A History of Contract Law’s Substantial Performance Doctrine and its Affect on Construction Litigation

Jacob & Youngs Inc. v. Kent (1921) has served as the dominant law school case on the Substantial Performance Doctrine for over a century. In this case, Mr. Kent promised to pay Jacob & Youngs Inc., upon the successful construction of his country home. The contract expressly included the requirement for the installation of “Reading manufactured pipe,” a brand of piping specifically manufactured by the Reading Iron Company, throughout Mr. Kent’s home. Instead of using Reading pipe, Jacob & Youngs, Inc., used wrought iron piping for about three-fifths of the overall piping. Consequently, Mr. Kent withheld $3,483.46 of the total contract price of $77,000 (a significantly larger sum of money in 1921 than it is now) and evidenced his intent to continue doing so unless and until Jacob & Youngs, Inc., installed the piping provided for in the contract.

The case proceeded to the New York appellate court where future Supreme Court justice, Justice Cardozo, wrote for the majority. The Court narrowly held 4-3 that Jacob & Youngs, Inc., substantially performed and required Mr. Kent to pay the remaining balance minus the nominal difference in value between the two types of piping. In doing so, Cardozo coined the Substantial Performance Doctrine as an “instrument of justice” to be utilized by contractors finding themselves in similar situations to Jacob & Youngs, Inc. In determining whether the Substantial Performance Doctrine should apply to a given situation, Cardozo stated, (in true ambiguous Cardozo fashion) “we must weigh the purpose to be served, the desire to be gratified, and the excuse for the deviation from the letter, the cruelty of enforced adherence.” Cardozo admitted his standard was vague, adding “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 probably be troubled by a classification where the lines of decision are so wavering and blurred. The line to be drawn between the important and the trivial cannot be settled by a formula.” Consequently, he arrived at the conclusion that Mr. Kent would not be burdened by a “trivial and unimportant” difference in the brand of interior piping installed.

Over one-hundred years later, the Substantial Performance Doctrine is still commonly used by contractors in construction litigation as a vehicle to enforce payment. Justice Cardozo’s reasoning in Jacob & Youngs, Inc. v, Kent provides courts with the flexibility to exercise great discretion in determining whether to apply it to a given set of facts – and exercise great discretion they have. In Hansel v. Creative Concrete & Masonry Co., (2002) the contract specified for the installation of a 4.5-inch-thick driveway. However, the driveway tendered was thinner, without a gravel base, and completely failed. The Hansels requested the court enforce an order requiring Creative Concrete & Masonry Co. to replace the driveway. However, the court denied their request and justified its denial by stating, “the part unperformed did not destroy the value or purpose of the contract.” Perhaps even more surprisingly in Flynn Builders, L.C. v. Lande, (2012) the court held that the contractor’s completion of eighty percent of the project amounted to substantial performance. It reasoned, “substantial performance should be granted so long as the unfinished work does not materially affect the habitability of the home.” In essence, if the home is livable, you pay your contractor. Conversely, in Stephenson v. Smith (1976), the court refused to apply the doctrine when unfinished work amounted to ten percent of the overall project.

As the Substantial Performance Doctrine remains controversial and applied inconsistently by judges, scholars ponder ways to circumvent its overzealous application. Some argue it should be possible to include a provision waiving it altogether. However, it is unlikely contractors would be willing to enter into these types of agreements. An approach that has proven more realistic is for parties to agree to a certain set remedy in the contract. In James Construction Group v. Dallas/Fort Worth International Airport (2006), James Construction Group contracted to construct a 2,000-foot extension of an airport runway for Dallas/Fort Worth International Airport for $32,687,636.25. Upon noticing a poorly constructed ribbed metal pipe, the airport withheld $650,800 of the total contracted for price. James Construction Group sued to recover the balance and cited Jacob & Youngs, Inc. v. Kent as precedent. The court rejected Jacob & Youngs Inc.’s authority over this case because the parties had expressly provided for a cost-of-replacement measure of damages in their contract.

The 100-year anniversary of Jacob & Youngs Inc. v. Kent serves as an opportune time to reexamine and reassess the Substantial Performance Doctrine’s meandering path. While the doctrine often prevents forfeiture of a contractor’s time and materials, there are other important factors to consider such as the weight of express provisions, a contractor’s good faith effort, and significant technological and economic advancement throughout the 1900s and 2000s. Before entering into construction contracts with large companies, one should involve a lawyer who is knowledgeable about contract provisions and defenses and work closely with them. A lawyer can assist in understanding the degree of leeway a contractor has afforded themself in the agreement and the repertoire of legal defenses available to them should a dispute arise. A careful assessment of both will result in more informed decision-making when entering into construction contracts.

This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.