“Pay If Paid” Provision in General Contractor/Project Manager’s Contract with Subcontractor Upheld in Face of Claims of Fraudulent Concealment of Financial Status of Project Owner

Amicus Curious

In Walbridge Aldinger v. Iafrate Constr., et al.07.25.2013, the Michigan Court of Appeals upheld a “pay if paid” provision in the contractual agreement between the general contractor and project manager and a subcontractor.  Anticipating the pending difficulties with its subcontractors in light of the financial status of the project owner, the general contractor filed a declaratory judgment action in Oakland County, Michigan seeking a declaration concerning its liability to subcontractors under the contract, which contained a “pay if paid” provision – essentially guaranteeing payment to the subcontractors only if the general contractor / project manager were paid for the project by the project’s owner / developer.

After addressing several preliminary challenges regarding choice of law, choice of forum and venue (all of which were explicitly provided for in the contractual agreements and specified Oakland County, Michigan as the forum for any litigation (the project was in Indiana)), the Court…

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