Summary
The Maryland Court of Appeals held that a circuit court improperly granted summary judgment to a general contractor based on a pay-if-paid provision in a construction subcontract governed by Virginia law. The court concluded that the provision did not necessarily apply to the subcontractor’s claimed damages and declined to affirm on alternative grounds under Maryland summary-judgment procedure. The judgment of the Court of Special Appeals was vacated, and the case was remanded for further factual development.
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Practice areas
Questions Presented
- Whether the subcontract's §2(c) pay-if-paid provision necessarily applied to the delay, disruption, extended-overhead, additional-work, and overtime damages sought by Young.
- Whether §37(a)(1) of the standard Virginia procurement terms created a condition precedent to Dustin's payment obligation.
- Whether summary judgment could be affirmed on the alternative ground that §§13(c) and 27(f) of the subcontract were pay-if-paid provisions barring Young's claims because George Mason had not paid Dustin.
- Whether the circuit court erred by granting summary judgment before discovery when material factual issues remained concerning the causes of delay, owner-initiated changes, and the owner's response to the proposed change orders.
Holdings
- Section 2(c) is a pay-if-paid clause, but it applies to the defined Subcontract Sum and does not necessarily apply to the damages sought by Young. Because the record did not establish that the disputed damages were part of the Subcontract Sum, §2(c) could not support summary judgment.
- Section 37(a)(1) did not create a condition precedent to payment and did not support summary judgment for Dustin.
- The Court of Appeals declined to affirm on the alternative grounds because the circuit court would not have been required to grant summary judgment on the existing record. The provisions could be construed as pay-when-paid clauses, or they could contain latent ambiguities requiring parol evidence under Virginia law.
Key quotations
“We hold that the pay-if-paid clause relied upon by the Circuit Court, which was cited by neither party in motion papers or argument concerning summary judgment, does not necessarily apply to the issues in this case. Moreover, consistent with Maryland law concerning review of awards of summary judgment, we decline to seek other reasons to affirm the Circuit Court’s decision.” (459 Md. at 356; 185 A.3d at 170)
“Section 2(c) is a pay-if-paid clause applicable to the Subcontract Sum and does not necessarily apply to the costs at issue in this case; §37(a)(1) incorporates a prompt payment provision of Virginia statutory law and does not create a condition precedent for payment of subcontractors.” (459 Md. at 384; 185 A.3d at 184)
Factual background
George Mason University contracted with Dustin Construction, Inc. to renovate a student union building in Virginia, and Dustin subcontracted the electrical work to Young Electrical Contractors, Inc. Young completed its work substantially later than the scheduled completion date and submitted change requests seeking additional compensation for extended overhead, delay, disruption, additional work, and overtime. Dustin did not pay the amounts sought, and George Mason did not pay Dustin for the relevant proposed change orders. Young sued Dustin for breach of contract, but the circuit court granted summary judgment before discovery.
Procedural history
Young sued Dustin in the Circuit Court for Montgomery County, alleging breach of the electrical subcontract and seeking payment for additional work, overtime, delay, disruption, and extended overhead costs. Before discovery, the circuit court granted Dustin summary judgment based primarily on a pay-if-paid provision that neither party had relied on in the summary-judgment papers or argument. The Court of Special Appeals affirmed on a reported opinion, and the Court of Appeals vacated that judgment and remanded for further factual development.
Remand instructions
Vacate the judgment of the Court of Special Appeals and remand with instructions to remand the case to the Circuit Court for Montgomery County for further proceedings and factual development consistent with the opinion. Costs were assessed against Dustin.