Entire Contract 3

Entire Contract Application in Construction Contract: Cases

The application of entire contract in construction contract can be found in Contract Act 1950 section 53 illustration (a) reads as follows: A and B contract that A shall build a house for B at a fixed price. A’s promise to build the house must be performed before B’s promise to pay for it.

 

It depends on the express terms of the contract whether a contract is an entire contract or not. If there is payment procedure or any other clauses which expressly say that the contract is made based on entire contract, then both parties must perform it as it has been agreed. If the contract allows payment for completion of individual items of the work, then it is not an entire contract.

 

Below are some cases regarding to entire contract application in construction contract.

 

Appleby v Myers [1867] LR 2 CP 651

Appleby agreed to erect machinery on Myers’s premises for £459. When the erection was almost complete, an accidental fire destroyed the premises and the machinery. Appleby sued for £419 on a quantum meruit[1] basis. Blackburn J held; ‘The whole question depends upon the true construction of the contract between the parties … It sufficiently appears that the work which the plaintiffs agreed to perform could not be performed unless the defendant’s premises continued in a fit state to enable the plaintiffs to perform the work on them; and … if by any default on the part of the defendant, his premises were rendered unfit to receive the work, the plaintiffs would have had the option to sue the defendant for this default, or to treat the contract as rescinded, and sue on a quantum meruit. But … where, as in the present case, the premises are destroyed without fault on either side, it is a misfortune equally affecting both parties; excusing both from further performances of the contract, but giving a cause of action to neither.’

Conclusion: Since it was an entire contract, the action taken by Appleby to sue for a sum of money failed as the obligation to pay did not arise until completion of the work and the contract was frustrated without fault on either party before that date.

 

Sumpter v Hedges [1898] Digest 161

Sumpter contracted to build two houses and stables for Hedges for £565. He did work valued at £333 and stop because he had no more money. He had already been paid part. Hedges finished the building, using materials which Sumpter had left behind. Sumpter sued for the outstanding money. Bruce Judge held that since Sumpter had abandoned the contract and Hedges had no choice but to accept the half completed house, Sumpter get nothing for the work. However, Hedges had a choice relating to Sumpter’s materials; Hedges must pay for using them.

Conclusion: In an entire contract, if a party abandons performance of the contract, he cannot recover payment for the partially work done.

 

Hoenig v Isaacs [1952] EWCA Civ 6

Mr. Isaacs was meant to decorate and furnish Mr. Hoenig’s flat for £750. When the work was done, there were problems with a bookcase and wardrobe, which would cost £55 to fix. Mr. Hoenig refused to pay the £350 outstanding. The court found that 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. He deducted that sum from the £350 and gave judgment for the plaintiffs for £294.

Conclusion: The doctrine of substantial performance was applied and therefore Mr. Isaacs was entitled payment, reduced by damages of the defects.

 

Ming & Co v Leong Ping Ching [1964] 30 MLJ 312

A contract for the construction of an extension to a maternity home in Kuala Lumpur at a price of $28,500 was concluded by an exchange of correspondence. Following disputes about the time being taken to complete the work, although no completion date was agreed, the defendant owner alleged that the contractors had abandoned the contract and that she was entitled to complete the work.  The plaintiff contractors claimed that they were entitled to a quantum meruit of $11,119 of which $9,000 had been paid. The defence was that this was an entire contract and, on the authority of Sumpter v Hedges 1898, Digest 161, the plaintiffs could not sue on a contract which they had abandoned. Gill J held; ‘The answer to that is that in the first place the plaintiffs did not abandon the work, and, in the second place, this was not an entire contract. An entire contract is one in which the entire completion of the work by the contractor is a condition precedent to payment.  To my mind, a contract in respect of which progress payments are made from time to time is not an entire or lump sum contract’. The quantum meruit of $11,119 was allowed, less the $9,000 already paid to the contractors.

Conclusion: The contractor won the case under quantum meruit principle since the contractor did not abandon the work and the owner had paid some amount of money to the contractor, and therefore it was not an entire contract.

 

Kunchi Raman, KP v Goh Bros Sdn Bhd [1978] 1 MLJ 89

The plaintiff, K.P. Kunchi Raman, entered into a labour-only contract with the defendant for the laying of water pipes between Mak Mandin and Prai, and Mak Mandin and Jalan Raja, Butterworth, including the reinstatement of a cycle track. The contractor claimed $11,656 as the balance payable to him under the contract. The defendant counter claimed for the repayment of $55,024 for unsatisfactory work already completed, and failure to complete all items of contract work, amounting to failure to complete the contract.

Gunn Chit Tuan J in the High Court held that the contract was an entire contract, but that the doctrine of substantial performance[2] should be applied’ …. considering the nature of the defects, the cost of rectifying them and the balance of the work undone.  I was inclined to the view and found that in all the circumstances of this case the plaintiff had substantially completed the contract. For that reason I held that the defendant was not entitled to repayment of the said sum of $55,024 paid to the plaintiff who was entitled to claim for any balance due to him for work done’. This would have resulted in the plaintiff’s claim succeeding and the defendant obtaining nothing. However, the defendant was entitled to damages for the defective work and for completing the contract, and since this entitlement exceed the plaintiff’s claim, following Hanak v Green 1958, the defendant was entitled to judgement for $6,047.

Conclusion: It was an entire contract and since the doctrine of substantial performance was applied, the contractor must pay sum amount of money to the owner for defective work.

 

From the cases discuss above, we can take some important points:

  1. In an entire contract, if the contractor abandons performance of the contract, he cannot recover payment for the partially work done.
  2. If the contractor has done some part of the work and there is not an entire contract, then he may claim some amount of money under quantum meruit principle.
  3. If the contractor has done some part of the work and there is an entire contract, then he may claim some amount of money under the doctrine of substantial performance, or if it is proven that the breach of the contract is on the employer’s fault.
  4. A contract in respect of which progress payments are made from time to time is not an entire contract.

 

 

 

Conclusion

Entire contract is one kind of contract which tends to benefit the employers rather than for both parties. With the development of construction contracts and judicial judgments, the use of entire contract is modified by the doctrine of substantial performance which gives fairer rights to both parties.

 

I suggest to the contractors who would like to enter such contract only in the conditions as follows:

  1. The project type is simple, does not involves many other parties such as subcontractors
  2. The project duration is short
  3. The contractors already have the experience to do the similar projects
  4. The employers are credible enough


[1] Quantum meruit (Latin: as much as he deserved) A legal principle that enables the provider of goods or services to recover fees for the provision of those goods or services.

[2] The doctrine of substantial performance: A party who substantially performed his obligations can now recover the contract price, reduced by damages awarded to the other party in respect of the defects.

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