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Can I file a lien even if the signed contract says terms are pay when paid?

We have a company that has multiple invoices they are not paying, stating they have not received payment themselves for the jobs. The signed contract states terms are they pay us after they receive payment for the job themselves. Two of these jobs are still within the window for filing liens, but I would have to file this month.

1 reply

Jul 11, 2019

This is a great question - how "pay when paid" or "pay if paid" clauses are enforced with respect to mechanics lien rights is a tricky, but important question.

In Tennessee, a Pay When Paid clause is enforceable only as fixing a "reasonable" time for payment, not as a something that can delay payment indefinitely or entirely. Tennessee courts have made this clear, including in Koch v. Construction Tech, Inc., 924 S.W.2d (Tenn. 1996).

A Pay If Paid clause, however, may be able to work as a bar to payment - but only when clear, specific, and unambiguous language in the contract sets out that the clause is intended to shift the risk of nonpayment, and it is understood that payment from above is a condition precedent to payment.

Finally, "no-lien" clauses are specifically disallowed in Tennessee. TCA § 66-11-124(b) states that:

“(1) Any contract provision that purports to waive any right of lien under this chapter is void and unenforceable as against the public policy of this state."

Accordingly, the right to file a mechanics lien is exceptionally difficult to modify by contract. As long as the time period in which a lien may be filed has not passed, the existence of a pay when paid clause does not prohibit the filing of a lien, or, for that matter, the recovery of the amount due by other means.

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