Statesville Roofing & Heating Co. v. Duncan

Statesville Roofing & Heating Co. v. Duncan

Opinion

 [*119]  MEMORANDUM OF OPINION

RICHARD L. VOORHEES, UNITED STATES DISTRICT JUDGE.

THIS MATTER came on to be heard and was heard before the undersigned upon plaintiff's motion for summary judgment in Statesville, North Carolina, on December 6, 1988. The Court now enters its opinion in this matter.

This is an action for money owed by Statesville Roofing and Heating Company against proprietorship The Duncan Company, owned by John R. Duncan. The factual background of this case is essentially undisputed. Plaintiff Statesville worked as a subcontractor on a hotel construction project for which Duncan was general contractor. It is agreed that Statesville completed its obligations, did satisfactory work, and is owed $ 13,647 in addition to money it has already been paid. The sole issue is whether a "pay-when-paid" clause in the parties' written contract serves to establish, as a condition precedent to the sum owed plaintiff Statesville being due and collectible, that the owner of the hotel shall have paid defendant Duncan for his  [**2]  services as general contractor.

The written contract between the parties provides in pertinent part (the pay-when-paid clause):

Final payment shall be paid to the Subcontractor . . . conditioned upon payment having been received by the Contractor for all of Subcontractor's Work. . . .

Defendant argues, in his memorandum in response to plaintiff's motion for summary judgment, that the words "conditioned upon" clearly establish that Duncan's receiving payment from the developer is a condition precedent to his obligation to pay Statesville becoming due and owing. It is certainly true that the everyday meaning of those words, such as a layman might place upon them, leads to the conclusion that the subcontractor need not be paid until the general contractor has received payment. In some jurisdictions, the law agrees; but such is not the law in North Carolina. The trend now in most states is that, absent special circumstances, such language is given no weight. The leading precedent in this jurisdiction is the same.

In a diversity case such as this, the district court must apply the substantive law of the state in which it is located. The leading case in North Carolina is Howard-Green  [**3]  Electrical Co. v. Chaney & James Construction Co., 12 N.C. App. 63, 182 S.E.2d 601 (1971). In that case, the North Carolina Court of Appeals had to construe a clause which provided that final payment between general and sub was due "within 15 days of acceptance of and payment [to the general contractor] for the entire contract by Owner," to the general. Id. at 603. It was held that this language did not create a condition precedent, that instead it only served to specify a time for payment, which was construed as being the time when payment to the general contractor from the owner could reasonably be expected to occur. Id. at 604. Although the literal language of the contract appeared to state that payment to the sub was not due until the general had been paid in full, the Court concluded that this was not the intent of the parties and found otherwise. This determination of intent was made by examining the subcontract "in light of the situation of the parties, the end which they sought to accomplish, and against the background of customary practices in the construction industry . . . ." Id. at 603. The Court quoted cases with similar results from other jurisdictions to illustrate  [**4]  its reasoning.

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