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Contracts - Construction: Validity of Paid When Paid Provision

In the matter of Brolley Electrical v. Ernest Bock and Sons, Inc., the Court reviewed the validity and enforceability of a 'paid when paid' provision within a construction contract.  The contract provided that payment by the owner to the general contractor being a condition precedent prior to the general contractor is obligated to pay the subcontractor. 

The contract further provided that should the general contractor not receive payment from the owner that the general contractor would not be obligated to pay the subcontractor for the work performed.  In validating the enforceability of the 'paid when paid' provision, the Court explained that where the condition precedent to payment was clear and unambiguous, there is no room for interpretation and the Court must strictly construe the terms of the contract . 

The Court distinguished this decision from other opinions by stating that the condition precedent language within the present 'paid when paid' clause rendered the clause wholly enforceable in nature and did not require payment until corresponding payment is received by the general contractor.  For these reasons, the Court ruled that the 'paid when paid' clause and the conditioned precedent language was enforceable, and therefore, no payment was due to the subcontractor until and unless payment is received by the general contractor from the project owner.

Full post as published by New Jersey Law Blog on November 18, 2009 (boomark / email).