Hoenig v Isaacs

In this case the contract was made over a period of time and was partly oral and partly in writing, but I agree with the Official Referee that the essential terms were set down in the letter of 25th April, 1950. It describes the work which was to be done and concludes with these words:

"The foregoing, complete, for the sum of £750 nett. Terms of payment are nett cash, as the work proceeds; and balance on completion."

The defendant paid £150 on 12th April, 1950, and another £150 on the 19th April, 1950. On 8th August, 1950, the plaintiffs said that they had carried out the work in absolute compliance with the contract and demanded payment of the balance of £450. On the 30th August, 1950, the defendant paid £100, but said that there were defects and omissions in the work and that he would call in someone else to make them good and deduct the cost from the plaintiffs' bill. He did not do this but entered into occupation of the flat and used the furniture. The plaintiffs then brought this action for the balance of £350. They denied that there were any defects at all. The Official Referee found that there were defects in three of the items of furniture and that the cost of remedying them was £55.18s.2d. He deducted that sum from the £350 and gave judgment for the plaintiffs for £294.1s.l0d.

The question of law that was debated before us was whether the plaintiffs were entitled in this action to sue for the £350 balance of the contract price as they had done. The defendant said that they were only entitled to sue on a quantum meruit. The defendant was anxious to insist upon a quantum meruit, because he said that the contract price was unreasonably high. He wished therefore to reject that price altogether and to pay simply a reasonable price for all the work that was done. This would obviously mean an inquiry into the value of every item, including all the many items which were in compliance with the contract as well as the three which fell short of it. That is what the defendant wanted. The plaintiffs resisted this course and refused therefore to claim on a quantum meruit. They said that they were entitled to the balance of £350 less a deduction for the defects.

In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment.

When a contract provides for a specific sum to be paid on completion of specified work, the Courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is therefore construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or alternatively set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good; see Mondel v Steel^[1] and the notes to Cutter v Powell in the 13th Edition of Smith's Leading Cases II., 19-21.

It is, of course, always open to the parties by express words to make entire performance a condition precedent. A familiar instance is when the contract provides for progress payments to be made as the work proceeds, but for retention money to be held until completion. Then entire performance is usually a condition precedent to payment of the retention money, but not, of course, to the progress payments. The contractor is entitled to payment pro rata as the work proceeds, less a deduction for retention money: but he is not entitled to the retention money until the work is entirely finished, without defects or omissions.

In this case the contract provided for "nett cash as the work proceeds and balance on completion." If the balance could be regarded as retention money, then it might well be that the contractor ought to have done all the work correctly, without defects or omissions, in order to be entitled to the balance. But I do not think the balance should be regarded as retention money. Retention money is usually only 10 per cent, or 15 per cent, whereas this balance was more than 50 per cent. I think this contract should be regarded as an ordinary lump sum contract. It was substantially performed. The contractor is entitled therefore to the contract price, less a deduction for the defects.

Even if entire performance was a condition precedent, nevertheless the result would be the same; because I think the condition was waived. It is always open to a party to waive a condition which is inserted for his benefit. What amounts to a waiver depends on the circumstances. If this was an entire contract, then when the plaintiff tendered the work to the defendant as being a fulfilment of the contract, the defendant could have refused to accept it until the defects were made good, in which case he would not have been liable for the balance of the price until they were made good. But he did not refuse to accept the work. On the contrary, he entered into possession of the flat and used the furniture as his own, including the defective items. That was a clear waiver of the condition precedent. Just as in a sale of goods, the buyer, who accepts the goods, can no longer treat a breach of condition as giving a right to reject but only a right to damages: so also in a contract for work and labour, an employer who takes the benefit of the work can no longer treat entire performance as a condition precedent, but only as a term giving rise to damages. The case becomes then an ordinary lump sum contract governed by the principles laid down in Mondel v Steel and Dakin v Lee. The employer must therefore pay the contract price subject to a deduction for defects or omissions.

I would point out that in these cases the question of quantum meruit only arises when there is a breach or failure of performance which goes to the very root of the matter. On any lump sum contract, if the work is not substantially performed and there has been a failure of performance which goes to the root of it, as, for instance, when the work has only been half done, or is entirely different in kind from that contracted for, then no action will lie for the lump sum. The contractor can then only succeed in getting paid for what he has done if it was the employer's fault that the work was incomplete; or there is something to justify the conclusion that the parties have entered into a fresh contract: or the failure of performance is due to impossibility or frustration, see Appleby v Myers^[2] and Sumpter v Hedges (1898) 1 Queen's Bench 673, and section 1 (3) of the Frustrated Contracts Act 1943. In such cases the contractor can recover in an action for restitution such sum as he deserves, or in the words of the Act, "such sum as the Court considers just." Those cases do not, however, apply in this case, because in this case the work has been substantially performed.

In my opinion the Official Referee was right and this appeal should be dismissed.