Contract – Subcontractor’s Invoice – ‘Pay When Paid’ Provision – Unenforceable Condition Precedent

A provision in the contract between the defendant-general contractor and the plaintiff-subcontractor allowed the general contractor to withhold payment for the subcontractor’s work until the project owner paid the general contractor. This provision violated S.C. Code Ann. § 29-6-230’s clear prohibition on conditioning payment to a subcontractor upon the owner’s payment to the general contractor. The “pay when paid” provision is unenforceable.

We affirm judgment for the subcontractor.

There was no question about the amount of the subcontractor’s invoice or the quality of its work. The only reason the general contractor refused payment was the owner’s failure to pay.

Section 29-6-230 provides, “Notwithstanding any other provision of law, performance by a construction subcontractor in accordance with the provisions of its contract entitles the subcontractor to payment from the party with whom it contracts. The payment by the owner to the contractor or the payment by the contractor to another subcontractor or supplier is not, in either case, a condition precedent for payment to the construction subcontractor. Any agreement to the contrary is not enforceable.”

The parties’ subcontract provided, “Final payment of the balance due shall be made to [the subcontractor] no later than seven (7) days after receipt by [the general contractor] of final payment from Owner [for the subcontractor’s] work.” The general contractor used this “pay when paid” provision to condition its payment to the subcontractor upon its first receiving payment from the owner. The clause created a condition precedent for payment to the subcontractor in violation of § 29-6-230 and was unenforceable.

Elk & Jacobs Drywall v. Town Contractors, Inc., 267 S.C. 412, 229 S.E.2d 260 (1976), does not require a contrary result. Not only was Elk decided almost 25 years before the passage of § 29-6-230, but Elk also limited a “pay when paid” provision to a reasonable period, not the indefinite delay sought by the general contractor here.

A reasonable delay in payment could not exceed the time in which the subcontractor had to file a mechanics’ lien in order to protect its rights.

Finally, the general contractor did not challenge the merits of the claim, yet it refused to pay. The general contractor failed to conduct a reasonable and fair investigation into the merits of the claim under S.C. Code Ann. § 27-1-15. Consequently, the subcontractor is entitled to attorney’s fees pursuant to § 27-1-15.

Affirmed.

J&H Grading & Paving, Inc. v. Clayton Construction Co. (Lawyers Weekly No. 011-069-23, 10 pp.) (Jerry Vinson, J.) Appealed from Lexington County Circuit Court (Walton McLeod, J.) Townes Boyd Johnson for appellant; Wesley Dickinson Peel and Chelsea Jaqueline Clark for respondent. South Carolina Court of Appeals