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SEAL TITE CORP. v. EHRET

July 6, 1984

SEAL TITE CORPORATION, a limited partnership, Plaintiff,
v.
EHRET, INC., Defendant



The opinion of the court was delivered by: FISHER

 This action concerns a contract dispute between plaintiff, Seal Tite Corporation, and defendant, Ehret, Inc., which arises from the construction of a shopping center in Toms River, New Jersey. Ehret was the general contractor for the project and, by contract dated January 15, 1981, hired Seal Tite as subcontractor to do a considerable portion of the site work. It is undisputed that Ehret is liable to pay the sum of $101,767 to Seal Tite. The sole issue in this action, which requires an interpretation of the contract between the parties, is whether defendant's obligation to pay the amount in question has matured. The legal arguments presented on this motion are essentially the same as those advanced in Seal Tite's two prior motions for summary judgment. *fn1" For the reasons set forth below, however, Seal Tite's third motion for summary judgment is granted.

 The operative clause in the Seal Tite/Ehret contract which is now the subject of contention provides that the contract price of $1,330,450 shall be

 
payable in the following manner: Ninety (90) percent monthly of work completed, within seven (7) days of receipt of payment by the Owner, or his Agent, provided statements of such work completed are rendered by the TWENTY-FIFTH OF EACH MONTH and are approved for payment by the architect. The balance to be paid within thirty (30) days after acceptance and receipt of final payment by the owner of the building and after complete release of all liens arising out of this contract have been delivered to ehret, inc.

 Of the total contract price, the affidavits and pretrial order show the undisputed amount of $101,767 due to Seal Tite from Ehret. The sole question, then, is whether Ehret is liable for payment of this sum immediately.

 Ehret contends that it is not liable to pay the undisputed sum to plaintiff until Ehret has been paid in full by the owners of the project, Bay Lea Associates. Bay Lea, which is not a party to this action, has been experiencing considerable financial difficulties, and the affidavits show that to date Bay Lea owes Ehret more than $400,000 on the general contract with Ehret. Ehret argues that the subcontract clause set forth at length above establishes receipt of payment from Bay Lea as a condition precedent to its obligation to pay Seal Tite. Since Ehret has not yet received full payment from Bay Lea, defendant reasons, its obligation to pay Seal Tite the amount still due under the subcontract has not yet matured. Ehret represents to the court that it will pay Seal Tite the amount due "if and when defendant Ehret, Inc., is paid the balance due it by the owner of the project."

 The view advanced by Seal Tite in this dispute is that the contract clause in question does not establish a condition precedent. Rather, it is an unconditional promise to pay with the time of payment postponed until the happening of a certain event, namely Ehret's receipt of payment from Bay Lea. Under this interpretation, if payment from Bay Lea does not take place within a reasonable time, Ehret is still under obligation to pay Seal Tite under its subcontract. *fn2" Seal Tite concludes that Ehret's refusal to pay the outstanding amount constitutes a breach of the subcontract between the parties.

 As noted above, plaintiff has twice moved for partial summary judgment on this contract, once in 1982 and again in 1983. The first motion was denied for the reason that the case was then in the very early stages of discovery and several material issues of fact remained in dispute. Two such issues were the exact amount of money due Seal Tite, and whether plaintiff had substantially performed its obligations under the contract. Thus, on the basis of pleadings which were woefully inadequate and an extremely sketchy factual record, Judge Debevoise was unable to find that summary judgment could be awarded at that time.

 The following spring, plaintiff's second motion for summary judgment was denied. Again, Ehret raised the spector of material facts which existed as to the background of the contract, which, if true, would preclude summary judgment. For both these motions, Seal Tite was represented by different counsel than now appears on its behalf. Seal Tite's then-counsel was unable to present the court with case law rebutting Ehret's interpretation of the contract clause. Again, due to the inadequacy of the record and the supporting legal arguments, this court, through Judge Bissell, concluded that the controversy was not ripe for summary judgment.

 Today, the court is presented with a different scenario. Discovery has now been completed and on October 18, 1983, a final pretrial stipulation and order was signed. Prior factual disputes as to the performance of the contract and the amount due plaintiff have been resolved, and the amount of indebtedness has been stipulated. Seal Tite is now represented by new counsel, which has presented this court with case law supporting its position. On this motion, Ehret relies completely on the arguments presented in its opposition to Seal Tite's two prior summary judgment attempts. The factual issues allegedly in dispute earlier, however, have now been resolved, and Ehret has failed to produce any new evidence which could reasonably be said to raise a material factual issue. On the record now before this court, the sole dispute revolves around the interpretation of the payment clause. Since the terms themselves are not in dispute, the construction of the contract is a question of law to be resolved by the court, and not by the fact finder. See Andreaggi v. Relis, 171 N.J. Super. 203, 408 A.2d 455 (Ch. Div. 1979).

 The clause in question is commonly known as a "pay when paid" clause. Numerous courts have considered the precise question now before this court as to whether such a clause is to be regarded as a conditional promise to pay, enforceable only if and when the condition precedent of payment from the owner has occurred, or as an unconditional promise to pay, with the payment being due within a reasonable time, regardless of whether the owner has paid. See, e.g., Byler v. Great American Insurance Co., 395 F.2d 273 (10th Cir. 1968); Thos. J. Dyer Co. v. Bishop International Engineering Co., 303 F.2d 655 (6th Cir. 1962); Peacock Construction Co. v. Modern Air Conditioning Inc., 353 So. 2d 840 (Fla. 1977). As the New Jersey courts have not addressed the issue of the appropriate interpretation of a pay-when-paid clause, it is necessary to look to other jurisdictions for guidance in an attempt to predict how the New Jersey courts would resolve this question.

 In Thos. J. Dyer Co. v. Bishop International Engineering Co., the Sixth Circuit was presented with a factual setting very similar to this one. The payment clause in a contract between a subcontractor and a general contractor provided that

 
the total price to be paid to Subcontractor shall be $115,000.00 . . . no part of which shall be due until five (5) days after Owner shall have paid Contractor therefor, provided however, that no more than . . . per cent (90%) thereof shall be due until thirty-five (35) days after the entire work to be performed and completed under said contract shall have been completed to the satisfaction of Owners, and provided further that Contractor may retain sufficient moneys to fully pay and discharge any and all liens, stop-notices, attachments, garnishments and executions. Nothing herein is to be construed as preventing Contractor from paying to the Subcontractor all or any part of said price at any time hereafter as an advance or otherwise.

 303 F.2d at 658-59. The defendant general contractor did not receive payment from the project owner and, accordingly, failed to pay the subcontractor. The subcontractor sued, and the parties each advanced ...


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