K & G Construction Co. v. Harris

Court of Appeals of Maryland
164 A.2d 451, 223 Md. 305 (1960)

ELI5:

Rule of Law:

In a construction contract with progress payments, a subcontractor's material breach of the promise to perform in a workmanlike manner excuses the general contractor from its duty to make a scheduled progress payment.

Facts:

K & G Construction Company, Inc. (Contractor) was the general contractor for a housing project and hired Harris and Brooks (Subcontractor) for excavation work.
The contract required the Subcontractor to perform all work in a workmanlike manner and provided for monthly progress payments from the Contractor.
On August 9, 1958, an employee of the Subcontractor negligently drove a bulldozer too close to one of the Contractor's houses, causing a wall to collapse and resulting in $3,400 of damage.
The Subcontractor had submitted a requisition for work performed in July 1958, for which payment was due from the Contractor on August 10, 1958.
The Subcontractor and its insurance carrier denied liability and refused to repair or compensate the Contractor for the damage to the house.
On August 10, 1958, the Contractor refused to make the progress payment due for the July work because of the unresolved damage.
The Subcontractor continued working until September 12, 1958, at which point it stopped all work on the project due to the Contractor's non-payment.
The Contractor hired another excavating contractor to complete the remaining work.

Procedural Posture:

K & G Construction Co. (Contractor) filed a two-count suit against Harris and Brooks (Subcontractor) in the Circuit Court for Prince George's County, a trial court.
Count one was for the property damage caused by the bulldozer; count two was for the cost of completing the excavation work.
The Subcontractor filed a counterclaim for unpaid work and lost profits.
A jury heard the first count and found for the Contractor, awarding $3,400 for the property damage, which was paid.
The parties agreed to have the trial judge decide the second count and the counterclaim without a jury.
The trial judge found in favor of the Subcontractor on its counterclaim in the amount of $2,824.50.
The Contractor, as appellant, appealed the trial court's judgment to the Court of Appeals of Maryland, the state's highest court.

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Issue:

Does a subcontractor's failure to perform in a workmanlike manner, resulting in material damage, constitute a breach that justifies the general contractor's withholding of a progress payment, thereby excusing the contractor's performance?

Opinions:

Majority - Prescott, J.

Yes. A subcontractor's material breach of its promise to perform work in a workmanlike manner justifies the contractor's withholding of a progress payment. The promises to perform work and to make payments are mutually dependent, and a material breach by one party excuses the other's duty to perform. Here, the subcontractor's promise to perform in a workmanlike manner and the contractor's promise to make progress payments were mutually dependent, not independent, covenants. The damage caused by the subcontractor's employee—amounting to more than double the payment due—was a material breach of its duty. This material breach justified the contractor's refusal to make the August 10th payment. Consequently, the contractor was not in default, and the subcontractor's subsequent abandonment of the work on September 12th constituted a second breach of the contract, making the subcontractor liable for the costs the contractor incurred to complete the project.

Analysis:

This case affirms the modern legal presumption that promises within a contract are mutually dependent. It establishes that in installment contracts, such as construction agreements with progress payments, a material breach by one party (e.g., defective performance) can suspend the other party's obligation to continue performing (e.g., making payments). This principle protects non-breaching parties from having to finance continued work that is being performed improperly and causing them financial harm. The decision clarifies that the right to withhold payment serves as a remedy for material breach, shifting the legal consequence of abandonment back onto the party who breached first.

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