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Definition of Entire Contract

An entire contract can be defined as a contract in which there is legally binding agreement, implicit or
explicit, that neither party may demand performance until he is ready to fulfill, or has fulfilled, his promise.
The major effect of this entire contract application is that the promisors promise is condition precedent for
the promisees duty to performhis obligation.
According to Gill Judge, an entire contract is one in which the entire completion of the work by the
contractor is a condition precedent to payment. To him, a contract in respect of which progress payments
are made from time to time is not an entire or lump sum contract. Moreover on the principles of English
law laid down in Cutter v Powell (1795) 6 TR 320 and other cases, the contractors having contracted to do
an entire work for a specific sum, can recover nothing unless the work be done, or it can be shown that it
was the employers fault that the work was incomplete, or that there is something to justify the conclusion
that the parties have entered into a fresh contract. In an entire contract, if there is an accident not by fault
of both parties, which causes the end of the contract, the contractor cannot claim for the payment since
both parties bear their own damages and no party gets any benefit of the contract.
Application of Entire Contract Principle
In Construction Contract
Seng Hansen
Master Student of Construction Contract Management UTM
Email: hansen_zinck@yahoo.co.id
Entire Contract & Divisible Contract: The Differences
Performance of contract can be distinguished between a divisible contract and an indivisible (or entire)
contract. In a divisible contract, the obligations of the parties are independent of each other. Therefore one
party can demand performance by the other without rendering performance himself. For example, a
landlord though liable to be sued by his tenant for not carrying out a repairing covenant, is not prevented by
his own default from enforcing the tenants covenant to pay rent to him.
However, most of construction contract are indivisible or entire contract. It means that the obligations of
the parties are interdependent. Neither party can demand performance unless he himself either has
performed or is ready and willing to do so. At common law, complete and precise performance was
originally required, so that a party who rendered anything short of this (for example, a builder who carried
out the contract work, but defectively in some respects) could recover nothing for his efforts. This extreme
position was subsequently modified by the doctrine of substantial performance.
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Advantages & Disadvantage of Using Entire Contract
In my opinion, the use of entire contract tends to benefit the employer rather than for both parties. In the
employers point of view, this kind of contract can be very beneficial for him. First of all, the employers can
avoid paying contractors for their partly performed works. They also can use their allocated money for
some other works first. Moreover, if there is a breach of contract, they may not pay the contractors for their
uncompleted works, while they still can benefit from the performed works done by the contractors. The
only disadvantage is that not all contractors want to deal with this kind of contract. Contractors willing to
involve in this kind of contract are usually experience contractors.
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Taken from Oxford Dictionary of Law 7
th
Edition, pg 402.
The Doctrine of Substantial Performance
When a discharge of an entire contract occurs, the older reported cases such as Appleby v Myers [1867] and
Whitaker v Dunn [1887] require complete performance by contractors as a condition precedent to his right
of payment under an entire contract. If the contractors do not complete their work at the time of contract
termination, then they cannot be able to claim their rights for services that they have done.
However the common law has since been modified by later judicial pronouncements which seem to be
fairer to both parties. The doctrine of substantial performance is now been applied. It is said that a
contractor who has substantially performed his obligations of the contract may claim on the contract for the
agreed sum, though he remains liable in damages for his partial failure to fulfill his contractual obligations.
Therefore, substantial performance is an alternative principle to entire contract. This principle is relevant
when a contractors performance is in some way deficient, through no willful act by the contractor, yet is so
nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. If a
contractor successfully demonstrates substantial performance, the owner remains obligated to fulfill
payment, less any damages suffered as a result of the deficiencies in workmanship by the contractor.
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. As promise
to build the house must be performed before Bs 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.
1. Appleby v Myers [1867] LR 2 CP 651
Appleby agreed to erect machinery on Myerss 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
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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 defendants 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.
2. 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 Sumpters 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.
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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.
3. Hoenig v Isaacs [1952] EWCA Civ 6
Mr. Isaacs was meant to decorate and furnish Mr. Hoenigs 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.
4. 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 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.
5. 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
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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 plaintiffs 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 plaintiffs 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.
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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.
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 employers 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
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