Fact Issues Preclude Enforceability of Pay- When-Paid Clause
A New York intermediate appeals court denied a general contractors motion to enforce a pay-when-paid clause because issues of fact existed over whether the general contractor should be estopped from asserting the pay-when-paid provision.
The appellate division overturned in Hugh O'Kane Elec. Co., LLC v. MasTec North America, Inc. a trial court decision striking the general contractors defense based on a pay-when-paid clause because it offended New York public policy.
The court held Florida rather than New York law governed the parties dispute because of a choice of law provision in the subcontract. Pay-when-paid clauses are enforceable under Florida law and the court concluded the New York policy against pay-when-paid provisions was not a deeply rooted enough tradition to preclude enforcement of the clause.
The Court affirmed the trial court's denial of summary judgment to the general contractor, however, concluding an issue of fact existed on whether the contractor should be estopped from asserting the pay-if-paid clause:
Nevertheless, we affirm the denial of the general contractor's motion for summary judgment dismissing the complaint, there being an issue of fact as to whether the general contractor should be estopped from asserting the pay-when-paid provision. Such issue is raised by evidence that in discussions concerning the payment of amounts overdue under the subcontract, the general contractor, responding to the subcontractor's concerns about the owner's financial condition, represented that the owner had the money to pay, although the owner was then in default of certain loans extended by the general contractor, and thereby may have induced the subcontractor to continue working on the project to its detriment.