannot be used to enforce personal service contracts. Not only would that constitute involuntary servitude, but it would impose an impossible task for the court due to the difficulty of monitoring the party’s performance.
The purpose of monetary damages is to give the injured party the benefit of the bargain. Monetary damages can be classified as compensatory, consequential, incidental, nominal, or punitive. In addition, the injured party may be required to take steps to lessen his or her loss. This is known as mitigation of damages.
For example, if Mary signs a 12-month lease for an apartment and in month six she notifies her landlord that she does not intend to rent the apartment for the remainder of the term because she has accepted a job out of state, the landlord can sue Mary for the amount remaining on the lease. The landlord will be required to mitigate the damages. Generally, this means that the landlord will try to rent out Mary’s apartment for the six months remaining on the lease. If the apartment is rented, the amount of that rent would reduce the amount that Mary owes. The landlord can add the cost of trying to rent the apartment. However, if the landlord has several units available for rent, Mary’s apartment does not have to be the first apartment to be rented.
Compensatory damages are awarded to compensate for the loss of the bargain. Their purpose is to place the injured party in the same position that party would have been in had the contract been performed. The classic case describing this form of damages is a 1929 New Hampshire case, known by law students everywhere as the “hairy hand” case.9 In that case a father took his son to a doctor. The boy had burned his hand, leaving it scarred. The doctor promised to give the boy a “hundred percent perfect hand” by grafting a piece of skin taken from the boy’s chest. Everything went well until a few years passed, and the boy entered puberty. When he did so, his hand began sprouting hair, leaving him with a hand uglier than when he had started. The court calculated the damages as the difference between a “perfect hand” and what the boy received, a hairy hand. Not included in the damage award was any pain the boy suffered from the operation or the cost of the operation. The boy would have had to undergo the pain and cost of the operation even if the operation had been successful. Therefore, to compensate the plaintiff for the pain and the cost of the operation, in addition to the difference in the hand, would give the plaintiff more than what was necessary to put him in the position he would have been in had the operation been successful.
In calculating compensatory damages, courts frequently use the following formula:
Promised performance – actual performance – mitigation + expenses (incidental damages)
For example, if John agrees with Bill to sell Bill his watch for $500, but Bill only pays $300, John can sue Bill for $200. If Bill had paid nothing and simply reneged on the deal, John could have sold the watch to someone else and could have recovered the difference between that price and the contract price, along with any expenses incurred in finding the new buyer (incidental damages).
On the other hand, if John refuses to sell the watch, then Bill has two options. First, he can try to find another watch. The UCC calls this finding of substitute goods cover. Then his damages are the cost of the substitute watch minus the contract price. For example, if Bill finds a similar watch but has to pay $700, his damages are $200. Alternatively, he can decide to forgo a new watch. In that case his damages would be the difference between the market price and the contract price.
Consequential damages arise out of special circumstances that must be foreseeable to the other party. Typically this is handled by notifying the other party of any such circumstances. The classic case setting forth this rule is an English case from 1854.10 The Hadley family ran a flour mill. Their crankshaft broke, and they gave it to Baxendale to deliver to a foundry for repair. Baxendale promised to deliver the shaft the next day. However, it was not delivered for several days. As a result, the mill was closed for those days. Despite the common practice, the Hadleys did not have an extra crankshaft. Because the Hadleys had not notified Baxendale of that special circumstance, he could not be held liable for their lost profits.
Sometimes, however, lost profits can be recovered, especially if an established business suffers a loss and the breaching party could have anticipated that loss. In the following case Sargon, a small dental implant company, with net annual profits of $101,000, sued a university for breach of contract and sought lost profits of over $1 billion, claiming that but for the breach of contract, the company would have become a world leader in the dental implant industry. Sargon had contracted with the university to conduct a five-year study, which it failed to complete.