Lindade Constr. v. Cont'l Cas. Co.

Full title: LINDADE CONSTRUCTION, INC. v. CONTINENTAL CASUALTY COMPANY ET AL. NEW…

Court: Connecticut Superior Court Judicial District of Waterbury at Waterbury

Date published: Feb 25, 2009

2009 Ct. Sup. 4201 (Conn. Super. Ct. 2009)

47 CLR 323

Opinion

Nos. X10-UWY-CV-5008768-S, X10=UWY-CV-5008767-S

February 25, 2009

REVISED MEMORANDUM OF DECISION RE MOTIONS FOR SUMMARY JUDGMENT (#131 AND #120)

JANE S. SCHOLL.

Introduction

The Plaintiffs, Lindade Construction, Inc. ("Lindade") and New England Stone, Inc., ("New England Stone") were subcontractors on a project in which Ashforth Properties Construction, Inc.,("A. P. Construction") was the general contractor. A.P. Construction posted a payment bond in which it was principal and Continental Casualty Company ("Continental Casualty") was surety. In its two-count complaint, the Plaintiff Lindade seeks payment under the payment bond and damages pursuant to the Connecticut Unfair Trade Practices Act. In its one-count complaint, the Plaintiff, New England Stone, seeks payment under the payment bond. Both Plaintiffs have moved for summary judgment only as to the issue of liability on the counts of their complaints seeking payment on the bond.

More specifically, the Plaintiffs allege that they each entered into a construction subcontract with A.P. Construction in which A.P. Construction hired them as subcontractors on a project known as Southport Green. A payment bond in the amount of $32,258,195 was posted for the project on which Continental Casualty was the surety and A.P. Construction was the principal and Southport Village Partners, LLC is listed as the owner. The Plaintiffs claim that they performed all of their work but have not been fully paid. The Plaintiffs made claims on the bond and Continental Casualty denied the claims. The Plaintiffs claim that the denial is based on invalid reasons and, pursuant to their obligations as principal and surety on the bond, A.P. Construction and Continental Casualty jointly and severally owe the Plaintiffs for the work performed on the project but not paid for. The Plaintiffs have moved for summary judgment as to the issue of liability on this claim. Oral argument on the motions was held on August 13, 2008.

Discussion CT Page 4202

"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party . . . The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact and that the party is, therefore, entitled to judgment as a matter of law." (Citation and internal quotation marks omitted.) Rivers v. City of New Britain, 288 Conn. 1, 10 (2008). "A material fact is a fact that will make a difference in the result of the case . . . In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent." (Citation and internal quotation marks omitted.) Precision Mechanical Services, Inc. v. T.J. Pfund Associates, Inc., 109 Conn.App. 560, 563-64 (2008). "In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party . . . The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law . . . and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact." (Citations and internal quotation marks omitted). Witt v. St. Vincent's Medical Center, 252 Conn. 363, 368 (2000).

There is no dispute that A.P. Construction has not been fully paid by the owner for either Lindade's or New England Stone's work.

The contracts between Lindade and New England Stone and A.P. Construction provide:

11.3.1 Progress payments to the Subcontractor for satisfactory performance of the Subcontractor's Work shall be made only to the extent of and no later than fifteen (15) working days after receipt by the Contractor of payment from the Owner for the Subcontractor's work. The Subcontractor agrees that the Contractor shall be under no obligation to pay the Subcontractor for any Work until the Contractor has been paid by the Owner. The payment provisions of this Agreement are subject to the condition that the Contractor receive, in good funds from the Owner, progress payments in at least the amounts payable to the Subcontractor on account of Work done by the Subcontractor on this Project. The Subcontractor expressly acknowledges and agrees that payments to it are contingent upon the Contractor receiving payment from the Owner. The Subcontractor expressly accepts the risk that it will not be paid for Work performed by it if the Contractor, for whatever reason, is not paid by the Owner for such Work. The Subcontractor states that it relies primarily for payment for Work performed on the credit and ability to pay of the Owner and not of the Contractor, and thus the Subcontractor agrees that payment by the Owner to the Contractor for work performed by the Subcontractor shall be a condition precedent to any payment obligation of the Contractor to the Subcontractor. The Subcontractor agrees that the liability of the surety on Contractor's payment bond, if any, for payment to the Subcontractor, is subject to the same conditions precedent as are applicable to the Contractor's liability to the Subcontractor.

As the Plaintiffs note, the issue presented is whether this provision provides a valid defense to this action on the payment bond or whether it is void pursuant to General Statutes § 42-158l.

