Legal Alert: Nevada Supreme Court Rules Pay - If-Paid Clause Unenforceable

In another disappointing decision for general contractors arising out of the Venetian Mechanics Lien litigation, the Nevada Supreme Court has struck down pay-if-paid contract provisions as violating Nevada public policy. In Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc., et al., 124 Nev. Adv.Op. 39 (June 2008), the project owner and an out-of-state general contractor used a poorly worded waiver of the subcontractor's mechanics lien right in conjunction with a pay-if-paid provision to attempt to argue that neither had an obligation to pay the subcontractor for its work. The trial court concluded "that the pay-if-paid provision was unenforceable as a matter of public policy because "˜[i]t deprives people who work on construction projects of a statutory right' to a mechanics lien." On appeal, the owner and general contractor argued that the trial court erred by holding both the mechanics lien waiver clause and the pay-if-paid clause unenforceable; the Supreme Court disagreed.

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