Review II. Performance, breach and remedies on the exam

Last time the story ended with a late oven and a counterclaim. Today the second half of the course, on a new story, and the same four moves. Name the issue. State the rule. Apply it by naming facts. Argue the other side, then conclude. And the same question underneath. What exactly did these people promise each other, and what happens now that one of them did not do it?
Here is the story. A school district in Pennsylvania hires a builder to put up a gymnasium for two million dollars, to be finished by the first of August, before the school year. The contract says the builder will use a named brand of steel joists and that the architect's certificate of completion is a condition of final payment. It also says that for each day of delay beyond the first of August the builder pays five thousand dollars.
The builder orders the steel joists from a mill for three hundred thousand dollars, delivery in March. In February the mill writes that because of a strike at another plant it may not be able to meet the March date. The builder writes back asking for assurance. The mill replies that it will ship when it can. In March the builder buys joists from another mill of equal quality, for three hundred and forty thousand, and tells the first mill it is cancelling.
The gym is finished on the fifteenth of August. The architect refuses a certificate because a different brand of floor finish was used, equal in quality, which the builder's supplier substituted without telling anyone. The district refuses to pay the last four hundred thousand dollars and demands seventy five thousand for fifteen days of delay. In June, before the gym was done, the district had also told the builder it no longer wanted the bleachers in the contract, and the builder installed them anyway.
So here is the question again. Discuss. List the issues before I start, in the order a court would decide them. Think about it before I go on.
First the governing law, because this story has two contracts under two bodies of law. The gymnasium is a construction contract, services with materials incorporated, governed by the common law. The joist purchase between the builder and the mill is a sale of goods, governed by Article Two. Say so, and keep them apart. The builder will want Code rules against the mill and common law rules against the district.
Issue one, the mill. Was the mill's letter a repudiation? A repudiation must be clear. A statement that it may not be able to meet the date is doubtful, not a definite refusal. Treating a doubtful statement as a repudiation and cancelling is itself a breach. So the builder did the right thing first. It asked.
Section two dash six oh nine. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance. A strike news letter from the mill itself is reasonable grounds. The demand was in writing. What did the mill answer? It will ship when it can. That is not assurance of due performance. It is a restatement of the doubt.
And the Code says what follows. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. The mill's inadequate answer was a repudiation, and under two dash six ten, the aggrieved party may resort to any remedy for breach.
So the builder could cover. The buyer may cover by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. Equal quality, bought promptly, in good faith. The builder recovers the difference, forty thousand dollars, plus incidental costs, less expenses saved. Mention the alternative. Without cover, the measure would be market price when the buyer learned of the breach, less contract price.
Cover is chosen here because the builder actually bought.
Issue two, the district's refusal to pay the four hundred thousand. Two questions, and they are different. First, the architect's certificate. It is an express condition of final payment, and express conditions must be strictly performed. Second, the floor finish. That is a question of constructive conditions and substantial performance.
Take the finish first. It is Jacob and Youngs against Kent in new clothes. A named brand, an equal substitute, an innocent departure. Cardozo said the owner recovers the difference in value, which is nothing or nominal, not the cost of tearing out the floor, where that cost is grossly and unfairly out of proportion to the good to be attained. The builder substantially performed. The district's duty to pay is not excused by the finish, though it may deduct any real difference in value.
Now the certificate. If the certificate is a condition, and it was refused, the district's duty to pay never became due. But argue the other side, because examiners want it. The certificate protects against defective work, and the only defect is an equal substitute that Jacob and Youngs treats as trivial. Many courts excuse a condition where the architect's refusal is unreasonable or in bad faith, or where insisting on it would cause a disproportionate forfeiture of four hundred thousand dollars for a floor finish.
Say which way you come out, and why.
Issue three, the delay. The gym was fifteen days late. The contract says five thousand a day. Is that liquidated damages or a penalty? The test is whether the sum was a reasonable forecast of harm that was difficult to estimate when the contract was made. What does a school lose when a gym is two weeks late in August? Hard to put in dollars, some use of the building, rescheduling, perhaps rented space.
Five thousand a day may be a fair estimate on a two million dollar building.
But ask Judge Posner's question from Lake River. Is the formula invariant to the gravity of the breach? A daily rate moves with the length of the delay, which is the right shape. And ask what actually happened. If school did not start until September and the gym was not needed, the district suffered little or nothing, and some courts will refuse to enforce a clause that pays for harm that never came. That is the qualification from Wassenaar. Argue it both ways.
