Sub Wins Another Contingent Payment Case in California
Kegler Brown Construction Newsletter May 1, 1998
Continuing the recent trend on both coasts finding contingent payment clauses unenforceable, the California Court of Appeals held that a prime contractor on a public project could not enforce a "pay when paid" clause against a subcontractor. Capitol Steel Fabricators v. Mega Construction (Cal. 2d Dist. Ct. App., Oct. 28, 1997). Earlier the California Supreme Court determined that a "pay if paid" clause was unenforceable against a subcontractor on a private project. William R. Clarke Corp. v. Safeco Insurance Co. (1997), 15 Cal. 4th 882.
While the law in each state on contingent payment clauses is different, there appears to be a developing trend for courts to go out of their way to find creative legal grounds for declaring these provisions unenforceable.