A plain reading of the contract provision indicates that payments to the Plaintiffs by A.P. Construction are contingent on payments to A.P. Construction by the owner, and that the Plaintiffs assumed the risk that A.P. Construction might not get paid by the owner. "There is a strong public policy in Connecticut favoring freedom of contract: It is established well beyond the need for citation that parties are free to contract for whatever terms on which they may agree. This freedom includes the right to contract for the assumption of known or unknown hazards and risks that may arise as a consequence of the execution of the contract. Accordingly, in private disputes, a court must enforce the contract as drafted by the parties and may not relieve a contracting party from anticipated or actual difficulties undertaken pursuant to the contract, unless the contract is voidable on grounds such as mistake, fraud or unconscionability . . . If a contract violates public policy, this would be a ground to not enforce the contract . . . A contract . . . however, does not violate public policy just because the contract was made unwisely . . . [C]ourts do not unmake bargains unwisely made. Absent other infirmities, bargains moved on calculated considerations, and whether provident or improvident, are entitled nevertheless to sanctions of the law . . . Although parties might prefer to have the court decide the plain effect of their contract contrary to the agreement, it is not within its power to make a new and different agreement; contracts voluntarily and fairly made should be held valid and enforced in the courts." (Internal citations, quotation marks and footnote omitted.) Schwartz v. Family Dental Group, P.C., 106 Conn.App. 765, 772-73, cert. denied, 288 Conn. 911 (2008).

A.P. Construction and Continental Casualty claim that since the condition precedent for payment to the Plaintiffs, that is, payment to A.P. Construction by the owner, has not occurred, then the Plaintiffs are not entitled to summary judgment at this time. The Plaintiffs argue that General Statutes § 42-1581 renders the above cited provision of their subcontracts void. "Although it is well established that patties are free to contract for whatever terms on which they may agree . . . it is equally well established that contracts that violate public policy are unenforceable . . . [T]he question [of] whether a contract is against public policy is [a] question of law dependent on the circumstances of the particular case, over which an appellate court has unlimited review." (Citations and internal quotation marks omitted.) Stamford Wrecking Company v. United Stone America, 99 Conn.App. 1, 16, cert. denied, 281 Conn. 917 (2007).

There is also no dispute that the contracts between Lindade and New England Stone and A.P. Construction are subject to the provisions of Chapter 726b of the General Statutes, §§ 42-158i — 42-158r. That Chapter codifies Public Act 99-153, entitled "An Act Concerning Fairness in Financing in the Construction Industry."

General Statutes § 42-158l provides:

(a) Any provision in a construction contract or any periodic lien waiver issued pursuant to a construction contract that purports to waive or release the right of a contractor, subcontractor or supplier engaged to perform services, perform labor or furnish materials under the construction contract to (1) claim a mechanic's lien, or (2) make a claim against a payment bond, for services, labor or materials which have not yet been performed and paid for shall be void and of no effect.

(b) Notwithstanding any provision of subsection (a) of this section, this section shall not be construed to prohibit (1) the subordination of a mechanic's lien to the lien of a mortgage or security interest, or (2) the enforcement of an agreement to subordinate a mechanic's lien to the lien of a mortgage or security interest.

A.P. Construction and Continental Casualty argue that there is nothing in the contract which prohibits the Plaintiffs from filing a mechanic's lien or a bond claim. "Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact . . . [w]here there is definitive contract language, the determination of what the parties intended by their contractual communications is a question of law . . . subject to plenary review by this court . . . In giving meaning to the terms of a contract, the court should construe the agreement as a whole, and its relevant provisions are to be considered together . . . The contract must be construed to give effect to the intent of the contracting parties . . . This intent must be determined from the language of the instrument and not from any intention either of the parties may have secretly entertained . . . [I]ntent . . . is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract . . . [Where] . . . there is clear and definitive contract language, the scope and meaning of that language is not a question of fact but a question of law . . ." Schwartz v. Family Dental Group, P.C., 106 Conn.App. 765, 771, cert. denied, 288 Conn. 911 (2008). The clear language of the contract does not provide for either a waiver of the Plaintiffs' rights to file a mechanic's lien or a bond claim. Unlike the contractual language in Alstom Power, Inc. v. Balcke-Durr, Inc., 269 Conn. 599, 603 (2004), which provided that: "[The defendant] hereby waives for himself, his successors in interest and assigns, and for all subcontractors, vendors, suppliers, etc., their successors in interest and assigns for all claim or right of lien upon [the plaintiffs] or [its] Employer's property or any part thereof as a result of the furnishing of labor and/or material under the terms of the Agreement," the contract between the parties here makes no mention of the right to lien. In addition, as to the right to make a claim under the bond, the contract does not negate that right but states only that "the liability of the surety on Contractor's payment bond, if any, for payment to the Subcontractor, is subject to the same conditions precedent as are applicable to the Contractor's liability to the Subcontractor."

