Peacock Construction Co. v. Modern Air Conditioning, Inc.

Supreme Court of Florida
353 So.2d 840 (1977)

ELI5:

Rule of Law:

An ambiguous subcontract provision stating payment is contingent upon the owner paying the general contractor will be interpreted as setting a reasonable time for payment, not as a condition precedent shifting the risk of owner nonpayment to the subcontractor. To shift this risk, the contract must state this intention unambiguously, and the burden of clear expression is on the general contractor.

Facts:

Peacock Construction Company, Inc. was the general contractor for a condominium project.
Peacock subcontracted with Modern Air Conditioning, Inc. for heating and air conditioning work and with Overly Manufacturing Company for rooftop swimming pool work.
Both written subcontracts contained an identical clause stating Peacock would make final payment 'within 30 days after the completion of the work..., written acceptance by the Architect and full payment therefor by the Owner.'
Both Modern Air Conditioning and Overly Manufacturing fully completed their work as specified in their contracts.
The project owner entered bankruptcy proceedings and failed to make full payment to Peacock for the subcontractors' work.
Citing the owner's nonpayment, Peacock refused to make final payments to either subcontractor.

Procedural Posture:

Modern Air Conditioning, Inc. and Overly Manufacturing Company each filed separate breach of contract actions against Peacock Construction Company, Inc. in the Lee County Circuit Court (trial court).
In both cases, the trial court judges granted summary judgment in favor of the subcontractors.
Peacock Construction (as appellant) appealed both judgments to the Second District Court of Appeal.
The Second District Court of Appeal affirmed the summary judgment in the Modern Air Conditioning case.
Subsequently, the Second District Court of Appeal affirmed the judgment in the Overly Manufacturing case, citing its decision in the Modern Air Conditioning appeal.
Peacock Construction (as petitioner) sought certiorari from the Supreme Court of Florida, arguing the appellate decisions conflicted with a prior decision from another district court of appeal.

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Issue:

Does a subcontract provision stating that final payment will be made 'within 30 days after... full payment therefor by the Owner' create a condition precedent to the general contractor's duty to pay, or does it merely establish a reasonable time for payment?

Opinions:

Majority - Boyd, Acting Chief Justice

No, the provision fixes a reasonable time for payment and is not a condition precedent. The court holds that while the language is susceptible to two interpretations, the interpretation of such standard contracts between general and subcontractors is a question of law for the court, not a question of fact for a jury. The court adopts the majority view that the intent in these relationships is typically not to shift the risk of owner nonpayment to the subcontractor, as small subcontractors rely on timely payment to remain in business and cannot ordinarily assume such a risk. Therefore, to transfer this risk, the contract must express this intent in clear and unambiguous terms. The burden of drafting such an unambiguous provision falls on the general contractor.

Analysis:

This decision establishes a significant default rule in Florida for the interpretation of 'pay-when-paid' clauses in construction contracts. By treating the issue as a matter of law rather than fact, the court promotes uniformity and predictability, preventing costly litigation over the parties' intent in every case. The ruling provides critical protection for subcontractors by presuming they do not bear the risk of owner insolvency unless they explicitly agree to do so in unambiguous language. This forces general contractors, who are typically in a better position to assess and manage the risk of owner default, to be explicit if they wish to create a true 'pay-if-paid' condition precedent.

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