A painting subcontractor sued a general contractor over unpaid work on a Memphis housing project. The general contractor had a 'pay when paid' clause stating the subcontractor would only be paid when the general contractor received payment from the owner. The Tennessee Supreme Court ruled that 'pay when paid' clauses are timing provisions, not conditions that eliminate the general contractor's obligation to pay. The court found the clause did not shift the owner's credit risk to the subcontractor without very clear language stating that intent. This decision protects subcontractors from being left unpaid if the owner fails to pay the general contractor.
A 'pay when paid' clause delays payment timing but does not eliminate the general contractor's obligation to pay you—the general contractor still owes you even if the owner doesn't pay them