Transtar Elec., Inc. v. A.E.M. Elec. Servs. Corp. (Slip Opinion)
140 Ohio St. 3d 193
| Ohio | 2014Background
- A.E.M. (general contractor) contracted with Transtar (subcontractor) for electrical work on a Holiday Inn pool project; Transtar completed work and invoiced A.E.M.
- Transtar was paid in part ($142,620.10) but A.E.M. withheld final $44,088.90 because the project owner had not paid A.E.M.
- The subcontract’s Section 4 stated: "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."
- Transtar sued A.E.M. for breach of contract and related claims; both parties moved for summary judgment.
- Trial court granted summary judgment for A.E.M.; Sixth District reversed, holding the clause was not sufficiently explicit to shift risk to the subcontractor.
- Ohio Supreme Court reversed the Sixth District and reinstated the trial court: the "condition precedent" language creates an enforceable pay‑if‑paid clause shifting owner nonpayment risk to the subcontractor.
Issues
| Issue | Plaintiff's Argument (Transtar) | Defendant's Argument (A.E.M.) | Held |
|---|---|---|---|
| Whether the subcontract’s payment clause is a pay‑if‑paid provision | Clause is not specific enough to shift owner‑nonpayment risk; A.E.M. must pay regardless | The clause makes owner payment a "condition precedent," so A.E.M. need not pay unless owner pays | Use of "condition precedent" makes the clause a pay‑if‑paid provision; A.E.M. entitled to summary judgment |
| Whether the term "condition precedent" alone suffices to show intent to shift risk | Absent explicit assumption‑of‑risk language, ambiguity remains and summary judgment is improper | The phrase "condition precedent" unambiguously shows mutual intent to transfer risk; no additional wording required | "Condition precedent" language is sufficiently clear to transfer risk of owner nonpayment to subcontractor |
Key Cases Cited
- Thos. J. Dyer Co. v. Bishop Internatl. Eng. Co., 303 F.2d 655 (6th Cir. 1962) (holds parties must clearly express intent to make owner payment a condition precedent to absolve contractor’s payment duty)
- Sloan & Co. v. Liberty Mut. Ins. Co., 653 F.3d 175 (3rd Cir. 2011) (upholds contract language stating occurrences are "conditions precedent" as creating a pay‑if‑paid clause)
- Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App.3d 784 (10th Dist. 2011) (refused to find pay‑if‑paid where contract did not expressly make owner payment a condition precedent)
- BMD Contractors, Inc. v. Fidelity & Deposit Co. of Md., 679 F.3d 643 (7th Cir. 2012) (explains that expressly conditioning subcontractor payment on contractor’s receipt from owner shows unambiguous intent to allocate risk)
- MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257 (10th Cir. 2006) (reasoning that omission of redundant risk language does not negate a clear condition‑precedent pay clause)