The Utah Court of Appeals delivered a significant ruling – including its length, approximately 12,500 words – underscoring the critical importance of adhering to contract provisions, particularly regarding payment terms in construction contracts.
At the heart of the dispute was a contract between a general contractor and chiropractor, the latter having engaged the contractor to construct an office building for a chiropractic clinic. The contract specified a payment structure through monthly progress payments, which the owner was obligated to pay within 30 days of receiving the GC’s payment application.
The contract also outlined specific conditions under which the owner could withhold payments to the contractor:
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If the work was found defective and not remedied.
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If the contractor did not make prompt and proper payments to subcontractors.
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If the contractor did not make prompt and proper payments for labor, materials, or equipment furnished.
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If another contractor was damaged by an act for which the general contractor was responsible.
Despite these foregoing limitations, the owner withheld payments from the contractor for three consecutive months, citing construction delays and dissatisfaction with workmanship as justification. However, the court found that the contract did not list delays as a valid reason for withholding payments, and “declined to infer that time was of the essence for purposes of this contract given that, among other things, there was no ‘time is of the essence’ provision in the contract….” Furthermore, the alleged workmanship issues arose after the owner had already stopped payments.
The court's decision was unequivocal: the owner’s failure to adhere to the contract's payment provisions constituted a material breach. The court emphasized as part of its ruling that in construction contracts, “…‘no other breach is more material to contractors than the unjustified nonpayment to contractors….’” Consequently, the contractor prevailed.
Precisely adhering to agreed construction contract terms – and, correspondingly, meticulously negotiating and drafting those terms in the first instance – helps avoid circumstances like the above, which resulted in a trial and an appeal, and an appellate court which felt the need to write an extremely lengthy opinion for a smallish case (principal damages were only about $62,000, whereas claimed interest, fees, and costs were roughly four times that amount; lower court judgment on interest, fees, and costs was vacated by the appellate court and remanded for further proceedings) and concerning an issue which seems simple but which becomes complex when contractual terms are disregarded (or unclear).
Globe Contracting LLC v. Hour, 2025 UT App 98 (July 3, 2025)
