Reader Vance Koven prodded me to look at this post by Marianna Brown Bettman on her blog Legally Speaking Ohio (via this post on ContractsProf Blog). It’s about an appellate decision involving a contract between a general contractor and a subcontractor. Here’s the language at issue:
Receipt of payment by contractor from the owner for work performed by subcontractor is a condition precedent to payment by contractor to subcontractor for that work.
The trial court held that this was a “pay-if-paid” provision, in that it transferred to the subcontractor the risk that the owner fails to pay. The first appellate court reversed, holding that the language wasn’t clear. The Supreme Court of Ohio then reversed the first appellate court, with two judges dissenting.
My question is, what made the subcontractor think there was anything unclear about this language? And why did this dispute have to go through three courts? The meaning of the language at issue seems as clear as can be, although if I had been the drafter I would have used just “condition” instead of “condition precedent,” which is unnecessarily legalistic.
This case goes to show that no matter how clear contract language is, someone might opt to pick a fight over it. It also goes to show that you can’t count on courts to interpret contract language sensibly. So this sort of unnecessary dispute would seem to be a risk of entering into contracts.
By the way, the Supreme Court contrasted “pay-if-paid” provisions with “pay-when-paid” provisions, saying as follows: “An unconditional promise to pay is a pay-when-paid payment provision. Such a promise is not dependent on or modified by the owner’s nonpayment.” Calling such provisions “pay-when-paid” is seriously misleading, as the contractor has to pay whether or not it’s paid. I’d call such provisions “pay-whether-or-not-paid,” or some such.