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12 Constr. Law. 1 (1992)

handle is hein.journals/conlaw12 and id is 1 raw text is: * 0The ... .... * , , Contrutio rI 1 ..... .. .. .... Minimum Decencies-A Proposed Resolution of The Pay-When-Paid/Pay-If-Paid Dichtomy Gerald B. Kirksey In a previous article, The Pay When Paid/Pay If Paid Dichotomy and the Florida Trilogy-Bright Line or Murky Fog?', Sherrie Brown2 and I ex- amined the development of the pay-when-paid/pay- if-paid dichotomy in ju- dicial interpretation of subcontract payment lan- guage. After examining the 4 interpretation of subcon- tract payment language in Gerald B. Kirksey three Florida Supreme Court cases as well as in other leading cases, we concluded that no bright line exists to guide attorneys and the courts in their interpretation of subcontract payment language. In fact, the pay-when- paid/pay-if-paid distinction is artificial and ultimately refers to the result reached by a court. The phrase, pay-when-paid, commonly refers to sub- contract payment language that has been held to merely delay the time of payment by a general contractor to a subcontractor; a general contractor's duty to pay a sub- contractor, within a reasonable time after subcontractor has completed performance, remains absolute, even if a general contractor never receives payment from an owner. Conversely, pay-if-paid subcontracts have been held to make a subcontractor's payment contingent upon a general contractor's receipt of payment from an owner. Actual payment language varies widely, and courts have had difficulty applying the pay-when-paid/pay-if-paid distinction. One court may find that specific subcontract payment language establishes an absolute duty by the general contractor to pay the subcontractor, while an- other court may find that, under almost identical lan- guage, payment by the owner to the general contractor is a condition precedent to the general contractor's duty to pay the subcontractor.' Since this article will suggest a new and radical ap- proach to the interpretation of subcontract payment clauses, the pay-when-paid/pay-if-paid distinction will be abandoned; subcontract payment clauses will simply be referred to as either absolute-duty or contingent- payment clauses. The Storm Clouds Swirl Few construction industry issues have been more div- isive than the present debate over the use of contingent- payment clauses in subcontract forms. As general con- tractors (and their attorneys) seek clear, unmistakable contingent-payment subcontract language, subcontrac- tor organizations have made the elimination of pay-if- paid contract clauses a top priority.4 In a major victory for subcontractors, the General As- sembly of North Carolina, in its 1991 session, adopted a law that states: Performance by a subcontractor in accordance with the provisions of its contract shall entitle it to payment from the party with whom it contracts. Payment by the owner to a contractor is not a condition precedent for payment to a subcontractor and payment by a contractor to a subcon- tractor is not a condition precedent for payment to any other subcontractor and an agreement to the contrary is unen- forceable., (continued on page 40) Copyright © 1992 American Bar Association Produced by the ABA Press