Brief Fact Summary. Party 1, a general contractor, contracted with party 2, a sub-contractor, to provide certain plumbing related services on a project. The meaning of a provision in the contract concerning payment was at issue.
Synopsis of Rule of Law. Paragraph 3 was a "reasonable provision designed to postpone payment for a reasonable period of time after the work was completed, during which the general contractor would be afforded the opportunity of procuring from the owner the funds necessary to pay the subcontractor."
Issue. Does the contractual provision making the Appellant's payments to the Appellee not "due until five (5) days after Owner shall have paid the Contractor therefore" create a binding condition?
Held. No, it is an unconditional promise. The court first observes that provisions in contracts "making certain obligations conditional or contingent upon the happening of a certain event are valid and enforceable." This is a question of contract construction or interpretation, not one of validity.
• The court first considers whether the language in Paragraph 3 applies only to the April 27, 1959 contract or also to subsequent work not covered by that agreement. The court concludes that the additional work completed by the Appellee, and evidenced by two change orders, was intended by the parties to be part of the original subcontract.
• The court then addresses how to construe the language in Paragraph 3 – "as a conditional promise to pay, enforceable only when and if the condition precedent has taken place, which in the present case has not occurred, or, as contended by the appellee, it is to be construed as an unconditional promise to pay with the time of payment being postponed until the happening of a certain event, or for a reasonable period of time if it develops that such event does not take place." The court recognizes that the intention of the parties governs any particular case.
• Based on the facts before it, the court refused to transfer the general contractor's usual risk of an owner of a project becoming insolvent to a subcontractor. The court found that the parties' intended for the Appellee subcontractor to be paid by the Appellant contractor for the labor and material it provided. If the parties did not wish for such a construction of their agreement, they could have specified what was to occur if the owner became insolvent. As such, the court found that Paragraph 3 was a "reasonable provision designed to postpone payment for a reasonable period of time after the work was completed, during which the general contractor would be afforded the opportunity of procuring from the owner the funds necessary to pay the subcontractor." Any other construction would be unreasonable.
To construe it as requiring the subcontractor to wait to be paid for an indefinite period of time until the general contractor has been paid by the owner, which may never occur, is to give to it an unreasonable construction which the parties did not intend at the time the subcontract was entered into.View Full Point of Law