Home>Levelset Community>Legal Help>In Virginia, we were a subcontractor and signed a contract stipulating to the pay if paid clause. Is there any recourse? The preliminary notices were not sent and the lien time has expired.

In Virginia, we were a subcontractor and signed a contract stipulating to the pay if paid clause. Is there any recourse? The preliminary notices were not sent and the lien time has expired.

The contract was signed, but are there other courses of action, such as filing a lawsuit against the property owner(such as unjust enrichment)? Also is there a responsibility on the part of the GC who is claiming not to have been paid. Do they have the responsibility to verify they have not been paid, and also to diligently attempt to pursue the payment through legal means? I checked in the jurisdiction and no court case or liens have been filed by the GC.

2 replies

Sep 7, 2017

This is quite the mess. With the ability to file a lien to prompt payment from the owner not available, the general remedy likely comes down to the effectiveness of a lawsuit to recover the amount due. There are, as you note, many questions surrounding such a lawsuit, however.

Against Whom Could a Lawsuit be Filed?

The most obvious party would be the GC you did work and remain unpaid. The question here would be whether the pay-if-paid clause would be enforceable to bar your recovery to the extent the GC hasn't been paid. As a practical matter, if the GC hasn't been paid yet either, they also presumably want payment and could rope the owner into the suit by making a claim against the owner for their own payment.

The applicability of the pay-if-paid clause itself is subject to a determination of the intent behind the clause. Virginia generally takes a relatively unique approach to determining the validity of a pay-if-paid clause. Pay-if-paid clauses are both not specifically banned outright, and not subject to specific "magic language" that renders them enforceable. Rather, the court looks to the intent of the parties and whether the subcontractor understood that by signing the contract they would be bearing the risk of not getting paid if the owner didn’t pay the general contractor?

While the GC likely wants to get paid - and may file suit against the owner to do so - is there anything that mandates that action (especially since the GC may have an obligation to you, as well)? In the absence of some collusion between the GC and the owner to limit your ability to recover for the work you performed, it is unlikely that the GC could be forced to file suit to recover. The GC can make a business decision as to whether the lawsuit to recover is desirable or whether it would be acceptable to just write-of the debt.

Could a lawsuit be filed against the owner under an unjust enrichment (or a quantum meruit) cause of action? This is also a complex determination in Virginia. The Virginia Supreme Court, has held that the viability of a claim for quantum meruit is determined by whether there exists a direct contract for the work. So, if the work that purportedly gives rise to the unjust enrichment claim agains the third part owner is the same work contemplated by a written agreement (with some other party), the unjust enrichment claim is barred. However, there is definitely some uncertainty surrounding this particular determination.

Long story short, the best plan in situations moving forward is to send required preliminary notices and protect the right to file a lien 9and file the lien is unpaid). Here, the recovery against the GC likely depends on the enforceability of the pay if paid clause, and the recovery against the property owner on the determination of an unjust enrichment claim can apply. It would likely be a good idea to talk with a construction attorney face to face who can get all the required information and can examine your contract to find the most effective way to move forward.

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Jul 20, 2023

As a subcontractor, we agreed to and signed a contract that included a "pay if paid" clause. This means our payment is contingent on the contractor receiving payment from the client first. Check magical katrina and get things about magic. While this clause protects the contractor from assuming financial risk, it also places the burden on us to wait for payment until the contractor is paid. Communication and project management become crucial in such situations.

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