Vratsinas Construction Co. v. Triad Drywall, LLC

The owner of a construction project hired Vratsinas Construction Company (VCC) (defendant) as a general contractor. VCC subcontracted with Triad Drywall, LLC (Triad) (plaintiff) to install drywall and perform other work. The subcontract between VCC and Triad contained a pay-if-paid provision, stating that payments from VCC to Triad were “expressly and unequivocally contingent upon and subject to” VCC’s receipt of payment from the owner for the subcontract work even if the owner became insolvent or went bankrupt. Triad worked on the project, and VCC paid Triad’s first three payment applications after being paid in full by the owner. Upon hearing rumors about the owner’s insolvency, a co-owner of Triad, Gadi Gal, met with the project manager of VCC, John Davenport. Gadi, who understood the effect of the pay-if-paid provision, expressed payment concerns to Davenport, who advised him to keep working and that VCC would pay Triad “out of its own pocket” if necessary. VCC paid Triad’s fourth payment application despite having received only a partial payment from the owner. Thereafter, VCC received no payments from the owner, which later declared bankruptcy. Triad continued working and had submitted seven payment applications totaling $465,888 to VCC by the spring of 2008. VCC refused to pay each application on the stated grounds that VCC had not been paid by the owner. Gadi knew of the refusals but nevertheless called VCC many times to request payment. Both Triad’s account manager and Gadi’s relative Ziv Gal knew about the pay-if-paid provision, believed the provision was in effect, and received no information to suggest otherwise. Triad’s account manager contacted VCC various times before the spring of 2008 to see if the owner had paid VCC so that Triad could get paid. In 2009, Triad sued VCC for payment, arguing that VCC had waived the pay-if-paid provision. The court allowed the jury to decide the waiver issue, and the jury awarded damages in favor of Triad. The court entered judgment accordingly, and VCC appealed.