J.J. Shane, Inc. v. Aetna Cas. & Surety Co.
723 So.2d 302 (1998)
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Rule of Law:
A subcontract provision that unambiguously states the subcontractor is relying on the owner's financial responsibility and that payment will be made from funds the contractor receives from the owner creates a valid condition precedent. Under such a 'pay-if-paid' clause, the general contractor's duty to pay the subcontractor does not arise until the contractor has been paid by the owner.
Facts:
- Recchi America, Inc. was the general contractor for the Omni extension of the 'People Mover' project, owned by Metropolitan Dade County.
- J.J. Shane, Inc. entered into a written subcontract with Recchi to perform work on the project.
- The subcontract contained a payment provision stating that Shane was 'relying upon the financial responsibility of Owner' and that 'payment for the work is to be made from funds received from Owner by Contractor'.
- Shane completed its work on the project as required by the subcontract.
- Metropolitan Dade County, the project owner, failed to make full payment to Recchi for the project.
- As a result of not being paid by the owner, Recchi did not make complete payment to Shane for its work.
Procedural Posture:
- J.J. Shane, Inc. filed a breach of contract action against Recchi America, Inc. in a Florida trial court.
- The case was tried before a jury, which returned a verdict in favor of Recchi.
- The trial court entered a final judgment for Recchi and awarded Recchi attorney's fees and costs.
- Shane, as the appellant, appealed the final judgment to the District Court of Appeal of Florida, Third District; Recchi was the appellee.
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Issue:
Does a subcontract provision stating that the subcontractor relies on the owner's financial responsibility and that payment will be made from funds received from the owner unambiguously shift the risk of the owner's non-payment to the subcontractor, thereby creating a condition precedent to the general contractor's duty to pay?
Opinions:
Majority - Judge Green
Yes. A subcontract provision that unambiguously shifts the risk of the owner's non-payment to the subcontractor creates a valid condition precedent to the general contractor's duty to pay. The court found the language in the subcontract, specifically that Shane was 'relying upon the financial responsibility of Owner' and that 'payment ... is to be made from funds received from Owner,' was plain and unambiguous. Citing the precedent set in Peacock Constr. Co., Inc. v. Modern Air Conditioning, Inc., the court explained that while the law generally disfavors shifting the owner's credit risk to a subcontractor, it is permissible if the contract's intent to do so is unambiguous. Because the contract clearly expressed this intent, it created a true condition precedent. Since the condition—payment from the County to Recchi—had not yet occurred, Shane's lawsuit was prematurely filed.
Analysis:
This decision reinforces the standard in Florida for creating an enforceable 'pay-if-paid' clause, which transfers the risk of owner non-payment from the general contractor to the subcontractor. It clarifies that specific language referencing the subcontractor's reliance on the owner's credit and identifying payments from the owner as the source of funds is sufficient to overcome the legal presumption against such risk-shifting. This case provides a clear drafting model for general contractors aiming to establish a condition precedent for payment and serves as a crucial warning to subcontractors about the risks they assume when agreeing to such terms.
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