If a payment clause in a sub-contract does not specifically show intent to make the subcontractor bear the burden of lost profits, the court will construe this as a paid-when-paid provision.
Triad entered into an agreement with Centurion Development Group, LL ("Centurion") to provide architectural and engineering plans for a residential development that Centurion wanted to build. Triad asked EMH&T to supply civil engineering services on the project, so they entered into a control whereby Trial agreed to pay Evans, Mechwart, Hambleton & Tilton, Inc ("EMH&T") $128,550 for environmental and engineering work on one project, and $60,200 on another. The contracts, relying on the American Institute of Architects Standard Form of Agreement Between Architect and Consultant provided in Section 12.5, the payments to the consultant shall be made promptly after the Architect is paid by the Owner under the Prime Agreement and in section 13.4.3, that the Consultant shall be paid for their services within 10 working days after receipt by the Architect from the Owner of payment for the services performed by the Consultant.
EMH&T substantially completed all services required under both contracts and then billed Triad a total of $150,482.29. Triad refused to pay, saying that those sections of the contract only required it to pay EMH&T when, and to the extent that, Centurion paid it. Since Centurion cancelled both projects and refused to pay Triad, Triad disclaimed any obligation to pay EMH&T.
EMH&T then filed suit against Triad, asserting claims for an account stated, professional services rendered, breach of contract, and unjust enrichment.
Should a payment clause can be construed as a pay-if-paid provision where there is no evidence of the parties' intent to do so?
Because the law disfavors conditions precedent, "whenever possible courts will avoid construing provisions to be such unless the intent of the agreement is plainly to the contrary." Here, the parties do not make their intent to make it a pay-if-paid provision. Because of this, Triad owed EMH&T a duty to pay it within a reasonable time after the completion of the work. A pay-when-paid provision is not a condition precedent, but acts as a schedule for which the subcontractor needs to be paid. Section 12. 5 is a pay-when-paid provision, providing for a 10-day timetable for payment and does not create a condition precedent. Section 13.4.3 is more similar to a pay-if-paid provision, but still does not give the kind of evidence necessary to show that the parties intended to create a condition precedent.