{"id":897623,"date":"2020-06-24T12:45:40","date_gmt":"2020-06-24T18:45:40","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=897623"},"modified":"2020-06-24T12:45:44","modified_gmt":"2020-06-24T18:45:44","slug":"pay-when-paid-payment-bond-claim","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/pay-when-paid-payment-bond-claim\/","title":{"rendered":"Enforceability Of Subcontract \u201cPay-When-Paid\u201d Provisions \u2013 An Important Update"},"content":{"rendered":"\n<p>Patrick McNamara | <a rel=\"noreferrer noopener\" href=\"https:\/\/www.porterlaw.com\/enforceability-of-subcontract-pay-when-paid-provisions-an-important-update\/\" target=\"_blank\">Porter Law Group<\/a><\/p>\n\n\n\n<p>A California Court of Appeals opinion published earlier this month brings a change to payment bond claims brought by unpaid subcontractors and suppliers. The decision (<em>Crosno Construction, Inc. v. Travelers Casualty and Surety Company of America<\/em>) places limitations on a payment bond surety\u2019s ability to rely on subcontract \u201c<a href=\"https:\/\/www.myconstructionexpert.com\/blog\/pay-when-paid-withhold-sub-payments\/\" target=\"_blank\" rel=\"noreferrer noopener\">pay-<em>when<\/em>-paid<\/a>\u201d language, stating that a payment provision typically found in subcontracts is contrary to the \u201creasonable time\u201d statutory requirement and will not be enforced. This represents a major shift in California construction payment bond claim rights.<\/p>\n\n\n\n<p>Plaintiff Crosno Construction, Inc. (\u201cCrosno) was a subcontractor to general contractor Clark Brothers (\u201cClark\u201d), who was principal on a public works payment bond issued by Travelers. The owner was a public agency district (\u201cDistrict.\u201d) Crosno had completed most of its subcontract work when a dispute between District and Clark arose, causing the project to stop. Crosno then sought payment through a payment bond claim against Travelers. Travelers denied the claim, relying on the subcontract\u2019s payment provisions and asserting the defense that it had no obligation to pay on the bond claim because the litigation between Clark and the District had not yet reached its conclusion.<\/p>\n\n\n\n<p>Subcontract. The subcontract between Clark and Crosno contained a \u201cpay-when-paid\u201d provision stating that Clark would pay Crosno within a reasonable time after receiving payment from the District. In defining \u201ca reasonable time,\u201d the subcontract language provided that the time for payment \u201cin no event shall be less than the time [Clark] and [Crosno] require to pursue to conclusion their legal remedies against [District] or other responsible party to obtain payment.\u201d<\/p>\n\n\n\n<p>Trial Court Ruling; Court of Appeals Agreement.The trial court granted summary judgment (judgment without a trial, based on facts and briefs) to Crosno against Travelers and Travelers appealed. The Court of Appeals affirmed the trial court\u2019s ruling, finding that, in effect, requiring a subcontractor\u2019s bond claim to be delayed for months or years while litigation between the parties proceeds is the equivalent to an impermissible \u201cpay-<em>if<\/em>-paid\u201d provision, which the California Supreme Court rejected in a 1997 decision (<em>Wm. R. Clarke Corp v. Safeco Ins. Co.<\/em>) The Court of Appeals reasoned that \u201cthe pay-<em>when<\/em>-paid provision here, which indefinitely postpones Crosno\u2019s right to recover under the payment bond until Clark\u2019s litigation with the District concludes, is unenforceable under California\u2019s broader anti-waiver statute [Civil Code Section 8122].\u201d<\/p>\n\n\n\n<p>Recommendation. We are frequently asked by our clients to review and edit subcontract agreements. One of the common provisions that we seek to revise is the one similar to that in the Clark-Crosno subcontract. (See Number 1 on my \u201cKiller Subcontract Provisions\u201d list at\u00a0<em>KSP Article<\/em>. While the\u00a0<em>Crosno<\/em>\u00a0opinion does not prohibit such provisions as to the general contractor\u2019s duty to pay its subcontractors and suppliers, it does now prohibit such time limitations for payment bond claims. In light of the\u00a0<em>Crosno<\/em>\u00a0decision, it is advisable that general contractors as well as subcontractors and material suppliers (of any tier) draft the agreements to comply with the\u00a0<em>Crosno<\/em>\u00a0decision, certainly as to payment bond claims, and to specify what a \u201creasonable time\u201d will be.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Patrick McNamara | Porter Law Group A California Court of Appeals opinion published earlier this month brings a change to payment bond claims brought by unpaid subcontractors and suppliers. The decision (Crosno Construction, Inc. v. Travelers Casualty and Surety Company of America) places limitations on a payment bond surety\u2019s ability to rely on subcontract \u201cpay-when-paid\u201d&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/pay-when-paid-payment-bond-claim\/\">Continue reading <span class=\"screen-reader-text\">Enforceability Of Subcontract \u201cPay-When-Paid\u201d Provisions \u2013 An Important Update<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,11156,10437,10765],"class_list":["post-897623","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-pay-when-paid-clause","tag-payment-bond-claims","tag-payment-provision","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Enforceability Of Subcontract \u201cPay-When-Paid\u201d Provisions \u2013 An Important Update - Advise &amp; 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