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Brolley Electrical, Inc. v. Ernest Bock and Sons, Inc.

GLO-L-1079-04 (N.J. Super. Law Div. 2009) (Unpublished)

CONTRACTORS; SUBCONTRACTORS — Normally the solvency of a contracting property owner is a credit risk borne by a general contractor and not by a subcontractor working for a general contractor, but the contractor and subcontractor may shift that credit risk by including a clear and unequivocal express condition to that effect in their own contract.

A general contractor engaged a subcontractor to install an HVAC system for a property owner. The subcontract said that payment by the owner to the general contractor was a “condition precedent” to the general contractor’s obligation to pay its subcontractor. The subcontract further provided that in the event that owner failed to pay the general contractor for work completed by the subcontractor, the general contractor would not be obligated to pay subcontractor until payment actually was received from the owner. When the owner failed to pay, the subcontractor sued the general contractor for payment. The general contractor responded with a summary judgment motion against the subcontractor claiming the contractual condition precedent for payment had not been satisfied.

The lower court granted the general contractor’s motion and dismissed the subcontractor’s suit. In doing so, it held that when interpreting contracts, technical terms or words of art will be given their technical meaning unless the context or local usage shows a contrary intention. No contrary intention was shown in the instant case. Normally, the solvency of the owner is typically a credit risk borne by a general contractor. To transfer this normal credit risk to a subcontractor, the contract between the general contractor and subcontractor must contain an express condition that clearly and unequivocally showing the intention of the parties to shift the collection risk. A shift in collection risk cannot be assumed or inferred. Here, the Court found that the “condition precedent” and “pay when paid” clauses in the contract between the parties were, in fact, clear and unambiguous. It found that the contract’s language expressed the intent of each party that the general contractor had to be paid before the general contractor would be required to pay its subcontractor. Accordingly, since the terms of the contract were clear and unambiguous, and there was no room for interpretation or construction, the Court was compelled to enforce the terms as written.

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