J.J. Shane, Inc. v. Aetna Ca. & Surety Co.

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."

Facts. The Appellant, J.J. Shane, Inc. (the "Appellant"), was a subcontractor to the Appellee, Recchi Ameica, Inc. (the "Appellee"), during a construction project in Miami.  The construction project was owned by Metropolitan Dade County.  The Appellant brought suit after the Appellee did not pay them for their work on the project.  A provision in the subcontract provided in Article XIII Method of payment (a):  "Subcontractor is relying upon the financial responsibility of Owner in performing the Work. It is understood by Subcontractor that payment for the work is to be made from funds received from Owner by Contractor in respect to the Work."  At the time this suit was brought, the Appellee had not yet been paid by Metropolitan Dade County.

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.