Hoenig v Isaacs [1952] EWCA Civ 6 (13 February 1952)

A contractor completed decorating work with some defects. The client refused to pay the balance, arguing the contract was not wholly performed. The court held that as the contract was substantially performed, the contractor was entitled to the full price, less the cost of rectifying the defects.

Facts

The plaintiff, Mr Hoenig, a decorator, was contracted by the defendant, Mr Isaacs, to decorate and furnish the defendant’s one-room flat for a lump sum of £750. The terms stipulated that payment would be made as the work proceeded, with the balance due on completion. The defendant paid £400 in instalments but refused to pay the remaining £350 upon completion, citing defects in the work. The primary complaints concerned a faulty wardrobe door and bookshelf, which the defendant alleged were poorly constructed. The official referee who first heard the case found that while there were defects, the plaintiff had substantially completed the contract. The cost to remedy the defects was determined to be £55 18s. 2d.

Issues

The central legal issue was whether the contract was an ‘entire contract’ requiring perfect and complete performance as a condition precedent to any payment of the balance. If so, could the plaintiff’s failure to remedy minor defects absolve the defendant from his obligation to pay the outstanding amount? Alternatively, if the contract was substantially performed, could the plaintiff claim the contract price, subject to a deduction for the cost of remedying the defects?

Judgment

The Court of Appeal unanimously dismissed the defendant’s appeal, affirming the decision of the official referee. The court held that the contract had been substantially performed, and the plaintiff was therefore entitled to the contract price, less a deduction for the cost of the remedial work.

Lord Justice Denning’s Reasoning

Lord Justice Denning provided the leading judgment, clarifying the law on lump-sum contracts. He distinguished between a breach that goes to the root of the contract and a breach that only amounts to a warranty. He stated that in contracts for work, the promise to complete the work is a term, not a condition precedent to payment.

In a contract for a lump sum for the doing of a certain work, the price is not, in the ordinary way, payable, and cannot be recovered, until the work is completed. When is the work ‘completed’ for this purpose? It is a matter of construction of the particular contract. … But I think it is not every breach which absolves the employer from his promise to pay the price. He must pay it and bring a cross-claim for the defects and omissions, unless they are so great as to go to the root of the contract.

He further elaborated on the distinction, explaining that only a fundamental breach would discharge the paying party’s obligation entirely.

Was the breach a ground for discharge of the contract or only for a cross-claim for damages? It is a ground for discharge of the contract only if the breach goes to the root of the contract… In these cases it is now settled that, so long as there is substantial performance, the contractor is entitled to the stipulated price, subject only to a cross-action or a set-off for the defects or omissions.

Denning LJ concluded that because the defects were minor and remediable, the plaintiff had substantially performed his obligations. The defendant’s remedy was not to withhold the entire remaining payment, but to deduct the cost of the repairs.

Lord Justice Romer’s Reasoning

Lord Justice Romer concurred, emphasising that the question is one of fact and degree. He distinguished the case from situations like Sumpter v. Hedges, where a builder completely abandoned the work.

The question is whether the plaintiff’s failure to complete the work in some quite unimportant and trivial respects is a bar to his recovering on this summons any more of the contract price than that which the defendant has already paid… In my judgment, the official referee was right in the conclusion to which he came. He regarded this as a contract for a lump sum. He has taken the view, which was the only one to which he could come on the evidence, that the contract was not substantially complied with insofar as the wardrobe was concerned, and to a lesser degree so far as the bookcase was concerned. He has made a deduction which he quantified at £55 odd.

Implications

The case is a cornerstone of contract law, solidifying the doctrine of ‘substantial performance’. It establishes that in a contract for work and labour for a lump sum, where the work is largely finished but has minor defects, the contractor is entitled to payment of the contract price minus the cost of rectifying those defects. This prevents the paying party from being unjustly enriched by receiving the benefit of the work without paying for it due to trivial non-compliance. The decision clarifies the distinction between a ‘condition’ (a breach of which repudiates the contract) and a ‘warranty’ (a breach of which only gives rise to damages or a deduction), confirming that not every term relating to completion is a condition in this sense.

Verdict: The appeal was dismissed. The plaintiff was entitled to be paid the balance of the contract price less the cost of putting right the defects.

Source: Hoenig v Isaacs [1952] EWCA Civ 6 (13 February 1952)