Contracts & ExecutionQuestion 658 of 1605
On a private construction project, a direct contractor wants to enforce a 'pay-when-paid' clause to delay payment to a subcontractor by 90 days while waiting for the owner to pay. Under California prompt-payment law, this clause is generally:
a.Enforceable only as a reasonable timing mechanism — but California courts have construed 'pay-when-paid' clauses NOT to shift the risk of owner nonpayment to subs (Wm. R. Clarke v. Safeco), so the prime must still pay within the prompt-payment windows of Civil Code §8800/§8814 (generally 7 days of receipt of progress payment) regardless of owner payment
b.Fully enforceable as written, including a 'pay-if-paid' condition precedent that excuses payment if the owner defaults
c.Enforceable only on public works projects, never on private projects
d.Void in all circumstances
Explanation
Under Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882 and Civil Code §8800, §8814, and §8820, California courts construe 'pay-when-paid' clauses as a reasonable-time provision, NOT as a condition precedent shifting the risk of owner insolvency to subcontractors. True 'pay-if-paid' conditions are unenforceable as contrary to the mechanics' lien protections in Article XIV §3 of the California Constitution. The prime must still pay subs within 7 days of receiving the corresponding owner payment, with 2%-per-month penalties for wrongful withholding. The clause is not categorically void, but it cannot be used to indefinitely defer payment.
Law Reference: Civil Code §8820Practice all 1605 questions free — no signup required.
Related questions on this topic
- On a residential remodel, the homeowner verbally asks the contractor to upgrade tile from $4/sf to $9/sf mid-project. The contractor proceeds without paperwork and later bills the extra $1,800. Under Bus. & Prof. Code §7159, the contractor is most likely:
- Bus. & Prof. Code §7159.5 limits progress payments on a home improvement contract such that, at any given time during the project, the amount paid by the owner may not exceed:
- A contractor solicits a home improvement contract at the homeowner's residence following a door-to-door knock. Under Civil Code §1689.7 (the Home Solicitation Sales Act), the homeowner generally has the right to cancel the contract:
- A homeowner hires a licensed contractor to remodel a kitchen for $18,000. At what contract price does California law require that a home improvement contract be put in writing?
- Which of the following projects is NOT considered a 'home improvement' under the Contractors State License Law?
- A contractor begins demolishing a homeowner's bathroom before the written home improvement contract is signed. Under the Contractors State License Law, this is:
Last reviewed: · editorial process
Sen Lin, PrepPass Founder · Verified against California CSLB Contractor License Law & Business Exam · How we review
Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)