Moore Brothers v. Brown & Root, Inc.

Topic: Prevention as excuse—conditions precedent, prevention

Facts:

Characters: Brown & Root (BR) = General Contractor, equity partner in TRIP

Moore Brothers and The Lane Construction Corp. (MB) = Subcontractor

Toll Road Investors Partnership II (TRIP) = Owners of DTRE; temporary partnership set up specifically for this project

Lenders = the project financers

TRIP hired BR to build a toll road, the Dulles Toll Road Extension (DTRE) in Virginia. BR and MB entered into a subcontract that contained a “pay when paid” clause that read:

Payment by Owner [TRIP] to General Contractor is a condition precedent to any obligation of General Contractor to make payments hereunder; General Contractor shall have no obligation to make payment to Subcontractor for any portion of the Sublet Work for which General Contractor has not received payment from Owner.

BR and BM both knew of a strong possibility that the original cost estimates were likely to change because of the need for thicker pavement sub-base material. However, unbeknownst to BM, the Owners and BR took out design change illustrations and reference to potential “change in scope” work from the prime contract (adding it to a “Policies and Procedures” side note) in an effort to pacify the lenders. As a result of BR’s omissions from the prime contract, the Owners and BR received funding from the lenders. The lenders, relying on the prime contract’s cost estimates never arranged financing to cover payment for additional “change in scope” work. So, when it came time for the lenders to pay the Owners, and for the Owners to pay BR, the lenders could not come up with the money. As a result, BR could not pay MB and was under no apparent contractual obligation to pay MB until the Owners paid BR. So, MB took BR to court to get its money.

Issue: Can a general contractor rely on a valid but unfulfilled “pay when paid” clause (condition precedent) as a defense where the g. c. was at least partly responsible for events leading to the unfulfilled condition?

Holding: No. The prevention doctrine will not allow BR to use the condition precedent as a defense.

Reasoning: According to the prevention doctrine, if a promisor prevents or hinders fulfillment of a condition to her performance, the condition may be waived or excused. (See R2K 245.) The prevention doctrine does not require proof that the condition would have occurred “but for” the wrongful conduct of the promisor; instead it only requires that the conduct have “contributed materially” to the non-occurrence of the condition. (R2K 245.) Here, BR’s conduct resulted in the lenders not being able to pay the Owners, who in tern could not pay BR, the non-occurring condition precedent to MB’s getting paid. BR’s conduct having contributed materially to the unfulfilled condition, the condition was “waived” [possibly “excused”], and BR is prevented from using the condition as a defense.