The Plaintiffs argue that even if the specific language of the contract does not waive the right to file a mechanic's lien or a bond claim, the statute requires only that the language of the contract purports" to do so. They claim that because of the terms of their contracts they cannot file a mechanic's lien (although the Plaintiff New England Stone did so) because the pay if paid provision of the contracts makes payment to them not yet due. General Statutes § 49-33 provides that:

If any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal — or repairs of any building or any of its appurtenances or in the improvement of any lot or in the site development or subdivision of any plot of land, and the claim is by virtue of an agreement with or by consent of the owner of the land upon which the building is being erected or has been erected or has been moved, or by consent of the owner of the lot being improved or by consent of the owner of the plot of land being improved or subdivided, or of some person having authority from or rightfully acting for the owner in procuring the labor or materials, the building, with the land on which it stands or the lot or in the event that the materials were furnished or services were rendered in the site development or subdivision of any plot of land, then the plot of land, is subject to the payment of the claim. (b) The claim is a lien on the land, building and appurtenances or lot or in the event that the materials were furnished or services were rendered in the site development or subdivision of any plot of land, then on the plot of land and the claim takes precedence over any other encumbrance originating after the commencement of the services, or the furnishing of any such materials . . .

General Statutes § 49-34 provides that:

A mechanic's lien is not valid unless the person performing the services or furnishing the materials (1) within ninety days after he has ceased to do so, lodges with the town clerk of the town in which the building, lot or plot of land is situated a certificate in writing, which shall be recorded by the town clerk with deeds of land, (A) describing the premises, the amount claimed as a lien thereon, the name or names of the person against whom the lien is being filed and the date of the commencement of the performance of services or furnishing of materials, (B) stating that the amount claimed is justly due, as nearly as the same can be ascertained, and (C) subscribed and sworn to by the claimant, and (2) not later than thirty days after lodging the certificate, serves a true and attested copy of the certificate upon the owner of the building, lot or plot of land in the same manner as is provided for the service of the notice in section 49-35.

In evaluating the Plaintiffs' argument the court "must remain cognizant of the remedial purpose of our mechanic's lien statutes, i.e., to give one who furnishes materials or services the security of the building and land for the payment of his claim by making such claim a lien thereon . . . and the oft-stated directive that those provisions should be liberally construed in order to implement [that] remedial purpose . . ." (Internal quotation marks and citations omitted.) 36 Deforest Avenue, LLC v. Creadore, 99 Conn.App. 690, 695, cert. denied, 282 Conn. 905 (2007). "In this state, a mechanic's lien is a creature of statute and gives a right of action which did not exist at common law . . . The purpose of the mechanic's lien is to give one who furnishes materials or services the security of the building and land for the payment of his claim by making such claim a lien thereon . . . Moreover, [t]he guidelines for interpreting mechanic's lien legislation are . . . well established. Although the mechanic's lien statute creates a statutory right in derogation of the common law . . . its provisions should be liberally construed in order to implement its remedial purpose of furnishing security for one who provides services or materials . . . Our interpretation, however, may not depart from reasonable compliance with the specific terms of the statute under the guise of a liberal construction . . . The statute is designed to furnish security for a contractor's labor and materials and, as this court has noted previously, is remedial in nature." (Citations and internal quotation marks omitted.) Intercity Development, LLC v. Andrade, 286 Conn. 177, 183-84 (2008). There is nothing in the mechanic's lien statutes that requires that moneys be not only "due" but "payable" before a lien can be placed on a property. Such would be contrary to the terms of the statute itself which provides that the time for filing a lien runs from the date of cessation of work, not from any date related to the payment of the amount owed for the work. In fact, this same argument was rejected by our Supreme Court in Healy v. Fallon, 69 Conn. 228, 37 A. 495, 497 (1897).¹ In that action to foreclose a mechanic's lien the defendant claimed that the plaintiff's lien was invalid because, pursuant to the contract between the parties, the final payment to the plaintiff had not become due because the defendant had not obtained a certificate from the architect that the payment was due as required by the contract. In rejecting the defendant's claim that nothing was due and payable under the contract when the lien was filed, the Court held: "This claim seems to be based upon the assumption that a mechanic, under the statute, cannot have a lien for his debt unless and until the debt is presently due and payable; but this is clearly not so. One of the main purposes of our statute concerning mechanics' liens of this kind was to secure debts not yet due, so that they might be collected when they became due. The statute created a lien upon the premises in favor of the plaintiff as soon as he began to furnish material and render services under the contract, and notwithstanding the fact that the contract fixed the times of payment in the future, and the certificate, when filed, merely continued the statutory lien. There is nothing in this first claim." It is well settled that the right to file a lien arises when the subcontractor begins furnishing labor and materials. J.L. Purcell, Inc. v. Libbey, 111 Conn. 132, 137 (1930). Therefore the contract language here does not waive the Plaintiffs' rights to file a mechanic's lien.

