Well, it’s been a while since my last post here at Musings due to travel, work, Thanksgiving, etc. so I thought I’d let a recent case remind us all that while breaching a construction contract is bad, doing it first is even worse.  This is the so called “doctrine of first breach” that basically states that if both parties are in breach (or even just one), then the first to breach is the one that will bear the costs of breach.  The doctrine also states that the one first to breach first can’t enforce any of its rights going forward.

The plaintiff in SEG Props. LLC v. NTC Mazzuca Constr.,Inc., the Virginia Court of Appeals considered a first breach scenario that was pretty extreme.  The basic facts are as follows:

SEG hired Mazzuca to build a private shooting range and hired a property manager (Jones, Lang, LaSalle, Inc. (“JLL”)) as its project representative. Per the contract, if Mazzuca provided a payment application on or before the 25th of the month, payment was due by the 25th of the following month.  In no event was payment to be made more than 30 days from receipt of the payment application by the owner’s representative.  Even where there was a dispute, the undisputed amounts were to be paid. Mazzuca and JLL used a so called “pencil” method for payment applications that involved JLL reviewing the payment applications for errors and then a final payment application with the corrections being sent to the Architect.  Needless to say there were change orders and disputes, but after the smoke cleared, it was obvious that from the first payment application, SEG had failed to make timely payment (for the whole saga, please read the case as it is too long for this post).  Later, SEG terminated Mazzuca for cause upon one day’s notice that SEG would be supplementing Mazzuca’s workforce.

Unsurprisingly, Mazzuca filed suit to, among other things, enforce a mechanic’s lien and for breach of contract.  For purposes of this post, the Court of Appeals’ analysis was as follows:

Indeed, “the first party to commit a material breach can neither enforce the contract nor maintain an action on it.” Countryside Orthopaedics, 261 Va. at 156; see also Mathews, 283 Va. at 730 (“If the initial breach is material, the other party to the contract is excused from performing his contractual obligations.”). Given these well-established principles, and as SEG’s position rises or falls on this crucial issue of first material breach, we now consider whether the circuit court erred in its judgment.

The Court then went through the various assignments of error and upheld the magistrate and Circuit Court in finding that SEG breached first and couldn’t enforce the contract against Mazzuca.  It also analyzed various other points of interest from the Circuit Court that are not the focus of this post but are worth a read.

In short, because SEG failed to pay the very first payment application on time, it was then barred from enforcing the other parts of the contract and enforcing its rights from their forward.  Talk about a harsh lesson.  As always, I recommend you read the case for its detail that is not set out here.

As always, be sure to consult an experienced Virginia construction lawyer before taking any contract action that may cause a future issue on your construction project.

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