Purported “Pay if Paid” Clause Found Unenforceable
Kegler Brown Construction Newsletter July 1, 2012
The Tenth District Court of Appeals ruled on September 29, 2011, that an enforceable “pay if paid” clause in Ohio must unambiguously state:
- Payment to the contractor is a condition precedent to payment to the subcontractor;
- The subcontractor is to bear the risk of the owner’s non-payment; or
- The subcontractor is to be paid exclusively out of a fund the sole source of which is the owner’s payment to the subcontractor.
Evans, Mechwart, Hambleton v. Triad Arch., 196 Ohio App.3d 784. As a result, the “pay if paid” clause in that case failed.
In another recent case, a subcontractor beat a purported “pay if paid” clause that used the words “expressly conditioned” rather than “condition precedent” or “if and only if.” The trial court cited the Evans decision and found that the contingent payment clause was simply a “pay when paid” provision obligating the general contractor to pay within a reasonable period of time. Acoustic Ceiling & Partition v. Continental Building, Case No. 10CVH 04-6203, Franklin County Common Pleas Court (Oct. 24, 2011).