Skip to main content

Fixture Specialists, Inc. v. Global Construction, LLC

07-5614 (U.S. Dist. Ct. D. N.J. 2010) (Unpublished)

CONTRACTORS; SUBCONTRACTORS — Where an agreement between a contractor and a subcontractor affirmatively and unambiguously states that the contractor will never be obligated to pay its subcontractor under any circumstances unless and until funds are received by the contractor in full, receipt of such funds is a condition precedent to the contractor’s obligation to pay its subcontractor.

A general contractor was engaged to build a housing project. A surety company issued a labor and material payment bond for the project. Under the surety bond, the surety company was required to satisfy all claims for unpaid labor or materials. The general contractor engaged a subcontractor for plumbing work. Under their subcontract, the general contractor expressly had no obligation to pay the subcontractor unless and until funds in full had been received by the contractor to cover the work or material for which the subcontractor had submitted an application for payment. The contractor invoked this provision and withheld payment because it had yet to be paid by the project owner. The surety company likewise refused to pay the subcontractor, claiming it was entitled to the benefit of all defenses available to its principal, the general contractor.

On motion, the Court had to decide whether the agreement with the subcontractor established a condition precedent to any payment obligation of the general contractor or surety company, or whether it merely postponed payment for a reasonable time. It also needed to determine whether the provision conflicted with the anti-lien waiver provisions of the construction lien law. The Court held that for a subcontractor to assume the risk of collection, such a provision must be set forth in clear and unequivocal language in the subcontract. The Court held that this particular agreement had such language, as it recited that the contractor would never be obligated to pay the subcontractor under any circumstances unless and until funds were received by the contractor in full. The Court concluded this constituted a condition precedent to the contractor’s obligation to pay the subcontractor.

Further, the Court held that the anti-waiver provision of the construction lien law did not preclude the subcontractor from filing a construction lien against the project even though the general contractor’s obligation to pay the subcontractor had not matured because the condition precedent under the “pay when paid” provision had not been met.

As to the surety company’s obligation to pay, the Court held that such an obligation begins upon any default of some accrued obligation on the part of the principal; because a surety cannot be liable if its principal has not incurred liability. Here, the general contractor’s duty to pay had not accrued because the condition precedent had not been satisfied, and therefore the surety could pursue its defense that it was not obligated to pay on the bond until the general contractor became obligated to pay the subcontractor.

66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 •