## Facts

- A general contractor and homeowners entered an oral agreement to build a dwelling for $47,046.62, with additional “extras” totaling $2,787.83.
- The payment plan contemplated four progress draws; the contractor was to apply draw funds only to the project and provide lien waivers showing application of funds.
- Evidence showed some lien waivers overstated amounts paid or materials furnished, and some draw money was used to pay nonproject bills.
- Construction involved defective work and significant delays; the homeowners refused further payments.
- The homeowners took over completion, paying subcontractors directly and making payments to clear or prevent liens.

## Issues

1. Whether the contractor substantially performed the construction contract so as to recover the contract price, subject to deductions for defects and delay.
2. Whether the homeowners’ failure to rescind the contract barred them from asserting lack of substantial performance as a defense.
3. If substantial performance was lacking, whether and how the contractor could recover in quantum meruit for work and materials provided, net of payments and defects/incomplete work.

## Decision

- The supreme court reversed the contract-based judgment for the contractor.
- The evidence did not support the trial court’s finding of substantial performance; an approach focused mainly on the dollar value of remaining work was insufficient.
- The homeowners were not required to rescind the contract to defend against the contractor’s claim on the ground of lack of substantial performance.
- The contractor could seek recovery only in quantum meruit for the reasonable value of the benefit conferred, subject to appropriate offsets.
- The case was remanded for determination of quantum meruit recovery, including credits for amounts already paid and deductions for defective or incomplete work.

## Legal Principles

- A contractor must substantially perform a building contract to recover the contract price; otherwise the contractor’s remedy is quantum meruit if the owner retains the benefit of the work.
- Substantial performance is a qualitative inquiry; it cannot be established solely because the cost of unfinished work is relatively small.
- An owner’s failure to rescind does not convert unsubstantial performance into substantial performance and does not waive the defense of lack of substantial performance.
- In quantum meruit after unsubstantial performance, recovery is the reasonable value of labor and materials furnished, reduced by payments already made and by the cost attributable to defective or incomplete performance (including amounts the owner paid to complete the work or address liens).

## Conclusion

The court held the contractor did not substantially perform and therefore could not recover the contract balance, and it also held the homeowners were not required to rescind to raise that defense; the contractor’s recovery, if any, was limited on remand to quantum meruit measured by the value received, less payments and defects or incompletion.


Kreyer v. Driscoll, 159 N.W.2d 680 (Wis. 1968)