Which of the following best describes the 'pay when paid' clause limitation under Michigan law?
Correct Answer
C) It is unenforceable against subcontractors and suppliers
Michigan law generally prohibits 'pay when paid' clauses that shift the risk of owner non-payment to subcontractors and suppliers.
Why This Is the Correct Answer
Michigan law specifically prohibits 'pay when paid' clauses that shift the risk of owner non-payment to subcontractors and suppliers. These clauses are considered unenforceable as they unfairly transfer financial risk from general contractors to parties with no contractual relationship with the owner. Michigan's construction payment laws protect subcontractors and suppliers by ensuring they cannot be denied payment solely because the owner has not paid the general contractor.
Why the Other Options Are Wrong
Option A: It is always enforceable in construction contracts
This is incorrect because 'pay when paid' clauses are not always enforceable in Michigan construction contracts. Michigan law specifically prohibits these clauses when they shift payment risk to subcontractors and suppliers, making them unenforceable in most construction scenarios.
Option B: It cannot delay payment beyond 90 days from completion
This is incorrect because the issue with 'pay when paid' clauses in Michigan is not about timing limitations or 90-day payment periods. The fundamental problem is that these clauses are prohibited entirely when they shift financial risk to subcontractors and suppliers.
Option D: It is only enforceable if the general contractor becomes insolvent
This is incorrect because the enforceability of 'pay when paid' clauses in Michigan is not dependent on the general contractor's solvency status. These clauses are prohibited against subcontractors and suppliers regardless of the contractor's financial condition.
Memory Technique
Remember 'Michigan Protects Subs' - Michigan law Protects Subcontractors and suppliers from 'pay when paid' clauses that shift payment risk away from general contractors.
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