## Facts

- A project owner hired a general contractor (later acquired by another contractor) to help build portions of a fiber-optic network in New Mexico and Texas.
- The general contractor entered a written subcontract with an Oklahoma subcontractor to install buried conduit for fiber-optic line.
- The subcontract included a “pay-if-paid” term making installment payments to the subcontractor contingent on the general contractor’s receipt of payment from the owner.
- The subcontractor began performance and received an initial payment of about $127,000 for early work.
- The owner filed for bankruptcy and did not pay the general contractor for the subcontractor’s work.
- After the bankruptcy, the general contractor refused further payment, citing nonpayment by the owner.
- The subcontractor sued in federal court for roughly $1.9 million, alleging breach of contract.

## Issues

1. Whether the subcontract language created a true “pay-if-paid” condition precedent (not merely a timing provision) requiring owner payment before the contractor owed the subcontractor.
2. Whether a clearly drafted pay-if-paid clause is enforceable under the potentially applicable state law (Texas or New Mexico) in a private construction contract.
3. Whether the contractor breached the subcontract by withholding payment after the owner’s bankruptcy and nonpayment.

## Decision

- The court affirmed summary judgment for the contractor.
- It held the subcontract contained a clear pay-if-paid clause that expressly conditioned payments to the subcontractor on the contractor’s receipt of payment from the owner.
- It held the clause enforceable under both Texas and New Mexico law, making choice of law non-dispositive on the result.
- Because the owner had not paid the contractor, the condition precedent had not occurred; therefore, the contractor did not presently owe the subcontractor the claimed amounts.
- Summary judgment was appropriate because the key questions were legal (interpretation and enforceability) and there was no genuine dispute of material fact about owner nonpayment.

## Legal Principles

- A pay-if-paid clause shifts the risk of owner nonpayment from the contractor to the subcontractor and is enforceable only when stated in clear, unequivocal conditional language establishing a condition precedent.
- Courts distinguish pay-if-paid (condition precedent to payment) from pay-when-paid (timing mechanism); explicit contingency language supports pay-if-paid treatment.
- In diversity cases, federal courts apply the forum state’s choice-of-law rules; where relevant state laws yield the same result, the court may affirm without selecting between them.
- When a valid condition precedent to payment has not occurred due to owner nonpayment, the contractor’s refusal to pay does not constitute breach under the subcontract.

## Conclusion

The court enforced an unambiguous pay-if-paid condition precedent in a private construction subcontract and held that, because the owner’s bankruptcy resulted in nonpayment to the contractor, the subcontractor could not recover payment from the contractor at that time.


MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257 (10th Cir. 2006)