In the construction industry, among others, contractors given work by one party may themselves contract portions of that work out to other parties, known as subcontractors. Disputes occassionally arise between contractors and subcontractors over payment for work completed. If a contractor fails to pay a subcontractor, the subcontractor's rights are typically contained in a contract between the parties in addition to general rules of contract law.
The contract established between the contractor and subcontractor may contain specific rights of the contractor and subcontractor, including what is to be done in the event that one party fails to meet its obligations under the contract. This could include specifying that a certain state's laws will apply to payment disputes or that disputes will be settled by a binding arbitration.
Material Breach of Contract Vs. Substantial Performance
In a contract specifying that a contractor will pay a subcontractor for performing certain work, an issue of payment may arise if the contractor claims the subcontractor has not fully performed his obligations under the contract. General contract law states that if a subcontractor substantially performs his duties, payment is required; however, if the subcontractor has materially breached the contract by failing to substantially perform, the contractor will be able to refuse payment under contract law.
Contract Law Remedy
If the subcontractor has substantially performed his duties under the contract, he will be able to sue the contractor under contract law for a breach of contract and have the court compel the contractor to pay the agreed sum. Any additional damages that may have resulted from the failure of the contractor to pay the subcontractor may be recoverable as well, depending on the specific circumstances.
Quasi-Contract Law Remedy
Even if a subcontractor has not substantially performed, he may still be able to recover money from the contractor under a quasi-contract law doctrine known as unjust enrichment. For example, if a contractor contracts with a subcontractor to paint a house and the subcontractor only paints 1/3 of the house, the contractor may be able to refuse payment based on contract law because there has been a material breach of the subcontractor's duty to paint the entire house. However, because it would be unfair to allow the contractor to retain the value of having 1/3 of the house painted, the subcontractor may be able to recover the fair value of the work done under the doctrine of unjust enrichment.
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