Gilbane Building Co. v. Brisk Waterproofing Co.
585 A.2d 248, 86 Md.App. 21, 1991 Md. App. LEXIS 36 (1991)
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Rule of Law:
A subcontract provision that explicitly states payment from the owner to the general contractor is a "condition precedent" to the general contractor's duty to pay the subcontractor is unambiguous and enforceable, effectively shifting the risk of the owner's non-payment, including due to insolvency, from the general contractor to the subcontractor.
Facts:
- Carley Capital Group, a project owner, hired Gilbane Building Company as the general contractor for a condominium conversion project.
- Gilbane, in turn, hired Brisk Waterproofing Company, Inc. as a subcontractor to perform masonry work.
- The subcontract between Gilbane and Brisk contained a clause stating, "It is specifically understood and agreed that the payment to the trade contractor is dependent, as a condition precedent, upon the construction manager receiving contract payments, including retainer from the owner."
- Brisk fully and satisfactorily completed all its work by August 1988 and requested final payment from Gilbane.
- Gilbane refused to make the final payment to Brisk because Gilbane itself had not received payment from the owner, Carley Capital Group.
- Subsequently, Carley Capital Group was forced into bankruptcy.
Procedural Posture:
- Brisk Waterproofing Company, Inc. sued Gilbane Building Company in the Circuit Court for Prince George’s County for breach of contract.
- The case was submitted to the trial court on an agreed statement of facts, and both parties filed cross-motions for summary judgment.
- The trial court granted summary judgment in favor of Brisk for the principal amount due but denied its request for pre-judgment interest.
- Gilbane, as appellant, appealed the summary judgment against it to the Maryland intermediate appellate court.
- Brisk, as cross-appellant, appealed the trial court's denial of its request for pre-judgment interest.
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Issue:
Does a subcontract clause stating that payment to a subcontractor is "dependent, as a condition precedent, upon the construction manager receiving contract payments... from the owner" create an enforceable condition that relieves the general contractor of its payment obligation when the owner becomes insolvent and fails to pay?
Opinions:
Majority - Bloom, Judge
Yes. A subcontract clause that unambiguously makes the general contractor's receipt of payment from the owner a condition precedent to its duty to pay the subcontractor is enforceable and shifts the risk of owner non-payment. Under the objective theory of contract law, courts must enforce the plain and unambiguous language of an agreement. The phrase "condition precedent" has a clear legal meaning and its inclusion in the contract explicitly made Gilbane's receipt of payment from Carley a necessary prerequisite to its obligation to pay Brisk. Unlike standard "pay when paid" clauses, which only govern the timing of payment, this specific language created an absolute condition. The court rejected the trial court's reasoning that the contract needed to explicitly mention "insolvency," holding that a true condition precedent transfers the entire credit risk of the owner's non-payment for any reason not caused by the general contractor.
Analysis:
This decision solidifies the distinction in Maryland law between a "pay when paid" clause, which merely postpones the time for payment, and a "pay if paid" clause, which creates a true condition precedent. The court's holding emphasizes that the use of specific, unambiguous language like "condition precedent" is sufficient to shift the risk of owner insolvency from the general contractor to the subcontractor. This provides clear guidance for contract drafting, empowering general contractors to protect themselves from owner default, while simultaneously serving as a warning to subcontractors to scrutinize payment terms for such risk-shifting language.
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