Hoenig v Isaacs

In a lump-sum contract for work and labour, complete performance is not ordinarily a condition precedent to payment. The question depends on the true construction of the contract. A contractor who has substantially performed may recover the contract price, subject to a deduction for defects and omissions. The employer cannot reject the whole claim unless the breach goes to the root of the bargain, such as abandonment or radically incomplete performance. The deduction is generally measured by the cost of remedying the defects, or the diminution in value caused by them. Whether there has been substantial performance is ordinarily a question of fact. Acceptance and use of the work may also waive a condition precedent inserted for the employer’s benefit.

The plaintiff contracted to redecorate and furnish the defendant’s one-room flat for an agreed lump sum of £750, payable as the work proceeded with the balance on completion. The defendant paid £400, occupied the flat and used the furniture, but alleged defects and refused to pay the remaining £350.

An Official Referee found substantial compliance, assessed the cost of remedying established defects at £55 18s 2d, and awarded the balance subject to that deduction. The defendant appealed, arguing that the contract was entire, that complete performance was a condition precedent to any payment, and that the plaintiff could recover only on a quantum meruit. The central issue was whether defective but substantially completed work entitled the contractor to recover the agreed price.

The appeal was dismissed with costs and leave to appeal was refused.

1. Per Somervell LJ, with the same result reached by Denning LJ and Romer LJ, a lump-sum contract does not automatically make complete performance a condition precedent to payment. The question is one of construction. The rigid rule in Cutter v Powell ((1795) 6 Term Reports 320) applied where the contract made performance of the whole voyage a condition precedent. It did not establish that every breach defeats payment after the main purpose of a contract has been achieved. The principle in Boone v Eyre (1 Hy.Bl. 273 n.) and Dakin v Lee (1916, 1 King's Bench, page 566) supported treating defects collateral to the main purpose as giving rise to damages or a deduction rather than total failure of the price claim.
2. Where the work is substantially performed, the contractor may recover the agreed price subject to the employer’s counterclaim or deduction for defects. A failure going to the root of the bargain, such as abandonment when only part of the work is done or performance radically different from that contracted for, may prevent recovery of the lump sum. The Official Referee’s finding of substantial compliance was a finding of fact supported by evidence, and the Court of Appeal could not interfere.
3. The proper measure was the cost of putting the work into contractual condition, or the diminution in value caused by the breach, not the fair value of all work supplied on a quantum meruit. This followed Dakin v Lee and the reasoning in Mondel v Steel ((1841) 8 Meeson and Welsby 858).
4. Denning LJ further held, as an alternative, that the defendant had waived any condition precedent by taking possession and using the furniture. Romer LJ indicated that he would have reached the same conclusion on waiver if necessary. Denning LJ’s wider discussion of quantum meruit and frustration was not necessary because the work had been substantially performed.
5. Approval of the general layout did not prevent the defendant from establishing that furniture was faulty as designed or delivered. The Official Referee had not excluded such evidence and had made findings on the defects.

1. Court of Appeal (Civil Division) dismissed the appeal, with costs, and refused leave to appeal.
2. Official Referee, His Honour Sir Lionel Leach found substantial compliance, allowed a deduction of £55 18s 2d for defects, and awarded the balance of the contract price.