Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd.

196 Ohio App. 3d 784, 965 N.E.2d 1007 (2011)

 

RULE:

A condition precedent is an event that must occur before an obligation in the contract will become effective. The nonoccurrence of a condition precedent excuses a party from performing the duty promised under the contract. Whether a contractual provision is a condition precedent or merely a promise to perform is a question of the parties' intent. A court ascertains that intent from the language of the particular provision, the language of the entire agreement, and the subject matter of the agreement.

FACTS:

A developer hired defendant to provide architectural and engineering plans; defendant contracted with plaintiff to provide, inter alia, engineering due diligence work. Plaintiff substantially completed all services required under the parties' two contracts, but defendant refused to pay, claiming the parties' contracts only required it to pay plaintiff when, and to the extent, that the developer paid it. As the developer refused to pay defendant, defendant disclaimed any obligation to pay plaintiff. Plaintiff subcontractor sued defendant contractor, asserting claims of an account stated, professional services rendered, breach of contract, and unjust enrichment. Defendant's motion for summary judgment was granted and plaintiff's motion for summary judgment denied. Plaintiff appealed.

ISSUE:

May a payment clause in a subcontract can be construed as a pay-if-paid provision if it fails to unequivocally evince intent to create a condition precedent or shift the risk of the owner’s nonpayment?

ANSWER:

No.

CONCLUSION:

The appellate court noted that in contrast to a "pay-when-paid" provision, a "pay-if-paid" provision was an unambiguous condition precedent to payment. A condition precedent is an event that must occur before an obligation in the contract will become effective. The nonoccurrence of a condition precedent excuses a party from performing the duty promised under the contract. Whether a contractual provision is a condition precedent or merely a promise to perform is a question of the parties' intent. A court ascertains that intent from the language of the particular provision, the language of the entire agreement, and the subject matter of the agreement. By signing a contract that contains a pay-if-paid provision, the subcontractor took the risk that the owner's nonpayment would discharge the contractor's duty to pay the subcontractor. The first contract's provision was a prototypical "pay-when-paid" provision. The second contract was silent as to the extent of defendant's obligation if the developer failed to pay, and the appellate court could not infer from this silence an intent to create a condition precedent that would result in a forfeiture of compensation for plaintiff's work.

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