WHAT IS THE SITUATION WHEN A BUILDING IS COMPLETED AND THE OWNER TAKES POSSESSION BUT REFUSES TO PAY BECAUSE OF SOME ALLEGED DEFECT?

The main legal principles concerned here are that, in addition to the remedies for breach of contract, the creditor may in certain circumstances have a defence, the exeptio non adimpleti contractus. This is available where the contract imposes obligations on both parties: neither party can, in the absence of a special agreement to the contrary, sue the other for performance unless he himself has performed or is willing to perform his side of the contract. But where, although his performance is in fact defective, a party institutes an action for performance by the other party in the honest belief that he has duly performed his side of the contract, he is entitled to such performance less the cost of remedying the defect. This applies only when the other party has taken the benefit of the defective performance.

This judgement of Lord De Villiers C.J. in the case of Hauman v Nortje 1914 A.D. 293 illustrates these principles.

This is an appeal from a judgement of the Orange Free State Provincial Division, dismissing the defendant's appeal from a judgement of the resident magistrate of Philippolis. The action was to recover the balance of the contract price alleged to be due to the plaintiff on a building contract and the judgement was for such balance less the sum of ₤10 which the magistrate considered would be required to remedy some defects in the building. In his reasons he said:-

‘I found that a portion of the work was not carried out satisfactorily and I considered it fair to deduct R10 from the amount of the claim and gave judgement for the balance as a quantum meruit, with costs.'

"There was no evidence that the defendant accepted the work as having been performed in terms of the contract, but he took possession of the building although he disapproved of some portion of the work. He has the benefit of the work done on his property by the plaintiff, and the question to be decided is whether the plaintiff is entitled to claim the balance of the contract price or any portion thereof so long as there are any defects in the work done by him."

"The general principle applicable to all bilateral contracts undoubtedly is that the one party can not, in the absence of any special agreement, call upon the other party to perform his contract without himself having performed or being ready to perform his part of the contract. (This general principle is, however, subject to several exceptions)."

"Where a person has contracted for the performance of a piece of work as a whole he is clearly not entitled to any part of the contract price, if, before completion, he abandons the work. Even if he does not deliberately abandon the work his manner of performing it might be inconsistent with any honest intention to carry out his contract and no equitable principle would come to his relief. But cases are of frequent occurrence in which the contractor honestly believes that he has performed his part of the contract whilst the employer relies upon some alleged defects of construction or omissions as reason for refusing to pay for the work. If, in such circumstances, the contractor institutes his action in good faith and proves that the employer enjoys the benefit of the work and labour done, is the employer entitled to say: ‘ You shall receive no payment until the work has been completed in strict accordance with the contract'? There is a bona fine dispute between the two which can only be decided by the arbitrament of law, and the practice, in such a case, of the old French law, as stated by Pothier, appears to offer a most reasonable solution of the difficulty, ‘When the contractor, ‘says Pothier, ‘does not admit the defects of which the employer complains and maintains on the contrary that his right of action has accrued, the judge orders an inspection in loco, and if the work is defective he condemns the contractor to repair the defects, and unless he does so within a definite time the judge authorises the employer to have it done by anyone he pleases at the expense of the contractor.''

‘I am not aware that there is any authority in our law for the adoption of the old French practice, but there is ample authority for the view that if the contractor has acted in good faith and has by his work, labour and materials benefited the employer the latter will not be allowed, in the absence of any special agreement to that effect to reap the benefit without making compensation to the contractor. This compensation he must make, because of the application of the equitable principle of our law that no one shall be unjustly enriched at the expense of another. The mode of enrichment provided against is not the attainment of benefits stipulated for in the contract, but the unjust absorption by the one party of the expenditure or of the fruits of the labour of the other party in a manner not contemplated by the parties to the contract. In the present case I am satisfied that the plaintiff brought the action in the bona fide belief that he had performed his work according to the contract."

"The magistrate who heard the case in the first instance found, as a fact, that the work had not been done satisfactorily, but he also found that by an expenditure of ₤10 the defendant could put right whatever was amiss in the work. It was rightly held, therefore, that the plaintiff was entitled to recover the contract price, less the sum of ₤10. The appeal is dismissed."

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