Brief Fact Summary. K & G Construction Co. (Plaintiff) sued Harris (Defendant), a subcontractor, for damage done to a construction site and for breach of the subcontract. Defendant counter-sued for the work Plaintiff had not paid for, and for lost profits.
Synopsis of Rule of Law. The failure of one party to render substantial performance on an agreement may allow the other party to refuse to perform some or all of his obligations under the contract.
The law seems to be, however, that where a total price for work is fixed by a contract, the work is not rendered divisible by the progress payments, particularly where the contract provided that the total price is not to be paid until the work is completed.View Full Point of Law
Issue. Whether Plaintiff was justified in refusing to make the installment payments to Defendant?
Modern courts favor finding that promises in an agreement are mutually dependent. Mutually dependent promises are those in which performance of obligations by one party is conditioned on performance of obligations by the other party. Mutually dependent promises can be precedent, subsequent, or concurrent.
In this case, the bulldozer damage constituted a material breach of the promise to perform in a “workmanlike manner.” Therefore, the Plaintiff was justified in withholding installment payments.
Because Plaintiff’s refusal to pay the installments was justified, Defendant wrongfully repudiated the agreement by discontinuing performance.
An injured party may treat nonperformance as a partial breach, and continue to allow the breaching party to perform the rest of the contract. In this case, by allowing the Defendant to work after the bulldozer accident, the Plaintiff treated the breach as partial. Because Plaintiff was justified in refusing to make an installment payment, Defendant breached their agreement further by stopping performance.
Discussion. This case should be compared with the Restatement’s approach to a material breach of contract. This case also suggests that there is risk associated with a party determining that a material breach of contract, sufficient to stop performance, has occurred. A party’s decision to engage in self-help may prove to be wrongful, and that party may find itself liable for damages.