Last summer, the United States Court of Appeals for the Third Circuit issued a precedential opinion in Sloan Co. v. Liberty Mutual Ins. Co., 653 F.3d 175 (3d Cir. 2011), that had broad implications for the construction community, because it affirmed an important industry-standard practice. More specifically, the Third Circuit held that a “pay-if-paid” provision in a subcontract, which provided that the general contractor’s receipt of full payment from the owner is an express condition precedent to the subcontractor’s right to full payment from the general contractor, was valid and enforceable by the general contractor and/or its payment bond surety.
Since the Third Circuit’s ruling in Sloan, the legal and construction community have speculated on whether a Pennsylvania state court would follow the Third Circuit’s legal analysis and ruling. Now, a recent decision by the Philadelphia Court of Common Pleas suggests that Pennsylvania state courts will follow the Third Circuit, and enforce “pay-if-paid” clauses.[Read More]