## Facts

- A general contractor entered contracts with an owner to construct facilities at the owner’s plant in San Patricio County, Texas.
- The contractor obtained a performance and payment bond from its surety.
- The contractor separately subcontracted portions of the work to a plumbing subcontractor and to an electrical subcontractor (Calvin Self).
- The owner experienced financial difficulties and directed work at the site to stop.
- The subcontractors claimed unpaid balances for labor and materials, filed mechanic’s and materialmen’s liens, and asserted claims on the bond.
- The contractor refused payment, relying on a subcontract provision stating that, when the owner paid the contractor, the contractor would be “liable for and obligated to pay” the subcontractor amounts approved for payment (less retainage).
- The subcontractors sued; the two suits were tried together to the court after waiver of a jury.
- The trial court entered separate judgments for each subcontractor against the contractor and the surety.

## Issues

1. Whether the subcontract payment clause created an express condition precedent making the contractor’s duty to pay contingent on the owner’s payment, or merely set the time for payment.
2. Whether the risk of the owner’s insolvency was shifted from the general contractor to the subcontractors absent clear, unequivocal language.

## Decision

- The court of appeals affirmed the judgments for the subcontractors (with a minor modification not affecting liability).
- The payment clause was construed as a covenant concerning the timing and manner of payment, not a condition precedent excusing payment if the owner failed to pay.
- The contractor remained liable for the amounts owed to the subcontractors despite the owner’s nonpayment.
- The surety was likewise liable under the payment bond for the subcontractors’ covered claims.

## Legal Principles

- Contractual conditions precedent are disfavored and will not be found unless the parties’ intent to create a condition is clear and unequivocal.
- Language framed in timing terms (e.g., “when” the owner pays) without explicit conditional terms (e.g., “if,” “provided that,” “on condition that”) is generally construed as a pay-when-paid provision, not a pay-if-paid condition precedent.
- In construction contracting, the owner’s solvency risk ordinarily rests on the general contractor; shifting that risk to a subcontractor requires an express, unmistakable agreement.
- A pay-when-paid clause may postpone payment for a reasonable time, but does not eliminate the contractor’s ultimate duty to pay for labor and materials furnished.

## Conclusion

The court held that the subcontract clause tied payment timing to the owner’s payments but did not condition the contractor’s duty to pay on the owner’s performance; absent clear language shifting owner-insolvency risk, the contractor and its surety were liable to the subcontractors for unpaid balances.


Gulf Constr. Co. v. Self, 676 S.W.2d 624 (Tex. App.—Corpus Christi 1984, writ ref’d n.r.e.)