Partial Performance Issues

Total Failure of Consideration

The right to quantum meruit (the appropriate or reasonable amount)  or quantum valebat (the value) may arise where there has been a total failure of consideration. Quantum Meruit applies to Services. Quantum Valebat applies to  Goods.

Where one party breaches a contract and there is no practical or net financial benefit provided to the other party, there may be a total failure of consideration. There may be a total failure of contract where an apparent contract is a nullity because of a negating factor.

A person who has performed a  contract in full is limited to an action for the price. The existence of the contract (while it continues to subsist) displaces a claim for restitution. If a person agrees to do something for a price, he is entitled to the price and not the reasonable value. This general position ensures that restitution cannot be invoked to circumvent the bargain, in the absence of a total failure of consideration on the part of the other party.

The innocent party (including where he has performed in part) may be entitled to elect between a claim in restitution and contract. Where he is entitled to elect to treat the contract as terminated or nullified and there has been a total failure of consideration, he may generally claim on a restitutionary basis.   However, he cannot use restitution to bypass the contract in the absence of a total failure of consideration. He must rely on the contractual remedies.

Total Failure Not Always Required

In actions for the value of goods or services provided, the requirement for a total failure of consideration may not apply where the contract cannot be completed due to the other party’s default.  If a contract to provide services, such as to build, is wrongfully terminated by the employer, the reasonable value may be recovered by the innocent regardless of whether or not a sum the contractor has been paid on account. The sum on account is deducted from the claim. Equally, if the contractor agrees to build but is wrongfully excluded from the site by the employer, he is entitled to the reasonable value of work undertaken.

The effect of restitution may be anomalous. A contractor, who has made a bad bargain may recover proportionately more if the other party commits a fundamental breach of contract and he is thrown off-site, than if he had completed the contract. Some authorities argue that the recovery of price should be capped at the contract rate, in order to avoid such an anomaly.

Part Performance and Part Acceptance

A claimant who breaches a contract may not have restitution for his own part performance if the reason for partial performance is his breach. A contractor who does not complete may not be able to recover at all unless the contract is interpreted as severable so that it allows for proportionate pro-rata payments. If the employer accepts part performance, he may be obliged to pay for the appropriate part. More commonly, it will be presumed that the contract is for the whole or nothing.

The question of a partial acceptance may arise in relation to an incomplete performance of a contract for the delivery and the sale of goods. Common sense makes it more readily presumed that a contract for the provision of a quantity of goods of a uniform type is severable. Although the buyer may be entitled to reject the entire delivery where the quantity provided is less than the contract requires, if he chooses to accept part, he will be obliged to pay for part under the Sale of Goods Act, which codifies the common law.

The acceptance of partially performed services will be less easily inferred. It is not enough that the recipient of the services takes advantage of what was done. Services of their nature are not usually severable. The circumstances may imply or the terms of the contract may provide for the services by way of a series of distinct supplies or element. In this case, the recipient may be deemed to have accepted these distinct supplies. The contract may expressly govern the position.

Frustration

At common law, money paid under a contract which is later frustrated is the recoverable, provided that there is a total failure of consideration. The rule may operate harshly, as unlike most other cases, where a contract terminates, neither party is at fault. Where one party has made part or even full payment, he may be denied recovery where he has received some benefit, notwithstanding that this is disproportionate to the payments made.

The principle can work harshly on the other side. Where a contract has been frustrated and there a total failure of consideration, a party, who has undertaken preparatory steps, which do no providing a benefit for the other party, is unable to recover this expenditure. ne when a contract is frustrated.

As an outcome may be harsh, issues of estoppel and change of position may arise. It appears likely that where a repayment must be made, for example of instalments prepaid, that some deduction may be allowed, to the extent that the payer has been induced to incur wasted expenditure.

Where a  benefit is freely accepted after the contract has been frustrated, the ordinary principles of quantum meruit apply.

UK Reforms

The Law Reform (Frustrated Contracts) Act 1943 England provides:

all sums paid or payable to any party in pursuance of a contract before discharge by frustration shall in the case of sums so paid be recoverable by him as money received by him to the use of the party by whom the sums are paid and in the case of sums so paid, cease to be so payable, provided that if the party to whom the sums were paid or payable incurred expenses before the time of discharge in or for the purpose of contract, the court may if it considers just to do so, having regard to all the circumstances of the case, allow him to retain or as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.

Accordingly, the monies paid pursuant to a frustrated contract may be recovered regardless of whether or not there is a total failure of consideration. This reverses the common law rule which had been confirmed by the House of Lords, and in response to which the legislation was enacted.

In accordance with the modern estoppel principles, the payee may be able to claim the defence of change of position insofar as he has incurred expenses in performing the contract and may be allowed a set-off in respect of the same.

The Act provides where any party to the contract has by reason  of anything done by any other party thereto in or for the purpose of the performance of the contract obtained a valuable benefit, before the time of discharge, there shall be recoverable from him by the other party, such sum, if any, not exceeding the value of the said benefit to the party obtaining it as the court considers just, having regard to all the circumstances of the case.

In particular, the court is to have regard to the amount of any expenses incurred before the time of discharge by the benefitted party in or for the purpose of performance of the contract including any sums paid or payable by him to any other party in pursuance of a contract are retained or recoverable by that part under the above provision and the effect in relation to the said benefit of the circumstances giving rise to the frustration of the contract.

The above provision reverses the common law rule prohibiting recovery for part performance and allows recovery of valuable benefits conferred by a one on the other. Add to this for Northern Ireland version.