In Schuler-Haas Elec. Corp. v. Aetna Cas. & Sur. Co., 49 A.D.2d 60371 N.Y.S.2d 207 (4th Dep't 1975), aff'd, 40 N.Y.2d 883, 389 N.Y.S.2d 348, 357 N.E.2d 1003 (Ct. App. 1976), the appellate division states:
There is no doubt that if the parties clearly expressed an intention that no subcontractor (as the plaintiff) should have a right to be paid or to sue on the payment bond until all questions relating to the contracts have been resolved and the owner has made his final payment due under the contract to the general contractor, such agreement would be binding, and it would constitute a condition precedent to plaintiff's action against the surety. . . .
. . . In the absence of a clear expression in the contract papers that the credit risk of the general contractor and the delay in payment frequently attending on construction projects are meant to be shifted to such suppliers and subcontactors, the contract instruments should not be construed as intending such assumption. Indeed, it is presumed that the parties did not intend that payment of the small subcontractors should await the determination of an extended legal dispute between the owner and general contactor over an issue not concerning him or his work.
Id. at 210. (citations omitted). In Schuler-Haas, the court determined that the contract did not clearly express the parties' intention that the subcontractor did not have a right to be paid or to sue on the payment bond until all questions relating to the general contract had been resolved. Consequently, summary judgment was granted for the subcontractor plaintiff. See also Action Interiors, Inc. v. Component Assembly Systems, Inc., 144 A.D.2d 606, 535 N.Y.S.2d 55 (2d Dep't 1988); Grossman Steel and Aluminum Corp. v. Samson Window Corp., 78 A.D.2d 871, 433 N.Y.S.2d 31 (2d Dep't 1980), aff'd, 54 N.Y.2d 653, 442 N.Y.S.2d 769, 426 N.E.2d 176 (Ct. App. 1981).
However, in Riverside Iron Works v. Ins. Co. of North America, 156 A.D.2d 919, 549 N.Y.S.2d 877 (3d Dep't 1989), recovery was denied where the payment clause stated:
All payments called for in this Subcontract by [Contractor] to Subcontractor . . . are contingent upon . . . the conditions precedent of prior receipt by [Contractor] of payment from Owner . . . . Subcontractor understands, acknowledges, and agrees to expressly accept the risk that it will not be paid for its Work performed . . . to the extent [Contractor] is not fully paid by Owner for any reason whatsoever, whether or not such reasons are related to subcontractor's work.
Id. at 878. See also C.F. Mentzinger's Son Inc. v. Federal Ins. Co., Sup. Ct. Nassau Cty. (Index No. 27639/90) (construing the identical "pay when paid" clauses as are found in the instant case, but with allegations [not found in this case] that the contractor's non-payment was due, at least in part, to deficiencies in the subcontractor's work); North Berry Structures Co., Inc. & SAF Lasala Corp. v. Fed. Ins. Co., et al., Sup. Ct., Nassau Cty. (Index No. 17175/90) (same).
This Court finds that the "pay when paid" clauses in the Howell/Sims subcontract do not express the parties' intentions to shift to the subcontractor the risk of the Owner's failure to pay the general contractor when the reason for the non-payment is unrelated to the subcontractor's work as clearly and unambiguously as does the "pay when paid" clause in Riverside Iron Works. Whether the "pay when paid" clauses at issue in this case are nevertheless sufficiently clear to shift that risk is a close question. Consequently, "intent becomes an issue of fact and summary judgment is inappropriate." Thompson v. Gjivoje, 896 F.2d 716, 721 (2d Cir. 1990); see Record Club of America, Inc. v. United Artists Records, Inc., 890 F.2d 1264, 1271-72 (2d Cir. 1989).
Finally, Sims argues that even if the "pay when paid" clauses are valid, Howell, by entering into a Modification Agreement with Colony Hill on or about July 2, 1990 for Howell's own benefit and without notification to Sims, invalidated those clauses. Cf. Van Valkenburgh, Nooqer & Neville, Inc. v. Hayden Publishing Co., 30 N.Y.2d 34, 330 N.Y.S.2d 329, 333, 281 N.E.2d 142 (Ct. App.) (every contract carries with it an implied covenant of good faith), cert. denied, 409 U.S. 875, 34 L. Ed. 2d 128, 93 S. Ct. 125 (1972). Howell responds that if the Modification Agreement is valid, it was made in good faith and inured to the benefit of plaintiff. In any event, Colony contends that the Modification Agreement was never consummated because its offer expired prior to Howell's acceptance. This creates a question of fact which cannot be resolved on a motion for summary judgment.
For the reasons stated above, Sims' motion for summary judgment is denied.
Dated: Hauppauge, New York
April 2, 1992
LEONARD D. WEXLER
UNITED STATES DISTRICT JUDGE