On Monday, June 17, 2024, the Supreme Judicial Court (“SJC”) issued its decision in Business Interiors Floor Covering Business Trust v. Graycor Construction Company, Inc., et al, which interprets the Massachusetts Prompt Payment Act (“Prompt Pay”) for the first time since the Appeals Court issued its decision in Tocci Building Corporation v. IRIV Partners, LLC, et al., 101 Mass. App. Ct. 133 (2022). 

The issue in Business Interiors was whether a general contractor loses its right to assert common law affirmative defenses to a Prompt Pay violation when it has failed either to pay a subcontractor in a timely manner or comply with the statutory requirements for rejecting the subcontractor’s invoices. 

A Split Decision

The SJC ruled in Business Interiors that yes, a general contractor’s failure to pay a subcontractor’s invoices when it had already failed to properly and timely reject those invoices precluded the assertion of affirmative defenses to the subcontractor’s claim that the general contractor violated Prompt Pay. 

Writing for the majority, Justice Kafker clarified that: 

[U]nder the act, a party does not waive its defenses by failing to approve or reject an invoice within the strict time requirements established by the act. However, a party that neither approves nor rejects a payment application within the requisite time must first make the payment in order to pursue any defenses in a subsequent proceeding related to the invoices, as the invoices have been deemed “approved.” The invoice payments must be made prior to, or contemporaneous with, the raising of the defenses, or the defenses cannot be raised.

Applying those principles to the facts before it, the SJC in Business Interiors found that, because the general contractor (Graycor) sought to exercise its defenses without ever paying the invoices (and having already failed to properly and timely reject those invoices), it could not pursue any defenses to the subcontractor’s claim for immediate payment. Thus, the SJC affirmed the lower court’s ruling, finding that “[s]ummary judgment was therefore properly allowed on the breach of contract claim.” 

Future Implications

Like the Appeals Court’s decision in Tocci, the SJC’s ruling in Business Interiors underscores the importance for commercial real estate owners, developers, and contractors to strictly comply with Prompt Pay to ensure smooth operations and avoid the potential consequences of non-compliance.