First-Year Law Students' Examination (FYLSX)

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A homeowner contracts with a builder to construct a custom house for $500,000. The contract explicitly specifies that all plumbing pipes must be 'Brand X' pipes. Due to a supply chain issue, the builder is unable to obtain Brand X pipes and instead uses 'Brand Y' pipes, which are of identical quality, durability, and function. Upon discovering the substitution after the house is complete, the homeowner refuses to make the final payment of $50,000. The cost to replace the Brand Y pipes with Brand X pipes would be $75,000. What is the most likely outcome if the builder sues the homeowner for the final payment?

The builder will recover the $50,000 because he has substantially performed the contract. The homeowner can rescind the entire contract due to the builder's material breach. The builder will recover nothing and must pay $75,000 to replace the pipes. The builder will recover the $50,000 final payment, but the homeowner can offset damages equal to the diminution in the home's value, which is likely zero.

Correct Answer:

The builder will recover the $50,000 final payment, but the homeowner can offset damages equal to the diminution in the home's value, which is likely zero.

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