Masonry Magazine June 1998 Page. 35
These two California decisions follow on the heels of a successful but more narrowly defined victory in Tennessee a year earlier. The Tennessee Supreme Court ruled in favor of Commercial Painting Company Inc. that, generally, pay-when-paid language establishes a time for payment rather than a condition precedent to payment. The decision in Mark Koch d/b/a Commercial Painting Company, Inc., Construction Technology, Inc., and Fidelity and Deposit Company of Maryland, No. 02501-9508-CV-00069 (Tenn. filed May 20, 1996) restricted for the first time in nearly 100 years the Hussey v. Crasss, 53 S.W. 986 (Tenn. Ch. App. 1899) decision.
Ruling in favor of the subcontractor, the Supreme Court reversed the Tennessee Court of Appeals decision that held that the payment language in the subcontract was an absolute bar to the subcontractor's recovery against the contractor as well as its surety in a situation in which the contractor had not received corresponding payment from the owner. It also set out that, absent clear language so stating, Tennessee law will interpret pay-when-paid language only to establish a time for payment, so when a reasonable time for payment has passed, payment to the subcontractor will be due.
In reaching this favorable conclusion, the court was persuaded by and comprehensively cited from the amicus brief that was submitted by ASA, and ASA-Middle Tennessee and ASA of West Tennessee chapters. The Tennessee Supreme Court went on to conclude that "with these rules in mind, we conclude that the language here does not evidence the party's intention to shift the risk of the owner's nonperformance from the general contractor to the subcontractor with sufficient clarity to qualify as a condition precedent."
New York courts also have ruled in favor of subcontractors regarding contingent payment. In December 1995, the New York Court of Appeals, the state's highest appellate court, issued an advisory decision declaring pay-if-paid clauses in construction contracts to be in violation of public policy. The decision came in the case of West-Fair Electric Contractors and L.J. Coppola, Inc. vs. Aetna Casualty and Surety Company and Gilbane Building Co. a case that resulted from a failed shopping mall project in White Plains, N.Y.
The judicial branch of government indeed has a long history of deciding contingent payment issues. These new chapters in the battle to eliminate pay-if-paid clauses have their roots in Southern States Masonry, Inc. vs. J.A. Jones Constr. Co., one of a series of cases that arose out of the bankruptcy of the Louisiana World Exposition Inc. (LWE), the owner of the 1984 Louisiana World's Fair. The Louisiana Supreme Court held that neither subcontract "recited or clearly implied, that the subcontractor was, in effect, an insurer of LWE's solvency. O Rather the better reasoned view is that the provisions create terms for payment which at most retard the execution of contractorsí obligation." Judicial branch involvement continues even as of press time with the Colorado Supreme Court, which is reviewing a pay-if-paid case in which a lower court in effect turned a pay-when-paid clause into a pay-if-paid clause.
State legislatures have been equally vocal about the issue of contingent Continued on next page, first column
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