entire contract

An entire contract describes a contract under which one party must perform all of his obligations before the other party comes under an obligation to perform. For example, when a contract requires goods or services to be supplied prior to the entitlement to be paid, the supply of the goods or services is a condition precedent prior to the right to payment arising. Where entire performance is a condition precedent to payment, it is an entire contract.

Entire Contracts

It is not every breach of that term which absolves the employer from his promise to pay the price of an entire contract, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done.

Unless the breach goes to the root of the matter, the party required to pay must pay the price for the works. He must pay it and bring a cross-claim for the defects and omissions, or alternatively set them up in diminution of the price by a set-off. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making good the defects.

Lump sum contracts are not necessarily entire contracts. When a contract provides for a specific sum to be paid on completion of specified work, Courts do not favour an interpretation that the contract which would deprive the contractor of any payment at all simply because there are some defect or omission in the works performed. In these circumstances, the promise to complete the work is construed as a term of the contract, but not as a condition.

Divisible Contracts

The alternative is where the contract is divisible, such as where there is a single contract where goods or services are to be supplied in installments. The contractual obligations are divisible into parts and as such is not an 'entire contract'.

Significance of Entire Contracts

Whether or a contract is entire and indivisible is relevant when a contract is terminated in circumstances where one party's obligations have been performed, but the other party's obligations are yet to be performed. Ordinarily, a party who has performed its side of the agreement, is not in breach of contract and is yet to receive performance is entitled to recover sums paid for the price paid for goods or services supplied, because there has been a total failure of consideration by the other party.