The following scenario happens regularly in the construction industry. A contractor on a project reaches out to a subcontractor to perform work. Excited about the prospect of performing the work, the subcontractor signs a contract and puts it nose to the grindstone. After dutifully completing the work the subcontractor turns to the contractor and asks to be paid. But, the contractor refuses saying that there is a provision in the subcontract that says the contractor is only obligated to pay the subcontractor if the contractor receives payment from the owner. So the contractor has completed the work, but has no money to show for it.
One potential remedy for a subcontractor in this situation is the use of the prevention doctrine. “Under the prevention doctrine, ‘if a promisor prevents or hinders fulfillment of a condition to his performance, the condition may be waived or excused.’” Cox v. SNAP, Inc., 859 F.3d 304, 308 (4th Cir. 2017) (quoting Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 7171, 725 (4th Cir. 2000)). “Put simply, ‘where a party to a contract is the cause of the failure of the performance of the obligation due him or her, that party cannot in any way take advantage of that failure.’” Haddon Hous Assocs v. United States, 711 F.3d 1330, 1338 (Fed. Cir. 2013) (quoting Restatement (Second) of Contracts § 245; Williston, § 39:4).
So let’s add to the scenario above that the contractor failed to request payment from the owner for the subcontractor’s work. The contractor’s failure to request payment could be deemed a violation of the prevention doctrine, which would bar the contractor from being able to raising the contract terms as a defense. Alternatively, let’s say that the contractor had committed significant errors on the project and that as a result, the owner was withholding funds. Here too, the subcontractor could contend that the contractor’s mistakes on the project, which led to the owner withholding payment, should excuse contract terms that would otherwise bar payment. Basically, the contractor should not be allowed to benefit from its mistakes and failures to not pay an innocent party.
While the prevention doctrine is not a sure-fire solution to a problem with a contractor who won’t pay, it is a useful tool that we should be ready to use when the situation warrants.