Lamson, Dugan and Murray, LLP, Attorneys at Law

Contract Clauses—Termination for Non-Payment

Posted in Construction Contracts

How often do subcontractors continue to work on a project, waiting to get paid? The iStock_000004377298Small (1)subcontractor has submitted pay applications, no one is complaining about its work, yet payment is slow. What are the subcontractor’s options? Can the subcontractor terminate the contract? Maybe, but, as always, it depend on the contract language.

A recent case out of Indiana sheds some light on this very issue. In Ellerman Construction v. Ohio Farmers Insurance Company, Ellerman sued the general contractor and its bonding company to recover $250,000 due under the contract. The general contractor refused to pay, claiming that Ellerman had walked off the job and the general contractor was forced to hire a replacement contractor, at a much greater cost. Ellerman responded, arguing that it walked off the job because it had not been paid for more than 60 days and the contract allowed Ellerman to terminate the contract for nonpayment.

The court agreed with Ellerman’s position and ruled that the subcontractor was entitled to $250,000. In so ruling, the court rejected the general contractor claim that Ellerman walked off the job, forcing the general contractor to complete the job with a more expensive subcontractor. The court found that the contract language authorized Ellerman to walk off the job if it had not been paid for 60 days. Because it had not been paid for more than 60 days, Ellerman was entitled to walk off the job.

This is yet another example where knowing the language in your contract is very important. The court’s opinion does not delve into which party insisted on the 60 day language, but it certainly helped the subcontractor in getting its judgment against the general contractor and its bonding company.

 

One Response to Contract Clauses—Termination for Non-Payment

  1. Pingback: Be Careful When Walking Off of a Construction Project

Leave a Reply