What you need to know:
- Conditions precedent are used frequently in construction contracts.
- A “condition precedent” is something that must occur before performance by one party becomes due. For example, a contractor’s contract with a subcontractor may state, “Receipt of owner’s payment is a condition precedent to contractor’s obligation to pay subcontractor.” Courts will typically enforce conditions that are clear and unambiguous.
In Team Land Development, Inc. v. Anzac Contractors, Inc., 811 So. 2d 698 (Fla. 3rd DCA 2002), the general contractor, Team Land Development, Inc. (“GC”), entered into a subcontract with Anzac Contractors, Inc. (“Subcontractor”) for work to be completed on a project for a discharge canal. Subcontractor timely completed all work required under the subcontract. Subcontractor sought payment from GC.
After several months of non-payment, Subcontractor filed suit against both GC and the GC’s surety. Shortly thereafter, the project owner paid GC, and GC issued a check for full final payment to Subcontractor but held the check in escrow. GC conditioned delivery of the check upon Subcontractor complying with the subcontract’s requirement for Subcontractor to provide releases in “satisfactory” form. Subcontractor never provided the releases.
The trial court found that the subcontract language concerning releases was ambiguous. The court applied the general rule that where a contract is ambiguous it will be construed against the drafting party, which was GC. Thus, the court ruled that Subcontractor was excused from the obligation to sign a release prior to receiving payment. GC appealed.
On appeal, the court disagreed with the trial court, finding that the release provision in the subcontract was not ambiguous. Further, the appellate court stated that even if the provision was ambiguous, the trial court should have interpreted the provision to give it effect rather than invalidating it because “[i]t is reasonable and customary for a contractor to require a release from its subcontractor as a condition precedent to payment.” Because Subcontractor had not provided the required releases to GC, the appellate court determined that Subcontractor was not entitled to payment from either GC or GC’s surety.
It is typical for a construction contract to require that the payee furnish releases as a condition to payment. Construction contracts often contain other conditions precedent to payment, too. Approval of the work by the owner and/or architect, current proof of insurance, and updated plans for the payee’s scope are not unusual. Proper care should be given to negotiating and understanding the terms of a contract before signing. Otherwise, a simple – but mandatory – action, such as providing a release, could stand between you and payment.
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