Pay-if-Paid Provisions are Enforceable in Construction Contracts

The recent New Jersey Appellate Court decision in the case of JPC Merger Sub LLC vs. Tricon Enterprises, Inc. (A-2893-21), has shed light on the enforceability of "pay if paid" provisions in the state. In this case, Tricon sought to enforce a "pay if paid" provision contained in a subcontract with JPC. This provision stated that Tricon's obligations to pay JPC would only be enforceable if Tricon had received payment from the owner of the project.

The court determined that the "pay if paid" provision was enforceable and that Tricon was obligated to make payments to JPC if and only if Tricon received payment from the third party. The court found that the provision was clear and unambiguous and did not contravene any public policy.  The court stated, "we believe that a prohibition against the use of pay-if-paid provisions as conditions precedent in construction contracts should come from the legislature rather than the courts.  Thus, we hold that as long as the contract specifies a clear and unambiguous intent and agreement by the parties to shift the risk of nonpayment, a pay-if-paid provision is enforceable subject to the parties' implied duty to not frustrate conditions precedent to their performance."  This decision reinforces the principle that clear and unambiguous language in contracts is key and will be given weight by the courts in New Jersey.

In conclusion, after the JPC v. Tricon case, it appears that "pay if paid" provisions in New Jersey are enforceable, as long as they are clear and unambiguous. This decision serves as a reminder to parties entering into contracts in New Jersey to ensure that their agreements are clear and unambiguous, to avoid any disputes over enforceability in the future.