Issue four, the bleachers. In June the district told the builder it no longer wanted them. The builder installed them anyway. Rockingham County against Luten Bridge. After a clear repudiation, the other party must not pile up damages. The builder may recover what it spent before the notice, plus the profit it would have made on the bleachers, but not the cost of building them after it was told to stop. That is the duty to mitigate at its simplest.
And check whether the June notice was a repudiation or a request to change the work. Many construction contracts give the owner a right to order changes, with a price adjustment. If this contract did, the district did not breach at all. It changed the job, and the builder should have priced the change. Read the contract before you call something a breach.
Issue five, the measure of the builder's claim. What does the builder ultimately recover? Expectation, which puts the builder, in Hawkins's words, in as good a position as he would have been in had the defendant kept his contract. The unpaid four hundred thousand, less any deduction for the floor finish, less any valid liquidated damages, plus the lost profit on the bleachers, less the cost of the bleachers built after notice. Show the arithmetic in words.
Examiners give marks for the structure of the calculation, even if they do not care about the numbers.
Now the lessons of this story. The first is that remedies questions are built out of the same pieces every time. Expectation as the baseline. Then the limits. Was the loss foreseeable when the contract was made? Can it be proved with reasonable certainty? Could it have been avoided? Then the alternatives. Reliance where expectation cannot be proved. Restitution where a party conferred a benefit. Specific performance where money will not do.
And the parties' own terms, a liquidated sum or a limited remedy, tested against the Code and the penalty rule.
The second lesson is to find the conditions before the breaches. A party who withholds payment because a condition failed is not in breach, and a party who withholds it when the condition is excused, or when the other only partly failed, may be the one in breach. The order of performance decides who broke the contract first, and who broke it first decides everything after.
The third lesson is the one I have repeated all year. Read the contract. The bleachers may be a change, not a breach. The certificate may be a condition, or only a way to measure performance. The delay clause may be a forecast or a penalty. Every one of those answers came from the words the parties chose. What exactly did these people promise each other?
Now let's change one fact. The mill, after the builder's demand, had written back, we have secured joists from our other plant and will ship on the fifteenth of March as agreed, and the builder cancelled anyway and bought elsewhere. Choose an answer before I go on.
Then the builder is in breach. The mill gave adequate assurance of due performance, specific, from a source unaffected by the strike, confirming the date. After adequate assurance, insecurity is no longer a ground for anything. The builder's cancellation was a repudiation of its own, and the mill may recover its damages, perhaps its lost profit on the joists if it is a lost-volume seller.
Change one fact again. The contract had said that use of the named brand of floor finish is of the essence and that any substitution, however equal, releases the district from any duty to pay the balance. Choose.
Then Jacob and Youngs's own qualification applies. Cardozo said the parties are free by apt and certain words to effectuate a purpose that performance of every term shall be a condition of recovery. Apt and certain words are exactly what this clause is. The district is entitled to insist on it, subject only to an argument that four hundred thousand dollars of forfeiture for an equal floor finish is so disproportionate that a court will excuse the condition. Most would enforce it.
Say that it is the harder argument.
Change one fact a third time. The contract said the builder pays two hundred thousand dollars if the gym is late by any amount, one day or one year. Choose.
Then it is almost certainly a penalty. The sum does not move with the length of the delay, so it is invariant to the gravity of the breach. A one day delay costs the same as a year, which no honest forecast could produce. The clause falls, and the district recovers only its actual, provable damages for fifteen days late, if any.
Here is what people get wrong on exams, and why it is tempting. The first mistake is to treat every failure as a material breach. Most failures are breaches, but only a material breach, or the failure of an express condition, lets the other side stop performing. The second mistake is to compute damages without the limits. Foreseeability, certainty and mitigation are not separate topics. They are parts of every damages answer.
The third mistake is to forget the Code when goods appear inside a services story. The joists were goods. Assurance, cover and market damages came from Article Two, while the gym itself came from the common law. The best answers switch law in the middle of the page without being told.
Here is the method, in one breath. Sort the contracts by governing law, find the conditions and the order of performance before calling anything a breach, decide whether each failure is material, a repudiation, or the failure of a condition, and whether any excuse or change clause applies, then build the remedy from expectation, cut by foreseeability, certainty and mitigation, and tested against the parties' own remedy terms, arguing the facts both ways at every step. Now, five questions.