Lafayette Steel Erectors, Inc. v. Roy Anderson Corp.
71 F. Supp. 2d 582 | District Court, S.D. Mississippi | 1997
What This Case Means for Subcontractors
Lafayette Steel Erectors sued Roy Anderson Corp. for $512,899.48 owed under a subcontract for the Treasure Bay Casino project. The subcontract contained a 'pay-when-paid' clause requiring payment within 10 days of the contractor receiving money from the owner. When the owner filed bankruptcy and never paid, Anderson refused to pay Lafayette. The court ruled that 'pay-when-paid' clauses don't eliminate the contractor's obligation to pay—they only give the contractor a reasonable time to collect from the owner. Once that reasonable time passes, the contractor must pay the subcontractor regardless of whether the owner paid.
Key Takeaways
- •A 'pay-when-paid' clause is NOT a 'pay-if-paid' clause. It doesn't shift owner bankruptcy risk to you—it just delays payment for a reasonable period.
- •Document when the contractor receives payment from the owner. Once a reasonable time passes (typically 10-30 days), you can demand payment even if the owner hasn't paid.
- •If your contract says 'pay when paid,' push back and negotiate for 'pay if paid' language if you want true protection, or add a specific deadline after which payment is due regardless of owner payment.
Article 13 is a pay-when-paid clause allowing defendant reasonable time to pay.
Frequently Asked Question
If my contract has a 'pay-when-paid' clause and the owner doesn't pay the contractor, do I still get paid?
Yes. A 'pay-when-paid' clause only gives the contractor a reasonable time to collect from the owner—typically 10-30 days. Once that time passes, the contractor must pay you regardless of whether the owner paid them. This is different from a 'pay-if-paid' clause, which would shift the owner's bankruptcy risk to you. Always clarify which type of clause is in your contract.
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