A contractor entered into a written agreement with a property owner to construct a building. Midway through the project, the property owner, dissatisfied with the pace of construction, began withholding progress payments that were due under the contract. The property owner claimed dissatisfaction with the contractor's performance but refused to specify any defects in the work or allow inspections. The contractor, arguing that it had been compliant with the requirements of the contract, halted construction. Has the property owner violated its obligations?
No, the contractual obligations are suspended because the contractor halted performance prematurely.
Yes, the property owner violated its obligations by withholding payments without providing valid reasons or cooperating with inspections.
No, the property owner was within its rights to withhold payments based on general dissatisfaction with progress alone.
Yes, the property owner violated its obligations by failing to require adjustments to the construction pace before prohibiting payments.
The property owner violated the obligation of good faith and fair dealing, which is implied in every contract. This duty includes an expectation of honesty and cooperation during performance as well as refraining from actions that hinder the other party’s ability to perform. Withholding progress payments without specific justification or inspections appears arbitrary and undermines the contractor's ability to complete performance. While dissatisfaction can justify withholding in some contexts, it must be genuine, substantiated, and communicated clearly. The other options are incorrect because dissatisfaction alone, without valid substantiation or revealed defects, is insufficient to justify withholding payments, and construction halts in response to payment issues do not constitute breach by the contractor unless checks on the work were made available. Failing to address clear processes may indicate bad faith.
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