“Pay When Paid” Provision Cannot Indefinitely Delay Payment to Subcontractor

Seal Tite Corp. v. Ehret, Inc., 589 F. Supp. 701 (D.N.J. 1984)

In this case, a subcontractor sued the general contractor for failure to pay in a timely fashion, and moved for summary judgment.  Relying on the “pay when paid” provision of the subcontract, the general contractor claimed that it had not yet been paid in entirety by the owner and therefore the lack of payment to the subcontract was not in breach of the contract.  The court ruled that the “pay when paid” clause was designed to postpone payment by general contractor to subcontractor for a reasonable period after work has been completed to afford the general contractor the opportunity to procure from the owner the funds necessary to pay the subcontractor.  The purpose is not to require the subcontractor to wait to be paid for an indefinite period of time.  Accordingly, the court granted the subcontractor’s motion for summary judgment and awarded the amount due under the subcontract.