Attorney's Column
Court Invalidates Claim over Pay-If-Paid Clause Long After the Provision Has Been Ruled Void
By THOMAS H. WELBY, P.E., ESQ., and GREGORY J. SPAUN, ESQ.
We recently wrote about the enforceability of conditions precedent contained in construction contracts, specifically advising that such conditions will be enforced unless they violate public policy. In that prior article, the requirement was that the parties seek to mediate their dispute as a condition precedent to litigation. The recent appellate court case Interebar Fabricators LLC v C.B. Contracting Corp. deals with a different condition precedent, one that was held by New York’s Court of Appeals to be against public policy back in 1995—the pay-if-paid clause.
Background
In February 2017, LendLease (US) Construction LMB and Turner Construction Company, as joint venturers, entered into a contract to provide design-build services for the expansion of the Jacob Javits Center in Manhattan. In December 2017, the JV entered into a contract with E.E. Cruz for Cruz to be the general contractor for the project. Cruz subsequently entered into a unit-price subcontract with C.B. Contracting for C.B. to furnish and install the rebar steel required for the project. That subcontract contained a provision that payments from the joint venture to Cruz were a condition precedent to Cruz’s obligation to pay C.B. C.B. then entered into a supply agreement with Interebar Fabricators for the steel.
During the project, a dispute arose as to the amount of rebar installed at the project, with C.B. contending that it installed 8.8 million pounds. Interebar sued C.B to recover the monies owing to it and C.B., in turn, sued Cruz to recover its invoiced amount and its retainage. After discovery, both Interebar and C.B. moved for summary judgment on their affirmative claims, with C.B. seeking both its balance and retainage. In doing so, C.B. documented the amount of rebar installed with invoices and shipment reports, both by invoice and by size and type of steel.
In opposition to C.B.’s motion, Cruz disputed the amount of steel installed by as much as one million pounds (based on take offs of the drawings), arguing that C.B.’s bills of lading were not sufficient to establish how much steel was actually installed, and stating that there was substantial waste removed from the site. Notwithstanding, Cruz argued that in the best-case scenario C.B. installed 8.3 million pounds. Using this amount, together with the fact that C.B. had been paid for over 8.4 million pounds, Cruz contended that C.B. was actually overpaid for its work. Further, Cruz argued that, as it had not been paid by the owner, C.B.’s retainage was not yet due.
Decision
The motion court granted C.B.’s motion, finding that C.B. made a sufficient showing of the amount of rebar it installed at the project, and that Cruz’s claims of waste and insufficient documentation were unavailing. The court also found that Cruz failed to submit any admissible evidence showing that a different quantity of rebar was installed, holding that its amorphous statement about waste, and its claim that only as-built drawings (which were not required or provided) could establish the actual quantity of rebar installed, were conjecture and not sufficient to deny summary judgment to C.B.
Further, as to the payment timing clause, the motion court held that the subject contractual language was a void pay-if-paid clause, and not a legal pay-when-paid clause. The court also commented that even if it were an enforceable pay-when-paid clause, the lengthy delay was unreasonable and, therefore, the provision would be unenforceable. Cruz appealed, but the appellate court affirmed for the same reasons cited by the motion court.
Comment
The fact that pay-if-paid clauses are still rearing their ugly little heads—more than three decades after the New York Court of Appeals first invalidated them—is mind boggling. While one might argue that an out-of-state contractor brought in by a national outfit could be excused for failing to realize that its national boilerplate documents include provisions that have been invalidated by New York’s courts or legislature, the fact that sophisticated local contractors still include such provisions is nothing short of a self-inflicted wound.
While many upstream contractors will argue that the contract documents must set forth the supremacy of the upstream contractor’s position over the downstream subcontractor, there are ways to do it without resorting to harmful posturing. The fact that these clauses are still included in modern contract documents should also give contractors cause to reach out to experienced construction counsel to review their contracts to advise them which provisions are enforceable and which ones are not.
About the authors: Thomas H. Welby, Esq., P.E., is General Counsel to the CIC and the BCA, and founder and Senior Counsel to Welby, Brady & Greenblatt, LLP. Gregory J. Spaun, Esq., is General Counsel to the Queens and Bronx Building Association and a partner with the firm.
Published: May 26, 2026.