Brief Fact Summary. A dispute arose between a contractor and subcontractor over the payment of the subcontractor for certain work. A provision in the subcontract said the primary contractor was not required to pay the subcontractor until it was paid by the owner of the project.
Synopsis of Rule of Law. Certain subcontractor agreements, if unambiguous in their intention, "may contain valid payment provisions which shift the risk of payment failure by the owner from the general contractor to the subcontractor."
But in order to make such a shift the contract must unambiguously express that intention.View Full Point of Law
Issue. Is a condition created by Article XIII Method of payment (a), requiring payment of the Appellant by the Appellee only after the Appellee is paid by the owner of the construction project?
Held. Yes. Generally, in subcontractor arrangements, "payment by the owner to the contractor ordinarily is not intended to be a condition precedent to the contractor's duty to pay the subcontractor 'because small subcontractors, who must have payment for their work in order to remain in business, will not ordinarily assume the risk of the owner's failure to pay the general contractor.' " However, certain subcontractor agreements, if unambiguous in their intention, "may contain valid payment provisions which shift the risk of payment failure by the owner from the general contractor to the subcontractor." The court found that the "the subject payment provision to plainly and unambiguously make payment by the county/owner a condition precedent to payment by the general contractor to the subcontractor herein, rather than simply fixing a reasonable time for payment as contended by the subcontractor." Consequently, "where the owner's non-payment to the general contractor is undisputed, this cause for payment by the subcontractor was prematurely filed."
Discussion. This case offers an interesting look at how conditions play an important role in contractor/subcontractor relationships.