K & G Construction Co. v. Harris

Court of Appeals of Maryland · 1960 · Contracts

Contractsmaterial breachsuspension of performancesubcontractorconditionsmaterial breachdependent covenantsconditions of exchange

Facts

The contractor and subcontractor entered a subcontract under which the subcontractor was to perform excavation and earth-moving work in a workmanlike manner, with monthly progress payments due by the 10th of the following month. On August 9, 1958, while performing grading work, the subcontractor's bulldozer operator drove too close to the contractor's house, causing a wall to collapse and causing $3,400 in damage. The contractor refused to pay a July requisition that became due on August 10 because the house damage had not been repaired or paid for, and the subcontractor later stopped work on September 12 because of nonpayment. It was stipulated that the subcontractor had $1,484.50 in unpaid completed work, would have earned $1,340 in profit on the remaining work, and that completion by another excavator cost the contractor $450 above the contract price.

Issue

When a subcontractor negligently performs part of its work in violation of a promise to perform in a workmanlike manner, may the contractor refuse a progress payment otherwise due as partial satisfaction of the resulting damages? If so, does the subcontractor's later cessation of work constitute a breach rather than an excused suspension of performance?

Rule

Promises and counter-promises in a contract are presumed dependent whenever possible, but the parties' intent controls. Where the contract contemplates workmanlike performance by the subcontractor and periodic payment by the contractor, the subcontractor's performance is a condition precedent to the contractor's duty to make progress payments; therefore, a material breach in that performance justifies the contractor's refusal to make a progress payment. If the refusal to pay is justified, the subcontractor is not entitled to abandon the work, and such abandonment is itself a wrongful breach.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Red Mesa Builders, a general contractor in Phoenix, hired Nolan Cruz Excavation to perform site grading in a workmanlike manner, with monthly progress payments due on the 10th for work completed the prior month. On May 9, Nolan's operator carelessly undermined a retaining structure on the project, causing $18,000 in damage; the progress payment due May 10 was $6,000.

If Red Mesa refuses to make the May 10 progress payment because of the damage, who is most likely correct in a later contract dispute?

Explanation. The majority treated the subcontractor's promise of workmanlike performance and the contractor's promise to make monthly progress payments as mutually dependent, with the subcontractor's performance precedent to payment. A material breach in that performance can justify refusal to make a progress payment. Here, the damage greatly exceeds the installment due, supporting materiality, so Red Mesa may withhold the payment rather than pay first and sue later.