#69:  Measures of Adequacy in Contract Performance

In their first year of law school, budding lawyers learn in Contracts class about the “perfect tender” rule and the “substantial performance” rule. These alternative measures of adequate performance raise precisely the issue that their words suggest: must a contracting “promisor” give the “promisee” (please forgive the legalese) exactly what was promised, or is a “close enough” standard applicable?
In construction cases, “close enough” is not enough to prevent a breach of contract from occurring, but it takes a “material” breach to excuse the other party’s obligation to pay for the work. And when a failure to deliver a perfect tender causes the other party no damages, “close enough” yields the same financial result as no breach at all.
The leading case is Justice Cardozo’s opinion in Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239 (1921). The contract in that case specified Reading pipe, but different pipe identical to Reading pipe in every material way was inadvertently installed, a mistake first discovered after construction was complete. The court refused to allow the owner to withhold from final payment the cost of tearing out and replacing the off-spec pipe, ruling that while “[t]here is no general license to install whatever, in the builder’s judgment, may be regarded as ‘just as good,’” nevertheless the court “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 fulfilment is to be implied by law as a condition . . . 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.”
Whether “substantial performance” has been met in a given case goes far beyond the functional equivalency of brand name components. Quality is in the eye of the beholder, and contractors’ views of what is “good enough” may not match owners’ views. Building codes address only a fraction of the myriad ways that quality of construction can come into play, and even those codes are subject to interpretation. See Streit v. Callahan, 122 N.H. 244 (1982) (affirming a verdict that stairs constructed with a nine-inch tread but at an angle of less than ninety degrees between tread and riser were defective, based on an expert’s interpretation of the code).
One way to head off disagreements on quality, particularly for dimensional and positional aspects of the construction, is to agree in advance on tolerances — the allowable deviation from “perfect” — when considering how tight, how smooth, or how plumb/level/square the construction must be in order to count as “good enough.” In the residential setting, the National Association of Home Builders publishes “Residential Construction Performance Guidelines,” now in its fifth edition, which sets out minimum performance criteria that can be incorporated into the parties’ contract. Other trade associations publish similar guidelines for specific industries (the National Frame Building Association, American Concrete Institute, and American Institute of Steel Constructors come to mind). If agreed upon up front, these published standards will govern.
Sometimes a dispute over whether the contractor’s implied warranty of workmanlike quality has been met will spark the argument that such industry trade group standards define the standard of good workmanship even without their express incorporation into the parties’ contract. Our Supreme Court has yet to adopt that view. While those standards are admissible evidence on the question, expert testimony is the time-honored way of establishing the mark, and while most experts do rely on such standards, in the end the jury decides both the measure of adequate performance and whether it has been met.
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