## Facts

- A general contractor hired excavation subcontractors to perform earth-moving work on a housing subdivision.
- The subcontract required performance in a workmanlike manner consistent with best practices and required the subcontractors to carry liability insurance.
- The subcontract provided for monthly progress payments based on requisitions for work completed during the preceding month.
- On August 9, 1958, the subcontractors’ bulldozer damaged a house, collapsing a wall and causing about \$3,400 in property damage.
- The subcontractors and their insurer refused to repair the damage or pay compensation, denying responsibility.
- A progress payment became due on August 10, 1958; the contractor withheld it because the damage remained uncompensated.
- The subcontractors continued working until September 12, 1958, then stopped, citing the withheld payment.
- At stoppage, about \$1,484.50 remained unpaid for prior work, and about \$1,340 of work remained to complete the subcontract.
- The contractor hired a replacement subcontractor at an additional \$450 cost over the original contract price to finish the work.
- The contractor sued for the \$3,400 property damage and the \$450 extra completion cost; the subcontractors counterclaimed for the unpaid installment and lost profits on the uncompleted portion.

## Issues

1. Whether the subcontractors’ unworkmanlike performance and refusal to cure constituted a material breach that excused the contractor’s duty to make the next progress payment.
2. Whether the progress-payment obligation and the workmanlike-performance obligation were mutually dependent, making payment conditional on substantial performance through the payment date.
3. Whether the subcontractors’ cessation of work after justified withholding of payment amounted to repudiation and breach, barring their counterclaims and allowing the contractor completion damages.

## Decision

- The court held the subcontractors’ negligent work causing substantial property damage, coupled with refusal to repair or compensate, was a material breach of the duty to perform in a workmanlike manner.
- The court treated the contract promises as mutually dependent; substantial performance by the subcontractors was a condition to the contractor’s obligation to make the next installment payment.
- The contractor was justified in withholding the August 10 progress payment because performance to that point was materially deficient and uncured.
- The contractor’s decision to permit continued work after the incident did not waive the right to withhold the installment that came due immediately after the breach.
- Because the contractor was not in default, the subcontractors’ later stoppage of work constituted wrongful repudiation and breach.
- The court reversed the subcontractors’ recovery on their counterclaims and entered judgment for the contractor for \$450 in additional completion costs, in addition to the separate award for the property damage.

## Legal Principles

- Mutual promises in a contract are presumed dependent when the contract and circumstances indicate that intent; in construction contracts, installment payments are typically conditioned on substantial performance up to the payment date.
- A material breach of a workmanlike-performance obligation may excuse the other party’s duty to make further progress payments until the breach is cured or addressed.
- Allowing a breaching party to continue performance can treat the breach as partial, without forfeiting the nonbreaching party’s remedies for the breach or requiring continued installment payments premised on satisfactory performance.
- When one party is justified in suspending performance due to the other’s material breach, the breaching party cannot treat that suspension as a breach to justify stopping work; cessation in that posture is repudiation exposing the breaching party to completion-cost damages.
- A contractual requirement that the breaching party carry liability insurance does not, by itself, eliminate the nonbreaching party’s right to treat negligent performance as a breach and seek contract damages.

## Conclusion

The court held that the subcontractors’ material unworkmanlike performance and refusal to correct the resulting damage excused the contractor’s obligation to make the next progress payment; the subcontractors’ subsequent work stoppage was a repudiation that barred their counterclaims and made them liable for the contractor’s added completion costs.


K & G Constr. Co. v. Harris, 223 Md. 305, 164 A.2d 451 (Md. 1960)