Lowy v. United Pacific Insurance
67 Cal.2d 87 (1967)
Rule of Law:
A contract is divisible if the consideration is apportioned to distinct parts of the performance, allowing a party who substantially performs one part to recover the contract price for that part, less damages for any minor, uncompleted work, especially when the other party prevented full performance.
Facts:
- Plaintiffs, owners of a residential subdivision, entered into a contract with defendant Arnold Wolpin, a contractor, for development work.
- The contract specified two distinct phases of work: 1) excavation and grading, and 2) street improvements (paving, curbs, and gutters).
- The contract set a lump sum price of $73,500 for the excavation and grading work.
- A separate schedule of unit prices was established for the street improvement work.
- Wolpin completed 98% of the excavation and grading work.
- A dispute arose over Wolpin's claim for an additional $7,200 for importing dirt, which he alleged was necessitated by plan changes made by the plaintiffs.
- Following this dispute over payment for the additional work, Wolpin ceased performance on the project.
- Plaintiffs then hired other contractors to perform the street improvement work.
Procedural Posture:
- Plaintiffs (Lowy) sued defendant (Wolpin) and his bonding company in trial court for breach of contract.
- Defendant Wolpin filed a cross-complaint against plaintiffs for breach of contract and the reasonable value of services rendered.
- The trial court found in favor of Wolpin on his cross-complaint and ruled that the plaintiffs were entitled to nothing.
- Plaintiffs, as appellants, appealed the trial court's judgment to this court.
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Issue:
Is a construction contract that apportions separate prices for different phases of work a divisible contract, and does the doctrine of substantial performance apply to a phase that was 98% completed before the contractor ceased work due to a dispute?
Opinions:
Majority - McComb, J.
Yes. The contract is divisible, and the doctrine of substantial performance applies to the grading portion of the work. The contract was severable because the consideration was clearly apportioned: Exhibit 'A' established a lump sum of $73,500 for the grading, while Exhibit 'B' set forth separate unit prices for the street improvement work. The parties' own conduct, such as requiring separate bonds for each phase, demonstrated that they treated the contract as divisible. Because the contract is divisible, Wolpin's failure to perform the second phase (street improvements) does not preclude his recovery for the first phase (grading). The doctrine of substantial performance applies to the grading phase because Wolpin completed 98% of that work and was prevented from finishing by the plaintiffs' own breach of contract in failing to make payments. Therefore, Wolpin is entitled to the contract price for the grading, less the cost to complete the remaining minor portion.
Analysis:
This decision reinforces the distinction between entire and divisible contracts, clarifying that apportioned consideration is a key indicator of divisibility. By applying the doctrine of substantial performance to a divisible portion of a contract, the court provides an equitable remedy that prevents forfeiture and unjust enrichment. This precedent protects contractors who have largely completed a distinct phase of work from losing payment for that work due to a subsequent breach, particularly when the other party's actions contributed to the cessation of performance. It solidifies the principle that a non-breaching party can recover for substantially completed, severable obligations.
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