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Valparaiso Univ. Law School

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Monday, March 2, 2009

Is the Substantial Performance Doctrine Rendered Quaint by Statute?

Benjamin_cardozoI can't imagine not teaching Jacob & Youngs v. Kent, a Limerickworthy case if ever there was one. Still, I'm happy that the Supreme Court of Connecticut has rejected a lower court ruling that threatened to eliminate the doctrine of substantial performance in the context of a home renovation contract that was not completed to the homeowner's complete satisfaction -- at least in Connecticut. The case, Hees v. Burke Construction, 290 Conn. 1, 961 A.2d 373 (Conn. 2009), addresses the question of whether Connecticut's Home Improvement Act precludes a home improvement contractor from reducing breach of contract damages by the unpaid balance due under the contract. That Act provides in relevant part as follows:

No home improvement contract shall be valid or enforceable against an owner unless it: (1) Is in writing, (2) is signed by the owner and the contractor, (3) contains the entire agreement between the owner and the contractor, (4) contains the date of the transaction, (5) contains the name and address of the contractor and the contractor’s registration number, (6) contains a notice of the owner’s cancellation rights in accordance with the provisions of chapter 740, (7) contains a starting date and completion date, and (8) is entered into by a registered salesman or registered contractor. . . .

The Supreme Court of Connecticut held that the Act does not preclude recovery by the contractor, reversing the lower court's judgment for plaintiffs.

Plaintiffs engaged Burke Construction to undertake about $350,000 in home improvements. After about 30 change orders, the contract price rose closer to $400,000. Plaintiffs paid $330,531, but then refused to make a tenth payment. At that point, there was an unpaid balance of $16,472, and after giving plaintiffs notice that it considered them in breach, Burke terminated the contract. Plaintiffs sued alleging that Burke had breached by not completing all of the work. Burke counterclaimed alleging breach of contract, quantum meruit and foreclosure of its mechanic's lien. The case was referred to a referee, who found for plaintiffs and awarded them damages for costs incurred in completing work that defendant had left undone. The referee denied Burke's counterclaims because the contract included no right of rescission and was thus unenforceable against the plaintiffs under the Act. The trial court adopted the referee's report.

On appeal, Burke contended that it was entitled to offset plaintiffs' damages by the amount due under the contract and that the Act did nothing to change that standard rule of contracts damages. The Supreme Court agreed.

The Court determined that the statutory language was ambiguous on the subject of its intended scope. The Act prevents contractors from relying on a contract that is inconsistent with the statute in an action brought by the contractor, but it is not clear that contractors could not rely on such a contract in a case in which they are alleged to have breached the agreement. However, after a review of the legislative history behind the act and case law decided under it, the Court concluded that the referee's interpretation of the Act was untenable.

The Court observed that homeowners would be awarded "an unwarranted windfall" if it were to permit plaintiffs to recover damages for a breach of contract but then were not to permit defendants to recover amounts due under that same contract.

Justice Schaller provided a niftier solution in a concurring opinion. Preferring to avoid a distinction between "affirmative" and defensive uses of the Act, Justice Schaller argued that plaintiff conceded the validity of the contract by suing for its breach. There was thus no need to consider the Act at all.

[Jeremy Telman]

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