Subcontract Pay-If-Paid Provisions Violate New York Public Policy
West-Fair Elec. Contractors v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148 (1995)
In West-Fair, the New York Court of Appeals decided that pay-when-paid provisions in a subcontract, which transfer the risk of an owner’s default from a general contractor to a subcontractor, violate New York public policy as set forth in the Lien Law. New York’s Lien Law provides that any contractual provision that waives the right to enforce any mechanic’s lien shall be void as against public policy. The court reasoned that if a subcontractor’s right to be paid could be indefinitely postponed by an owner’s failure to pay the general contractor under a pay-when-paid provision, the subcontractor’s right to enforce its mechanic’s lien would be similarly frustrated and constitute an illegal waiver of lien rights.
In West-Fair, the New York Court of Appeals decided that pay-when-paid provisions in a subcontract, which transfer the risk of an owner’s default from a general contractor to a subcontractor, violate New York public policy as set forth in the Lien Law. New York’s Lien Law provides that any contractual provision that waives the right to enforce any mechanic’s lien shall be void as against public policy. The court reasoned that if a subcontractor’s right to be paid could be indefinitely postponed by an owner’s failure to pay the general contractor under a pay-when-paid provision, the subcontractor’s right to enforce its mechanic’s lien would be similarly frustrated and constitute an illegal waiver of lien rights.
