Moore Brothers Co. v. Brown & Root, Inc.

Brown & Root (Brown) (defendant), general contractor for a toll-road project, subcontracted road construction to Moore Brothers and Lane Construction (plaintiffs) under a "pay when paid" clause making the project owner's payment to Brown a condition precedent to Brown paying its subcontractors. To keep lenders from worrying about cost overruns, Brown and the owner removed contract language triggering payment for major changes and moved it to a side letter, then told lenders no major changes were likely even though they knew a big change was actually needed — and Brown had the subcontractors make that change anyway. When arbitration ordered the owner to pay Brown but the owner lacked the funds, Brown refused to pay the subcontractors under the pay-when-paid clause, and the subcontractors sued; the district court ordered Brown to pay them, and Brown appealed.