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Wednesday, June 28, 2023

Teaching Assistants: Victor Goldberg on Jacob and Youngs v. Kent

Rethinking This is the ninth in our series of posts on Victor Goldberg's second volume of collected essays on contracts law, Rethinking the Law of Contract Damages (RLCD).  Links to previous posts on the first volume, Rethinking Contract Law and Contract Design (RCL), can be found here.  Today's post covers the eighth chapter of RLCD, which revisits scholarly takes on Judge Cardozo's opinion in Jacob & Youngs v. Kent, a case about which we have previously posted here, here, and here.

I admit it, I was worried about this chapter.  It is possible for me to listen to people criticize Judge Cardozo and still part friends, but only because I "will not visit venial faults with oppressive retribution."  Fortunately, Professor Goldberg has come not to bury Judge Cardozo but to praise him.  Despite some commentaries going back to 2003 criticizing Judge Cardozo's opinion in Jacob and Youngs for "material misrepresentations of fact and law," Professor Goldberg thinks that Judge Cardozo's result was correct at the time and still today (RLCD, 142).  Whew. 

As most readers of this blog know, the case involved a contract for the construction of a mansion in New York State. The contract called for Reading pipes, but the contractor installed a lot of comparable pipes manufactured by other companies.  Judge Cardozo found the mistake to be inadvertent and ruled that the builders had substantially performed.  They were entitled to full payment, less the difference in value between the house contracted for and the house as built.  Because the pipes installed were of the same quality as Reading pipe, that difference was effectively zero.

CardozoThe difference between the four judges, including Judge Cardozo (right), who found that Jacob and Youngs had substantially performed and the three who disagreed was really about facts, not law.  The dissenting judges thought the mistake could not be the product of mere inadvertence.  The trial court record provided few facts, because the trial court did not let in Kent's evidence, so it seems that, given the differing views of the facts, a remand would have been appropriate.  But as Professor Goldberg notes, there had been a previous trial at which the facts were presented to the jury.  The jury found for Jacob and Youngs, but the trial court set that verdict aside.  After a second trial and appeal, Kent had stipulated that, if the Court of Appeals upheld the Appellate Division's ruling, it should render judgment absolute in favor of the plaintiff.  Judge Cardozo just did what Kent asked him to do (RLCD, 143-44).  

Another interesting point that Professor Goldberg mentions is that the contract in fact allowed for substitutions of materials contingent on approval of the architect.  That being so, the breach was not the substitution of pipes but failure of notice to the architect.  That provision in the contract would seem to make the case easier, as the damages for failure of notice would be nominal (RLCD 144-45).

Professor Goldberg thinks that most contracts professors assume that Jacob and Youngs owes its prominence to legal innovation (RLCD, 145).  I can't speak for other contracts professors, but thanks to NYU Law's outstanding lawyering program, I had an assignment as a 1L about substantial performance, and so I knew that Judge Cardozo had a lot of precedent to work with when he wrote Jacob and Youngs.  Professor Goldberg summarizes this material (RLCD, 146-49).  

But I must take issue with Professor Goldberg on one point.  He complains that "Cardozo's rationale was phrased in rather flowery language that somewhat obscured the reasoning"  (RLCD, 157).  The language in question is as follows:

Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable.  If something else is in view, it must not be left to implication.  There will be no assumption of a purpose to visit venial faults with oppressive retribution.

Flowery?  Obscure?  I would say that Judge Cardozo wrote in the manner to which we should all inspire -- his writing invites and rewards re-reading -- and once one has appreciated his meaning, a Salieri Mozartsatisfying feat, easily obtained, one can also appreciate why he expressed himself as he did.  His meaning is clear enough, and its manner of expression is unmatched among American jurists.  I have always assumed that his opinions owe their prominence to Judge Cardozo's reputation, which in my view, at least in the realm of contracts law, derives from his peerless prose style rather than from unique innovations in the law.  Professor Goldberg provides his translation of Judge Cardozo's language quoted above (RLCD157-58).  He has captured the meaning precisely but in considerably more space and without the glory.  Why listen to Salieri (left) when you can hear Mozart (right)?  I intend no slight to Professor Goldberg.  No American legal authority writes on a par with Cardozo.  He is honor alone; the rest of us must make do with the punctilio of an honor most sensitive.

