Withdrawal from a contract for work

Work is performed once it is completed and handed over. Where everything between the parties proceeds as agreed, both parties duly discharge their duties and both are satisfied with the result, no ground for disagreement or dispute arises. But how is one to proceed where the customer himself selects the things required for the performance of the work, albeit from the catalogues of third parties, and those things turn out to be unsuitable for the work or at odds with the contractual arrangements, and the contractor fails to warn the customer of that unsuitability or, indeed, does not regard the thing as unsuitable at all?

Section 2594(1) of the Civil Code provides that the contractor must warn the customer without undue delay of the unsuitable nature of a thing or of an instruction given to the contractor. That rule does not apply where the contractor could not have discovered the unsuitability of the thing or instruction even by exercising due care. Where, therefore, the customer selects any things for the performance of the work, the contractor should inspect them thoroughly to satisfy himself that they are suitable for the work. Otherwise, the things ordered by the contractor at the customer's request may not merely be unsuitable for the work but may stand in outright conflict with the agreed subject matter of the work. The customer need not be a person versed in the field, which in some cases is precisely why he engages a specialist - the contractor - to perform particular work, while choosing the things the contractor is to use according to his own taste or other requirements. Where the contractor intends to use a thing so chosen, he may and should assess, as a professional, whether that thing is suitable and fit for use in performing the work. Where the contractor finds the thing to conflict with the subject matter of the work, or to be unsuitable in relation to it, he must warn the customer. That duty binds him all the more where it is plain that the work cannot be performed properly with the thing the customer has chosen. If the contractor fails to point out that mismatch and the customer believes the thing he selected to be suitable for the work, consequences follow for both parties - factual and legal alike - which may emerge not only during the performance of the work but also once the work has been handed over to the customer.

Where the contractor finds that such a thing prevents the work from being performed properly, he is entitled to suspend the works and notify the customer accordingly. The customer may put matters right and choose another thing suitable for the work. Where the customer refuses to do so and insists on the use of the thing chosen, the contractor is entitled to require from the customer a written declaration that he insists on its use. In that event the customer forfeits the rights arising from defective performance caused by that very unsuitable thing.

Matters become more complicated where the customer selects the wrong thing, the contractor does not detect it and begins performing the work, and once part of the work has been performed defects in that thing begin to show while the customer realises that the thing he chose does not correspond to what the contract stipulates as the subject matter of the work. Both parties deny responsibility for the resulting state of affairs: the customer demands that the contractor put matters right, and the contractor refuses, saying that he merely followed the customer's instructions, that the customer chose the thing himself, that the thing was suitable and that no closer specification of the thing was agreed in the contract, so that the thing conforms to the contract. This is beyond doubt defective performance; what remains to be assessed is whether the customer will have rights arising from defective performance and, if so, to what extent, and whether a right to withdraw from the contract arises.

Under Section 2615(2) of the Civil Code, the provisions on the contract of sale apply mutatis mutandis to the customer's rights arising from defective performance. In the case of a material breach of contract the customer has, under Section 2106(1), the right to withdraw from the contract, among others. In the case of a non-material breach the customer has the rights set out in Section 2107 of the Civil Code, namely the right to have the defect removed or to a reasonable discount from the price of the work, the right to withdraw from the contract arising only secondarily, upon the contractor's failure to remove the defect. Where the contractor does not remove the defect in time or refuses to remove it, the customer may withdraw from the contract or demand a discount from the agreed price of the work. It must be borne in mind, however, that withdrawal is not possible where the customer cannot surrender the work to the contractor, that is, return the thing in the condition in which he received it from the contractor. Typically this covers cases where the things supplied by the contractor have been processed and form part of the work.

The grounds for withdrawal are laid down by statute, though the parties are not precluded from agreeing in the contract a scope different from the statutory grounds. Where the contract does not permit withdrawal at all, however, withdrawal will be possible only in the cases the statute provides for. The Civil Code generally permits withdrawal only where the other party has materially breached its duties or in situations where it follows beyond doubt from the other party's conduct that it will breach the contract materially and that party fails, upon the request of the entitled party, to provide adequate security. On the facts described above - the customer gave the contractor an unsuitable instruction and chose an unsuitable thing, and the contractor did not warn him of that unsuitability because he himself takes the view that the thing is correct and suitable, no precise parameters for the things to be used having been defined in the contract - and where the thing cannot be returned to the contractor in its original condition, the customer cannot withdraw from the contract.
The customer chose the wrong thing; the contractor, by contrast, regards that thing as conforming to the contract, and the customer cannot withdraw because the thing he chose has already been processed and cannot be returned to the contractor without being impaired (because it has been built into a structure, for instance). No objection to the thing chosen by the customer was raised by either party during the performance of the work. Where the contract agreed no precise parameters for the thing to be used in performing the work, and where the thing stipulated by the customer does not run counter to the purpose of use of the work agreed in the contract, there will be no conflict with the agreed subject matter of the work. The customer may take over the work with or without reservations (unless otherwise agreed). Where defects in the work manifest themselves before it is taken over, the contractor will not have discharged his obligation duly unless he removes the defects before the work is handed over to the customer. Where defects appear only after the work has been handed over, the customer has the rights arising from defective performance.

In assessing whether one of the parties has breached its duties, and the character of any such breach, account must also be taken of the principle that no one may benefit from his own dishonest or unlawful act, or from an unlawful state of affairs which he has brought about or over which he has control. It must therefore be considered whether the customer's own conduct contributed to the contractor's breach of duty and, indeed, whether there is any breach of duty on the contractor's part at all. The customer selected a thing which, on his own case, is ultimately unsuitable for the performance of the work, even though the contractor maintains that it is suitable. The material fact remains that the defects manifested themselves precisely in the thing stipulated by the customer. Where the work has been performed incorrectly and defects in the subject matter of the performance have arisen as a result, the defects must be notified to the contractor and the appropriate right arising from defective performance must be chosen. Where, however, the subject matter of the work cannot be returned to the contractor in its original condition, the customer has no right to withdraw from the contract. In such cases, where the thing cannot be returned to the contractor in its original condition and the contractor has performed only in part, withdrawal is possible only in respect of the part not yet performed, that is, the remainder of the performance. This will be so, for example, in the case of partial construction alterations carried out progressively on different parts of a building. Withdrawal generally extinguishes the obligation from the outset, that is, ex tunc. Where, however, the law affords the possibility of withdrawal with prospective effect only, that is, in respect of the unperformed part of the agreed performance, the obligation is extinguished as at the moment of withdrawal, that is, ex nunc. Withdrawal takes effect only as between the parties and does not affect the rights of third parties acquired in good faith. In connection with withdrawal it is also important to bear in mind that withdrawal does not extinguish the right to compensation for damage, the claim to a contractual penalty or to default interest, arrangements intended to bind the parties even after withdrawal (typically forum selection or arbitration clauses), the security for the obligation or, where withdrawal concerns part of the performance only, the rights arising from defective performance.

In light of the above, the parties are well advised to set out in their contracts a precise specification of the subject matter of the performance, including minimum requirements for the things to be used in performing the work, whether those things are to be procured by the contractor alone or with a degree of involvement on the customer's part.