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Zulla Steel, Inc. v. A & M Gregos, Inc. - 174 N.J. Super. 124, 415 A.2d 1183 (Super. Ct. App. Div. 1980)

Rule:

While not every delay in payment will justify a contractor in terminating performance under an installment contract, where there was a substantial underpayment for a prolonged period of time a contractor is justified in discontinuing performance. 

Facts:

Defendant was the prime contractor on a post office expansion project. Defendant hired plaintiff subcontractor to perform structural steel work. Plaintiff terminated performance after defendant failed to make the agreed upon installment payments on the $340,000 contract price. Plaintiff filed a breach of contract action against defendant, and defendant counterclaimed. The trial court ruled in plaintiff's favor, finding that defendant breached its contract with plaintiff by its delinquencies in payment.

Issue:

Did defendant contractor breach its contract with plaintiff by its delinquencies in payment, thus, justifying plaintiff’s discontinuance of performance?

Answer:

Yes

Conclusion:

The court affirmed because the evidence showed that defendant's failure to pay plaintiff prevented plaintiff from paying his own subcontractor, which prevented plaintiff's completion of the project. Defendant's breach was material and not justified by any alleged shortcomings in plaintiff's performance. Because there was substantial underpayment for a prolonged period of time, plaintiff was justified in discontinuing performance. The contract was clear and unambiguous and did not allow defendant to defer the installment payments until it received payment from the post office. Plaintiff did not waive the breach of contract by accepting late payments. N.J. Ct. R. 2:11-3(e)(1)(E).

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