According to a report from the Asocciation of Builders and Contractors (ABC) a recent federal appeals court applying Maryland law has ruled that "a general contractor (GC) has no legal duty to disclose to its subcontractor (SC) the information it possesses about the owner's financial ability to pay for the project".

The case, Architectural Systems Inc. v. Gilbane Building Co., (No. 92-1107, 4th cir., 9/8/92), apparently involved the construction of a wharf project in Baltimore, where the subcontract "contained a 'pay-when-paid' clause wherein the contractor pays the subcontractor when the owner pays the contractor".

Apparently during construction, the SC started to experience slow payment and contacted the GC to ascertain whether the owner's money problems would preclude them from being paid. While the project engineer apparently believed that the owner may not be able to pay he never communicated his feelings to the SC.

When the owner filed for bankruptcy, the SC's breach of contract claims were dismissed after the federal district court found that the "pay-when-paid" clause in the SC's contract created a condition precedent to the GC's obligation to pay.

The court held that the GC was not under a legal duty to disclose that information to the SC and that no special relationship of trust or confidence existed between either party which would create such a duty to disclose.