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Lowy v. United Pac. Ins. Co. - 67 Cal. 2d 87, 60 Cal. Rptr. 225, 429 P.2d 577 (1967)

Rule:

In the case of a building contract where the owner has taken possession of the building and is enjoying the fruits of the contractor's work in the performance of the contract, if there has been a substantial performance thereof by the contractor in good faith, if the failure to make full performance can be compensated in damages to be deducted from the price or allowed as a counterclaim, and if the omissions and deviations were not wilful or fraudulent and do not substantially affect the usefulness of the building or the purpose for which it was intended, the contractor may, in an action upon the contract, recover the amount of the contract price remaining unpaid, less the amount allowed as damages for the failure of strict performance

Facts:

Plaintiffs owners and subdividers entered into a contract with defendant contractor for certain excavation and grading work on lots and streets, together with street improvement work, in a subdivision. After defendant performed 98 percent of the work, a dispute arose regarding payment for additional work, and defendant ceased performance. Plaintiffs immediately employed others to do street improvement work called for by the contract, and thereafter, sued defendant and his bonding company for breach of contract. The Superior Court of Los Angeles County (California) determined that plaintiffs were entitled to nothing against defendants, but allowed the contractor recovery on his cross-complaint for damages for breach of an excavation and grading contract. Plaintiffs appealed.

Issue:

Was the contractor permitted to recover on his work performed as argued in his cross-complaint?

Answer:

Yes

Conclusion:

The court affirmed. The contract between the parties was divisible and the doctrine of substantial performance was thus applicable. Under the circumstances, the fact that defendant did not perform the second phase of the contract did not prevent his recovering for work done under the first phase. Plaintiffs were not entitled to a setoff representing a payment by them to others after defendant ceased performance under the contract because there was substantial evidence to support the finding that defendant completed all the grading required.

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