In re Makwa Builders, LLC
545 B.R. 311 | United States Bankruptcy Court, D. New Mexico | 2016
What This Case Means for Subcontractors
Everguard Roofing sued Makwa Builders in bankruptcy court over unpaid roofing work at a New Mexico university project. The court allowed Everguard's claim of $76,357.90, but made it contingent—meaning Everguard only gets paid if and when Makwa receives payment from the university. The court rejected Everguard's request for interest and attorney fees. This case shows that pay-if-paid clauses are enforceable in bankruptcy, but subcontractors must wait for the general contractor to get paid first.
Key Takeaways
- •Pay-if-paid clauses are legally binding in bankruptcy court—your payment depends on the GC getting paid by the owner, not on the GC's other finances
- •You cannot recover interest or attorney fees on unpaid invoices just because a contractor went bankrupt; you must prove a separate violation like the Prompt Pay Act
- •File your claim amendment early and include detailed documentation (invoices, ledgers, statements) to support your full amount—vague claims get reduced
Everguard is entitled to an allowed contingent claim under 11 U.S.C. § 502(b).
Frequently Asked Question
If my contractor goes bankrupt, can I still get paid under a pay-if-paid clause?
Yes, but only if the contractor receives payment from the project owner. Your claim becomes contingent, meaning you wait in line until money flows to the bankrupt contractor. You cannot collect interest or attorney fees simply because of the bankruptcy—you'd need to prove a separate contract violation like failure to pay within required timeframes under state law.
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