Young Electrical Contractors v. Dustin Construction (Ct. of Appeals)

Filed:  May 24, 2018

Opinion by:  Judge McDonald

Holding:

Maryland courts interpreting construction contracts under Virginia law will first look to the contract language and then to parol evidence to determine the intent of the parties regarding whether a construction subcontract contains a pay-when-paid or pay-if-paid clause.

Facts:

George Mason University (“Owner”) hired Dustin Construction (“General Contractor”) to renovate the school’s student union building, and General Contractor hired Young Electrical (“Subcontractor”) for the electrical work.

The Subcontract contained a provision “Contractor’s obligation to pay … Subcontractor … is contingent, as a condition precedent, upon Contractor’s receipt of payment from the Owner…” (Section 2(c)).

Subcontractor submitted cost increase requests to General Contractor, which submitted cost increase requests to Owner.  Owner rejected the request; General Contractor never paid the additional cost to Subcontractor.  Subcontractor sued General Contractor for breach of contract.  The Circuit Court for Montgomery County granted General Contractor’s motion for summary judgment.  Subcontractor appealed.

Analysis:

“Contract interpretation is governed by the law of the place of contract or the law chose by the parties.”  Cunningham v. Feinberg, 441 Md. 310, 326 (2015). However, the standard for summary judgment is governed by the law of the forum, in this case Maryland law. Goodwich v. Sinai Hosp. of Baltimore, Inc., 343 Md. 185, 204-207 (1996). Under the Maryland Rules, a circuit court may grant summary judgment only if there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Maryland Rule 2–501(f).

The Virginia Supreme Court has referenced Maryland law in examining the issue in this case.  The Maryland Court of Appeals relied on a 1962 Sixth Circuit case (Thos. J. Dyer Co. v. Bishop Int’l. Engineering Co.) when it examined the issue in Atl. States Const. Co. v. Drummond & Co. (1968) and Fishman Constr. Co. v. Hansen (1965).  In Maryland, Conditional Payment provisions are to be construed as timing provisions (pay-when-paid clauses) unless the contract language clearly indicates that the parties intended the clause to be a condition precedent (pay-if-paid clause). The Special Court of Appeals had affirmed the Circuit Court’s decision.  It held that Section 2(c) contained the “magic phrase” “condition precedent”.

The Court considered whether the General Contractor was entitled to summary judgment for the reason given by the Circuit Court and concluded it was not, then went through an analysis of the reason for summary judgement originally argued by the General Contractor. 

The full opinion is available PDF.