Construction contracts oftentimes and should contain conditions precedent to payment. Conditions precedent apply to both progress payments and final payment. The conditions precedent operate such that payment is NOT due until the conditions are satisfied. The satisfaction of the conditions precedent triggers the payor’s obligation to pay.
If a dispute arises due to the payee’s noncompliance with conditions precedent to payment, the noncompliance should be asserted with particularity in the answer and affirmative defenses. For example, if a subcontractor was required to provide lien waivers and releases as a condition precedent to payment, then this should be asserted with particularity as an affirmative defense. If the contractor’s receipt of payment from the owner was a condition precedent to payment to the subcontractor (pay-when-paid), then this should be asserted with particularity as an affirmative defense. Any noncompliance with a condition precedent should be identified as an affirmative defense.
An example of not pleading failure to comply with conditions precedent with particularity can be found in the recent case of Don Facciobene, Inc. v. Hough Roofing, Inc., 42 Fla. L. Weekly D1627a (Fla. 5th DCA 2017).
In this case, the contractor hired a roofer for a relatively quick job. The roofer started its work without a formalized subcontract (not uncommon). A subcontract was finally executed between the roofer and contractor when the roofer was virtually complete with its entire scope of work. The contract required conditions precedent to payment. The contractor did not pay the roofer due to the roofer’s failure to comply with the conditions precedent to payment and, then, certain offsets associated with alleged defective work.
The roofer initially claimed that the conditions precedent should not apply to work it performed and payments owed prior to the execution of the subcontract. The court dismissed this argument claiming that the subcontract applied retroactively (e.g., prior to the date the subcontractor started working) since the subcontract contained a merger clause. (Perhaps the parties could have even back-dated the subcontract which is not uncommon, e.g., “this subcontract is made and entered as of _______ [date]” even though it is signed after that date.) Nevertheless, the Fifth District held that the contractor failed to properly preserve its defense that the roofer failed to comply with conditions precedent because its affirmative defense stated that the roofer “failed to allege, nor can it establish that it met each and every condition precedent to recovering payment in this cause pursuant to its Complaint.” Because the contractor failed to allege with particularity which conditions precedent the roofer did not comply with or how the roofer failed to comply with them, the contractor failed to preserve its right to demand proof that the roofer satisfied conditions precedent to progress payments and final payment.
My guess is that it was apparent, and I mean apparent, that the contractor was relying on contractual conditions precedent. It is also unclear if the contractor recited the word “contractual” in this affirmative defense whether that would have been sufficient or the court specifically wanted the contractor to recite each and every condition precedent the roofer did not satisfy. Probably the latter. My guess is this issue was also fleshed out in written discovery, a deposition, or even at trial, meaning there was no surprise since the contractor had an affirmative defense on point. Regardless of whether this was a meritorious defense, the court was a stickler regarding the requirement to identify the noncompliance of the occurrence of conditions precedent.
Remember, when asserting a payee’s noncompliance with conditions precedent, identify the noncompliance with particularity! Do not generalize the defense!
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.