CPA & Business Advisory Blog

Why the Condition Precedent Matters in Contracts

A little wording can go a long way, especially when it comes to the terms, “condition precedent” and “pay-if-paid.” For a subcontracting company called Transtar Electric, Inc., these simple phrases equated to lost revenues totaling more than $44,000, while protecting general contractor A.E.M. Electric Services Corporation from having to pay money never received from their shared client.

The Ohio Supreme Court released its ruling on the Transtar case July 17, 2014 (Transtar Elec., Inc. v. A.E.M. Elec. Servs. Corp., Slip Opinion No. 2014-Ohio-3095), which has deemed “pay-if-paid” clauses as being valid and enforceable in Ohio.

In their ruling, the court also decided that a contract provision using the words “condition precedent” explicitly creates a pay-if-paid provision.

The Transtar case involved construction of a swimming pool at a Holiday Inn. Transtar performed approximately $187,000 worth of work, and A.E.M. paid them $142,620.10. However, A.E.M. did not pay the remaining balance of $44,088.90 since the owner of the project failed to pay A.E.M., and the contract involved a condition precedent.

Transtar sued A.E.M., but the court stated the contract’s wording indicated a “pay-if-paid” contract, therefore negating A.E.M.’s duty to furnish any remaining payments unless paid by the owner.

When crafting contracts, be sure to ensure wording is carefully examined. As this case proves,  a couple of words can have a significant impact on your cash flow and bottom-line.

For more information on real estate and construction business solutions, click here to leave a message or contact one of our four office locations: Cleveland, Akron, Westlake or Tampa.

Stay up-to-date with the latest business trends, tips and revenue generating ideas by subscribing to the Skoda Minotti Blog or by following us on LinkedIn, Twitter @skodaminotti, and Facebook.

This entry was posted in CPA & Business Advisory, Real Estate/Construction Accounting. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Both comments and trackbacks are currently closed.
© Copyright 2016 Skoda Minotti | Privacy Policy | Disclaimer | Remote Support
Cleveland 440-449-6800 | Akron 330-668-1100 | Tampa 813-288-8826
Website designed and developed by Skoda Minotti Strategic Marketing