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Wednesday, November 24, 2010

If explicit enough, court will enforce condition precedent

A It is often said that conditions precedent are not favored in contract law, and must be stated extremely clearly if they are to be given effect. Cases like Peacock Construction Co. v. Modern Air Conditioning, Inc., 353 So. 2d 840 (Fla. 1977), are casebook staples. In Peacock Construction, a contract provision provided that a subcontractor would be paid after the prime contractor itself was paid by the owner (a "pay-when-paid" clause).  The court held that this did not create a condition precedent, and thus that the prime was required to pay the sub whether it received money from the owner or not. The Peacock Construction court noted that a prime could make such a provision a condition precedent, but that the agreement "must unambiguously express that intention" and the contractor bears "the burden of clear expression."

Well, a recent decision by the Alabama Supreme Court, Lemoine Co. v. HLH Constructors, No. 1090847 (Ala. Nov. 19, 2010), 2010 Ala. LEXIS 215, shows an example of that clear expression.  It was again a prime-sub dispute, and it included a pay-when-paid clause. But this time the contract contained the following clause:

Notwithstanding anything else in this Subcontract or the Contract Documents, the obligation of [Prime] to make any payment under this Subcontract . . . is subject to the express and absolute condition precedent of payment by [Owner]. It is expressly agreed that [Prime] and its surety shall have no obligation to pay for any work done on this Project, until [Prime] has received payment for such work from [Owner]. . . . [Sub] expressly assumes the risk of nonpayment by [Owner].

This, said the Court in an opinion by Justice Thomas Woodall, is pretty darned clear. While Sub cited a host of condition precedent cases, all had relied on birnak pay-when-paid clauses.  Where, as here, the parties have expressly allocated the risk of nonpayment, said the court, those cases do not apply.

FGS

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