Pay-if-paid clauses in California

Clarke v. Safeco: the death of pay-if-paid

In Wm. R. Clarke Corp. v. Safeco Ins. Co.(1997) 15 Cal.4th 882, the California Supreme Court held pay-if-paid clauses unenforceable. The logic: California’s constitution protects mechanics lien rights, and the statutes void any advance contractual waiver of them (now Cal. Civ. Code § 8122). A clause that shifts the owner’s insolvency risk onto the sub (“you get paid only if we do”) is an indirect waiver of those rights, so it fails.

Pay-when-paid: timing, not condition

A pay-when-paid clause survives, but it means less than GCs imply. It lets the GC wait a reasonable timefor owner funding before paying you; it does not make owner payment a prerequisite. If the owner never pays, the GC still owes you. “The owner hasn’t paid us yet” is, at most, a short-term scheduling answer; it is never a final one.

What this means on a real job

• Don’t let the clause slow your notices. Serve your preliminary notice and track your lien deadline like on any other job; the clause has no effect on those rights (§ 8122).
• Don’t accept “waiting on the owner” indefinitely.After a reasonable time, the GC’s obligation is due. An intent to lien letter reframes the conversation quickly.
• Escalate on the payment-rights track, not the contract track. Arguing contract language takes lawyers and months; a preliminary notice, intent to lien letter, and mechanics lien work on statutory deadlines you control.

This page is general information, not legal advice, and does not create an attorney–client relationship. California lien and notice deadlines are strict and fact-specific: “completion” alone can be triggered by actual completion, the owner’s occupancy or use, or a 60-day cessation of labor. Notice Harbor is not a law firm. Confirm any deadline that matters to your claim with a licensed California construction attorney.