Young Electrical Contractors, Inc. v. Dustin Construction, Inc.
151 A.3d 32
| Md. Ct. Spec. App. | 2016Background
- Young Electrical (subcontractor) agreed to perform electrical work for Dustin (general contractor) on a George Mason University (owner) project; delays caused Young to miss the subcontract completion date and incur extra costs.
- Young submitted Change Requests Nos. 1066 and 1067 seeking additional compensation for extended overhead, owner-initiated design changes, and unforeseen conditions; Dustin submitted those requests to George Mason but the owner denied them.
- The Subcontract contains multiple payment provisions including Section 2(c) (general payments: contractor’s obligation contingent on contractor’s receipt of payment from owner), Section 13(c) (owner‑initiated changes: contractor pays subcontractor the amount paid by owner), and Section 27(f) (contractor liable only for amounts recovered from owner on subcontractor’s behalf).
- Young sued Dustin for breach of subcontract after George Mason denied the change requests and Dustin did not pay; Dustin moved for summary judgment relying on pay‑when‑paid provisions.
- The circuit court granted summary judgment for Dustin; the Court of Special Appeals affirmed, holding the pay‑when‑paid clauses (read together) made payment to Young conditional on Dustin’s receipt of payment from George Mason, and the Change Requests were owner‑initiated and therefore subject to those clauses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of pay‑when‑paid clauses | Young: Section 2(c) (relied on by court) is inapplicable to disputed change claims; other sections must be read together and prevent a condition precedent for these claims | Dustin: Sections 2(c), 13(c), and 27(f) each impose payment contingent on owner payment | Court: Pay‑when‑paid clauses valid under Virginia law; Section 2(c) creates an express condition precedent shifting credit risk to subcontractor |
| Applicability of clauses to change requests | Young: Section 13(c) governs changes and lacks express condition precedent; applying Section 2(c) to 13(c) is improper | Dustin: Section 2(c) is a general payments clause that applies to all payments including change orders; Sections 13(c) and 27(f) also limit Dustin’s liability | Court: Read together, Sections 2(c), 13(c), and 27(f) render payment for owner‑initiated changes contingent on Dustin's receipt of payment from owner; summary judgment proper because owner denied payment |
| Whether changes were owner‑initiated (factual dispute) | Young: There are factual disputes over whether the overruns were caused by owner or Dustin, precluding summary judgment | Dustin: Change Requests themselves attribute overruns to owner actions; affidavits and submissions show submissions to owner | Court: No genuine dispute—the Change Requests expressly attribute costs to owner‑initiated changes; therefore the clauses apply and bar recovery |
| Equivalence to "paid‑if‑paid" / prevention doctrine / discovery timing | Young: Court relied on wrong clause and entered judgment before discovery; alternative clause could be "paid‑if‑paid" which shifts risk more severely; prevention doctrine and lack of administrative procedures may bar summary judgment | Dustin: Followed subcontract procedures and submitted claims to owner; no discovery needed to establish owner denial and contractual terms | Court: No error; Section 2(c) operated as a condition precedent (not merely timing), and summary judgment was appropriate without further discovery |
Key Cases Cited
- Thos. J. Dyer Co. v. Bishop Int’l Eng’g Co., 303 F.2d 655 (6th Cir. 1962) (seminal discussion of pay‑when‑paid language and allocation of owner credit risk)
- Galloway Corp. v. S.B. Ballard Constr. Co., 464 S.E.2d 349 (Va. 1995) (pay‑when‑paid clauses upheld where contract contemplates eventual payment or clearly establishes condition precedent)
- Gilbane Bldg. Co. v. Brisk Waterproofing Co., Inc., 86 Md. App. 21 (Md. Ct. Spec. App. 1991) (condition precedent requires unambiguous contract language shifting credit risk)
- Atlantic Contracting & Material Co. v. Ulico Cas. Co., 380 Md. 285 (Md. 2004) (contract terms must be read together; interpret provisions in context)
- Atlantic States Constr. Co. v. Drummond & Co., 251 Md. 77 (Md. 1968) (discussion of pay‑when‑paid clauses and their effect on timing versus risk allocation)