185 A.3d 170
Md.2018Background
- George Mason University (owner) contracted with Dustin Construction (general contractor) for a Virginia state project; Dustin subcontracted electrical work to Young Electrical. The subcontract selected Virginia law.
- Young submitted change requests (CR 1066 and CR 1067) for delay/disruption and extended overhead; Dustin submitted proposed change orders to George Mason, which ultimately did not pay Dustin on those items.
- Young sued Dustin in Maryland circuit court for breach of the subcontract seeking payment for the contested change work; Dustin moved for summary judgment pre-discovery.
- The circuit court granted summary judgment for Dustin based on §2(c) of the subcontract (which used the phrase “condition precedent”) and a Virginia prompt-payment provision incorporated in the prime contract; neither party had relied on §2(c) in briefing.
- The Court of Special Appeals affirmed, construing §2(c) as a pay‑if‑paid clause and treating other subcontract provisions (§13(c), §27(f)) as either pay‑when‑paid or subject to §2(c).
- The Maryland Court of Appeals (applying Virginia substantive law and Maryland procedural law) vacated and remanded, holding (1) §2(c) is limited to the Subcontract Sum and may not cover the damages Young sought, and (2) §37(a)(1) (the prompt-payment statute) does not create a condition precedent. The court declined to affirm on alternative grounds because factual development and possible parol evidence are needed to resolve whether §13(c) or §27(f) are pay‑if‑paid clauses.
Issues
| Issue | Plaintiff's Argument (Young) | Defendant's Argument (Dustin) | Held |
|---|---|---|---|
| Whether §2(c) creates a pay‑if‑paid defense covering Young’s claimed damages | §2(c) does not govern all claimed damages; Young’s claims (delay, disruption, overtime) lie outside the Subcontract Sum | §2(c) conditions Dustin’s obligation to pay on receipt of payment from the Owner, barring recovery because Owner didn’t pay | Court: §2(c) is a pay‑if‑paid clause limited to the Subcontract Sum and does not necessarily apply to Young’s asserted damages; summary judgment on that basis was erroneous |
| Whether §13(c) and §27(f) are pay‑if‑paid or pay‑when‑paid clauses | These provisions do not clearly shift owner nonpayment risk; they may be timing provisions or ambiguous | §13(c) and §27(f) shift liability to the owner and bar recovery because Owner didn’t pay | Court: Unclear on current record; provisions could be latently ambiguous under Virginia law and may require parol evidence — summary judgment inappropriate |
| Whether §37(a)(1) (Virginia prompt‑payment term) creates a condition precedent | N/A (Young argued against using prompt‑payment as a waiver) | §37(a)(1) supports that subcontractor recovery depends on Owner payment | Court: §37(a)(1) implements Virginia prompt‑payment statute and does not create a condition precedent; not a basis for summary judgment |
| Whether summary judgment was proper before discovery | Young: Pre‑discovery grant deprived Young of developing facts (who caused delays, Owner vs. Contractor responsibility) | Dustin: Facts undisputed and Owner denied the change orders, so summary judgment appropriate | Court: Reversed — factual disputes and need for discovery (and possible parol evidence under Virginia law) preclude summary judgment on record presented |
Key Cases Cited
- Thos. J. Dyer Co. v. Bishop Int’l Eng’g Co., 303 F.2d 655 (6th Cir. 1962) (establishes majority rule favoring construction of conditional payment clauses as timing provisions absent clear language shifting owner insolvency risk)
- Galloway Corp. v. S.B. Ballard Const. Co., 464 S.E.2d 349 (Va. 1995) (Virginia treats ambiguous owner‑payment clauses as latent ambiguities and permits parol evidence to determine if clause is pay‑if‑paid)
- Gilbane Bldg. Co. v. Brisk Waterproofing Co., 86 Md. App. 21 (1991) (Court of Special Appeals: language referencing a ‘condition precedent’ can shift owner nonpayment risk to subcontractor)
- Atl. States Const. Co. v. Drummond & Co., 251 Md. 77 (1968) (Maryland appellate authority relying on Dyer to construe conditional payment clauses as timing provisions absent clear intent to shift risk)