MidAmerica Construction Management, Inc. v. MasTec North America, Inc.

Majority - Ebel, Circuit Judge

Yes, the construction subcontract clause stating that "all payments to Subcontractor by Contractor are expressly contingent upon and subject to receipt of payment for the work by Contractor from Owner" constitutes an enforceable "pay-if-paid" clause under both Texas and New Mexico law, making the owner's payment to the general contractor a condition precedent to the general contractor's obligation to pay the subcontractor. The court affirmed the district court's grant of summary judgment to Defendants MasTec and Renegade. The court found that the Subcontract Agreement contained clear conditional language, specifically the phrases "expressly contingent upon" and "subject to," which are indicative of an intent to create a condition precedent rather than merely a timing mechanism for payment (a "pay-when-paid" clause). Under Texas law, drawing from Gulf Construction Co. v. Self, such conditional language clearly signals an intent for a condition, and the court found the Subcontract Agreement's language sufficiently clear to create a "pay-if-paid" clause. The court also noted that the general weight of authority, including the reasoning in Thomas J. Dyer Co. v. Bishop International Engineering Co., supports enforcing such clauses when the intent to shift credit risk is clearly expressed. For New Mexico law, lacking direct precedent, the court looked to the general trend of authority and concluded that New Mexico courts would likely enforce a clearly drafted "pay-if-paid" clause. The court rejected arguments that New Mexico's Retainage Act implied a public policy against such clauses, noting its focus on timing rather than outright prohibition, and observed the absence of specific antiwaiver provisions in New Mexico's mechanic's lien laws or statutory bans on conditional payment provisions seen in other states. The court also held that a single partial payment made by the Defendants to Plaintiff did not create an ambiguity in the contract or establish an intent to waive the "pay-if-paid" clause, as the contract was unambiguous under Texas law, and post-formation conduct wouldn't create ambiguity under New Mexico law. Finally, the court found additional support for its interpretation in a "termination clause" within the Subcontract Agreement, which broadly stipulated that if the primary contract was terminated, suspended, or delayed for any reason, the subcontractor's remedy would generally be to seek recovery from the owner, not the contractor, further indicating the parties' intent to shift the risk of owner non-payment to the subcontractor.