District of Columbia Court of Appeals Holds Prime Contractor Cannot Rely on “Pay-if-paid” Clause If it Fails to Protect Subcontractor’s Interest in Settlement with General Contractor

Urban Masonry Corporation, Appellant, N&N Contractors, Inc., Appellee,
676 A.2d 26 (D.C. App. 1996)

In November 1990, Urban Masonry Corporation (Urban) subcontracted with N&N Contractors, Inc., (N&N) to install concrete panels on a major construction project in the District of Columbia. Urban was the subcontractor of the general contractor, Blake Construction Company, and N&N was a subcontractor of Urban. The panels were to be supplied by Blake.
Upon installation of the concrete panels it became obvious that the panels were smaller than anticipated, therefore, additional pieces would be needed to complete the project. Because this was beyond the scope of the original agreement, it was agreed between Urban and N&N, that Urban would pay additional compensation for installing extra panels. In fact, Urban’s Project Manager sent a “speed memo” affirming the compensation, and Urban’s President sent a letter acknowledging the request for compensation and promised to pass on the claim to the general contractor (Blake). Subsequently, Urban made a settlement with Blake which did not include compensation for N&N’s claims in November 1991.

Urban refused to pay N&N for the extra work, and N&N brought an action for breach of contract. The trial court granted N&N’s motion for partial summary judgment on the issue of payment for the additional work, and at a later hearing the trial court awarded damages to N&N.

Urban challenged the partial summary judgment ruling. Urban contended that the grant of summary judgment was improper because the parties had differing interpretations of the clause defining N&N’s work, and these contrary interpretations demonstrated that the provision was ambiguous, and that the trial courtshould not have considered extrinsic evidence (i.e., the “speed memo”) when deciding a motion for summary judgment. However, the court rejected this contention, stating that parties’ differing interpretations of the contract did not establish that an ambiguity existed, and that the trial court in deciding the summary judgment motion properly considered the “speed memo” when resolving the motion.

Finally, Urban challenged the jury award of interest on N&N’s claim on the basis that the verdict ignored the “pay if paid” clause of the Urban/N&N subcontract. It maintained that it was relieved of its obligation to pay for the work because it never received payment from Blake.

The court rejected this contention because the condition precedent, if it was met, was satisfied in November 1991 when Urban settled with Blake. Moreover, if the settlement did not satisfy the condition precedent of the “pay-if-paid” clause, then the condition did not apply because Urban had breached the contract by failing to protect N&N’s interest in the settlement agreement.

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