A written contract for a homeowner and a builder provides for a garage to be built for $10,000, with no express provision about progress payments. After completing 25% of the garage, the builder demands $2,000. The homeowner refuses, and the builder abandons the job. If each sues the other, what will the court decide?

• A. Only the homeowner is in breach and liable for the builder's damages, if any
• B. Neither party is in breach
• C. Both parties are in breach
• D. Only the builder is in breach and liable for the homeowner's damages, if any

Answer: (D)

When a construction contract doesn’t spell out progress payments, the usual rule is that payment is tied to completion and performance, not to a pre-emptive demand for money. The key issue is who breached the contract.

The builder began work but, after 25% is finished, demands payment and then abandons the project. Abandoning before finishing under a fixed-price construction contract is a material breach of the contract. Once the builder stops work and leaves, the homeowner is entitled to damages for the breach—typically the extra cost to hire someone else to complete the garage, plus any incidental losses caused by the delay, minus any salvage value from the work already done.

The homeowner’s refusal to pay the demanded $2,000 is not itself a breach because there was no express progress-payment provision obligating the owner to pay mid-project. Under these facts, the homeowner’s nonpayment does not breach the contract, and the builder’s abandonment does. Therefore, when both sue, the court would find only the builder in breach and would award the homeowner damages caused by the builder’s failure to perform—if any are proven.