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Main Electric, Ltd. v. Printz Services Corp.

Supreme Court of Colorado, En Banc
980 P.2d 522 (1999)
ELI5:

Rule of Law:

A 'pay-when-paid' clause in a construction contract, stating payment will be made 'provided like payment shall have been made by owner,' merely sets the timing for payment and does not shift the risk of the owner's non-payment to the subcontractor. To create a 'pay-if-paid' clause that functions as a condition precedent, the contract must unequivocally and expressly state that the subcontractor bears the risk of the owner's non-payment.


Facts:

  • Printz Services Corporation, a general contractor, was hired to build a casino project.
  • Printz subcontracted with C.J. Masonry under a written agreement and Main Electric under an oral agreement.
  • The contract with C.J. Masonry stated that Printz would make final payment to the subcontractor 'provided like payment shall have been made by Owner to Contractor.'
  • Before the project was finished, the casino owner became insolvent and lost the property in foreclosure.
  • The owner failed to pay Printz for the work performed on the project.
  • As a result, Printz refused to pay its subcontractors, C.J. Masonry and Main Electric, for their completed work.

Procedural Posture:

  • C.J. Masonry and Main Electric sued Printz Services Corp. in a Colorado trial court for breach of contract.
  • The trial court found for C.J. Masonry, interpreting the contract as a 'pay-when-paid' clause, and for Main Electric on a quantum meruit theory.
  • Printz (appellant) appealed to the Colorado Court of Appeals.
  • The Court of Appeals reversed the judgment for C.J. Masonry, holding the clause was a 'pay-if-paid' condition precedent that excused Printz's payment obligation.
  • The appellate court also reversed the award for Main Electric and remanded its claim for further factual findings regarding the terms of its oral contract.
  • C.J. Masonry and Main Electric (petitioners) appealed to the Supreme Court of Colorado, which granted certiorari.

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Issue:

Does a payment clause in a construction subcontract stating that the contractor will pay the subcontractor 'provided like payment shall have been made by Owner to Contractor' create a condition precedent that shifts the risk of the owner's insolvency from the general contractor to the subcontractor?


Opinions:

Majority - Justice Bender

No. A payment clause stating that a subcontractor will be paid 'provided like payment shall have been made by owner' does not create a condition precedent that shifts the risk of owner nonpayment from the general contractor to the subcontractor. Courts disfavor interpreting contract clauses as conditions precedent because they can result in a harsh forfeiture for a party that has performed its obligations but has no control over the condition. If there is any doubt, the clause will be interpreted as a promise to pay that may be delayed for a reasonable time, not an obligation contingent on the owner's payment. For the risk of owner insolvency to be shifted to the subcontractor, the contract must contain clear and unequivocal language expressly stating that owner payment is a condition precedent and that the subcontractor assumes this risk. The phrase 'provided like payment' is ambiguous and insufficient to shift this risk, as it does not clearly reflect the parties' intent to do so.



Analysis:

This decision aligns Colorado law with the majority of U.S. jurisdictions by strongly disfavoring 'pay-if-paid' conditions that can lead to subcontractor forfeiture. It establishes a high standard for general contractors, requiring them to use explicit and unambiguous language to shift the risk of owner non-payment. This ruling provides significant protection for subcontractors by creating a default rule that general contractors bear the risk of owner insolvency unless the subcontract states otherwise in the clearest possible terms. Consequently, drafters of construction contracts must use language like 'as a condition precedent' or other express risk-shifting terms to create an enforceable 'pay-if-paid' clause.

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