230 N.Y. 239. New York Court of Appeals. 1921. Decision by Judge Benjamin Cardozo. A venerable case in contract law that remains viable precedent in jurisdictions across the United States.

The plaintiff built a home for the defendant under a contract for $77,000. In the contract, the defendant required that all wrought-iron pipe be Reading pipe. The plaintiff instead, knowingly or unknowingly, used a different pipe. By the time the defendant learned of the wrong pipe, it was already encased in the concrete walls. It would be quite expensive, at that point, to replace the pipe with Reading pipe.

The defendant refused to pay the remaining $3,500 he owed on the home. The plaintiff sued for it. One of the cardinal rules of contract law is that a contract breacher must pay the cost of performance of the contract. Indeed, under this traditional rule, the defendant could have countersued the plaintiff for the enormous cost of fulfilling the contract with Reading Pipe.

However, Judge Cardozo ruled for the plaintiff, and the defendant was ordered to pay the $3,500. Judge Cardozo ruled that when it is grossly unfair to require completion of a contract, "difference in value" should be the measure of damages. In other words, since there was no difference in market value between homes with Reading pipe and homes with another pipe, the defendant could not recover cost of completion. (Since the defendant did not sue for cost of completion, Judge Cardozo implicitly meant that the cost of completion did not provide an affirmative defense offsetting the $3,500 owed.)

The problem with Judge Cardozo's ruling is obvious. It leaves no way for a contracting party to ensure that she gets what she asks for unless the market would demand a higher price for it. But the purpose for contracts is to allow individuals to make enforceable promises. If one contracts with a painter for his walls to be painted cream, and the painter paints them pale blue, should not the painter be required to repaint them cream, even if pale blue walls have a higher market value? Perhaps Judge Cardozo would not, in this case, find repainting grossly unfair.

The case could be looked at a different way. Later cases have made a distinction made between conditions of a contract and separate covenants. Under this rubric, a contract can be broken into indivisible pieces. In the case at hand, one could say that the defendant contracted to have a house built, and separately he contracted to have Reading pipe used. The use of Reading pipe, it seems, was not a condition of the contract, but rather a separate pact. Thus failure to use Reading pipe did not nullify the contract to have the house built. The problem with this approach is that it requires a judge to make somewhat arbitrary decisions as to which specifications are conditions of a contract and which are not.

In modern contract law, the situation in Jacobs & Young v. Kent represents a gray area. How the case will turn out depends on the leanings of the judge and the case law in the jurisdiction in which the case was brought.

Some random cases from Westlaw citing the case at hand positively:

Edgewater Const. Co., Inc. v. 81 & 3 of Watertown, Inc., 769 N.Y.S.2d 343, 345+, 1 A.D.3d 1054, 1056+, 2003 N.Y. Slip Op. 18763, 18763+ (N.Y.A.D. 4 Dept. Nov 21, 2003) F. Garofalo Elec. Co., Inc. v. New York University, 754 N.Y.S.2d 227, 230+, 300 A.D.2d 186, 189+, Khiterer v. Bell, 2005 WL 192354, *3+, 6 Misc.3d 1015(A), 1015(A)+, 2005 N.Y. Slip Op. 50048(U), 50048(U)+ (N.Y.City Civ.Ct. Jan 28, 2005) ( Hoosier Energy Rural Elec. Co-op., Inc. v. Amoco Tax Leasing IV Corp., 1992 WL 684355, *9+ (S.D.Ind. Mar 17, 1992) Royal Bank of Canada v. Beneficial Finance Leasing Corp., 1992 WL 167339, *9+ (S.D.N.Y. Jun 30, 1992) Blinderman Const. Co., Inc. v. U.S., 39 Fed.Cl. 529, 572+, 42 Cont.Cas.Fed. (CCH) P 77,210, 77210+ (Fed.Cl. Nov 13, 1997)

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