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Over the past twenty (20) years, a great deal of confusion has developed as to the difference between the terms "Pay if Paid" and "Pay when Paid" as used in California construction contracts. In fact the two phrases are used interchangeably to such an extent, very few contractors or subcontractors are able to distinguish between the two. Following the California State Supreme Court decision in WM. R. Clarke Corporation v Safeco Insurance Company of America Case, it is imperative that every contractor understands the difference between these two provisions and their relationship to construction contracts.
Pay when Paid
Over thirty years ago, in Yamanishi v. Bailey & Collishaw, Inc., (1972) 29 Cal. App.3d 457, the California Appellate Court upheld the Pay-when-Paid clause as valid and enforceable. |
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California contractors have available to them a very unique and powerful tool available to assist them with payment for materials and labor provided. This unique toll is called the Stop Notice. This California remedy, not widely available throughout the United States, can be extremely effective when used correctly. However, many within the industry are still unsure about when, where and how to file a stop notice claim. The stop notice can wield immense power, and yet subcontractors and material suppliers infrequently use it.
The service of a stop notice requires the owner, public agency or lender to set aside 125% of the amount stated on the stop notice as due the claimant. Holding up the stream of money can be a great motivator to get particular claimants paid promptly. |
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