Screenshot 2023-06-26 at 7.55.38 AMYou disagree?  Read the mug (right).  Sidebar, I actually would be interested to see comments on the subject: what unique innovations did Judge Cardozo introduce (or further) in contracts law?

Professor Goldberg proceeds methodically, eliminating the mysteries underlying the case. He reviews New York precedent for leniency regarding architects' refusals to award certificates where the work was completed in good faith and the diminution in value or cost of completion was relatively small (RLCD, 150-52).  There too, Jacob and Youngs did not depart from prior caselaw, but Professor Goldberg also addresses the question of whether the issuance of an architect's certificate was a condition precedent to Kent's obligation to make a final payment in this case.  The parties had taken that issue off the table. By the time the case reached the Court of Appeals, the sole issue was whether Jacob and Youngs had substantially performed (RLCD, 154-55). 

Judge Cardozo notes that the options for recovery are either costs of completion or diminution in value, but Kent was not seeking to recover cost of completion in his appeal.  Why not?  He had originally counterclaimed for $10,000, perhaps a rough estimate of what it would have cost to rip out and replace the non-Reading pipes.  He dropped that counterclaim, likely because the contract did not provide for that remedy.  Rather, Kent could refuse the final progress payment.  He could recover the costs of completion if he were actually going to pay somebody to do the work, but he chose not to do so. (RLCD, 156-57).  I find that fact significant.  Perhaps Kent didn't really care that much about Reading pipes but did care about having a reason to refuse to make the final payment.

Judge Cardozo's results are consistent with industry standards to this day.  Professor Goldberg reviews contemporary construction contracts and finds that they generally encourage outcomes akin to what Judge Cardozo laid out in Jacob and Youngs.  There are some nuances.  Whereas Judge Cardozo treated willfulness as a bar to substantial performance, the modern standard seems to treat it as a factor to be weighed.  Professor Goldberg thinks Judge Cardozo would have been fine with that (RLCD, 159).  I concur.  I think he stressed Jacob and Youngs' lack of willfulness in response to determined opposition from his dissenting brethren.  In most situations, standard contracts provide for cost of completion as the standard remedy if such costs are actually incurred or were not incurred for good reason.  Where costs of completion significantly exceed the benefits, diminution in value is the contractually pre-determined measure of damages (RLCD 159-60).   Standard contracts now direct disputes as to an architect's good faith refusal to issue a certificate to mediation or arbitration.  Such disputes now seldom result in litigation (RLCD, 160-61).  

The trick here is to find the right balance.  If we treat the contract right as akin to a property right and order specific performance, it gives the owner too much leverage over the contractor.  If a liability rule provides too little protection to the property owner, a moral hazard arises, and unscrupulous contractors will get away with as much deviation as the substantial performance doctrine will allow.  A great deal turns on the willfulness/inadvertence analysis, and modern contracts draw the line pretty much as Judge Cardozo did (RLCD, 161-63).  

Below are links to previous posts on RLCD and the first post links to post posts on RCL:

Teaching Assistants: Victor Goldberg, Volume II, An Introduction
Teaching Assistants: Victor Goldberg on Valuation of the Contract as an Asset
Teaching Assistants: Victor Goldberg on The Golden Victory
Teaching Assistants: Victor Goldberg on Lost (Volume) in America
Teaching Assistants: Victor Goldberg on Lost Volume in the UK
Teaching Assistants: Victor Goldberg on Mitigation
Teaching Assistants: Victor Goldberg on the Middleman's Damages
Teaching Assistants: Victor Goldberg on Sub-Sales in the UK

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Comments

"No American legal authority writes on a par with Cardozo." Amen.

Posted by: Timothy Murray | Jun 29, 2023 5:01:12 PM