Legal Question in Business Law in California

Time limit on payment of subcontractors?

I am a self-employed market research consultant. I am still awaiting payment for a project that I completed in March for one of my clients, who is also a freelance research consultant. The amount is not huge - $1000 for my time, and another $1000 in travel expenses. I invoiced her soon after the project was completed, but almost 60 days later I still have not been paid, despite the fact that she previously told me she pays subcontractor invoices at thirty days. When I asked when I would receive payment, she said she will not pay me until the company that hired her for the project pays her.

Unfortunately, my invoice did not define any payment terms � I have never needed to include them before now. However, in my industry, subcontractors are generally paid at thirty days, whether or not the main client has paid the contractor. It is considered a courtesy, if nothing else. Is there any legal basis I have for demanding that she pay me immediately, regardless of whether she has been paid? Although I have no intention of working with her ever again, I hesitate to take this to small claims court unless it is completely necessary. Thank you in advance for your assistance.


Asked on 5/29/02, 5:44 pm

1 Answer from Attorneys
Thomas W. Newton Tims & Newton

Re: Time limit on payment of subcontractors?

You've described a problem that crops up repeatedly in the construction industry - a general contractor refuses to pay a sub for work done, claiming he or she hasn't been paid yet by the owner. The courts take a dim view of such tactics, and have often ruled that "pay-when-paid" provisions are unenforceable. I know of no case law or other authority that suggests you should be treated differently simply because you're in a different industry.

A pay-when-paid provision is essentially a condition precedent, i.e. before an obligation to perform something under the contract matures something else - the condition precedent - must first happen. Conditions precedent are judicially disfavored in California and must be very carefully drafted to be enforced. Courts refrain from viewing pay-when-paid provisions as conditions precedent to payment to the sub, unless very carefully drafted to show that both the general and the sub intended that effect. Without that careful drafting, courts construe a standard "pay-when-paid" provision as simply requiring payment within a reasonable time. Since your agreement doesn't even mention time for payment, you're in a lot better position to argue that your are entitled to payment within a reasonable time.

Since your industry's customs and practices seem to view payment within 30 days as the norm, I think you could make a strong argument to a small claims judge that the person with whom you contracted may not withhold payment until her client pays her.

If you are unable to convince your client to pay, and must sue in small claims court, you might ask the judge to consider Yamanishi v. Bleily & Collishaw, Inc., 29 Cal.App.3d 457. Point out that your agreement never included a pay when paid provision, and that your client can't unilaterally insert a condition precedent after the fact.

Best of luck in your efforts.

Now the inevitable caveat:

The foregoing information is provided as an accommodation only, and does not constitute specific legal advice or a biding legal opinion based on a comprehensive review of all relevant facts, nor can provision of such information be construed as creating an attorney-client relationship.

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Answered on 5/29/02, 8:12 pm


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