Home>Levelset Community>Legal Help>Where is the section in California Law that explicitly states that if an Owner does not pay a Contractor, the Contractor must pay the Subcontractor in a commercially reasonable time? I've reviewed Section 7108.5 but I don't see it clearly written out. Or, is the pay-when-paid term in California due to established court cases only and not explicitly written out?
Where is the section in California Law that explicitly states that if an Owner does not pay a Contractor, the Contractor must pay the Subcontractor in a commercially reasonable time? I've reviewed Section 7108.5 but I don't see it clearly written out. Or, is the pay-when-paid term in California due to established court cases only and not explicitly written out?
That's a good question, and California's stance on pay when paid clauses is not codified in statute or regulation. Rather, as hinted at above, a contractor's obligation to pay within a reasonable amount of time - regardless of whether the owner has paid - arises out of case law. Specifically, Capitol Steel Fabricators, Inc. v. Mega Construction Co. (58 Call.App.4th 1049) discusses the issue, holding that pay-when-paid clauses may be enforceable as shifting the time to make payment, but payment will ultimately be owed within a reasonable amount of time - regardless of whether payment is ultimately made to the contractor. Thus, a pay-when-paid clause will not make payment to the subcontractor contingent on the contractor's receipt of payment in California. Despite the title, zlien discusses California pay-if-paid and pay-when-paid contractors in this article: Pay If Paid Clauses in California.