1 See discussion in The Barlow Brothers Company v. Gaffney, 76 Conn. 107 (1903), regarding the early evolution of our mechanic's lien statutes.

The Plaintiffs' citation to F W Welding Service, Inc. v. ADL Contracting Corporation, 217 Conn. 507 (1991), is misplaced because that case dealt with the interpretation of "when a debt . . . is due" for purposes of the garnishment, and not the mechanic's lien, statute.

Similarly, the language of the contract does not limit the Plaintiffs' right to seek payment under the bond. The contract provides simply that "the liability of the surety on Contractor's payment bond, if any, for payment to the Subcontractor, is subject to the same conditions precedent as are applicable to the Contractor's liability to the Subcontractor." This does not restrict the Plaintiffs' right to seek payment under the bond to any greater extent then it would be in seeking direct payment from A.P. Construction, the principal. "It is a fundamental precept of suretyship law that the liability of the surety is conditioned on accrual of some obligation on the part of the principal; the surety will not be liable on the surety contract if the principal has not incurred liability on the primary contract . . . In the absence of limitations or restrictions contained in the (surety) contract, the liability of the surety is coextensive with that of the principal . . . The surety's promise is in the same terms as that of the principal and the consequent duty similar and primary . . ." (Internal quotation marks and citations omitted.) Star Contracting Corporation v. Manway Construction Company, Inc., 32 Conn.Sup. 64, 66 (1973).

The Plaintiffs cite two cases in support of their position that the subcontract violates the state's anti-waiver legislation. The first is West-Fair Electric Contractors v. Aetna Casualty Surety Company, 87 N.Y.2d 148, 154 (1995). There the subcontract provided that: "It is specifically understood and agreed that the payment to the trade contractor [plaintiff] is dependent, as a condition precedent, upon the construction manager [the general contractor] receiving contract payments, including retainer from the owner." The court held: "a pay-when-paid provision which forces the subcontractor to assume the risk that the owner will fail to pay the general contractor is void and unenforceable as contrary to public policy set forth in the Lien Law § 34. By contrast, a pay-when-paid provision which merely fixes a time for payment does not indefinitely suspend a subcontractor's right to payment upon the failure of an owner to pay the general contractor, and does not violate public policy as stated in the Lien Law. As a matter of contract law, the owner and the general contractor are liable to plaintiff for the work plaintiff has been authorized to perform, and performed, under the subcontract agreement. However, a pay-when-paid provision as a condition precedent requires plaintiff to defer payment for its work until the general contractor has been paid by the owner. As the owner here has become insolvent, the owner may never make another contract payment to the general contractor. Because the lack of future payments by the owner is virtually certain, plaintiff's right to receive payment has been indefinitely postponed, and plaintiff has effectively waived its right to enforce its mechanics' liens. The waiver has occurred by operation of the pay-when-paid provision because mechanics' liens may not be enforced until a debt becomes due and payable . . . We reject defendants' contention that plaintiff retains any meaningful rights under the Lien Law by virtue of plaintiff's ability to file a mechanics' lien against the improved property. The Lien Law distinguishes between the right to file and the right to enforce mechanics' liens and prohibits any contract, agreement or understanding waiving either right (Lien Law § 34). The Lien Law also provides that subcontractors may file and enforce their mechanics' liens against the persons liable for the debt giving rise to the lien, in addition to rights in the real property (Lien Law §§ 24, 41). Plaintiff has waived its rights to enforce mechanics' liens against the general contractor and the owner as persons liable for the sums due under the subcontract, because the debt is uncollectible and will remain uncollectible until the owner has paid the general contractor. Consequently, the pay-when-paid provision here extinguishes plaintiff subcontractor's ability to enforce a lien against the owner. The pay-when-paid provision creates this result by preventing the subcontractor from establishing the existence of a present amount, due and unpaid, arising from the subcontractor's performance and owed by the general contractor. The establishment of such a debt is a necessary element of the subcontractor's cause of action to enforce its lien against the owner . . ." (Internal citations omitted.) Id., 158-9. The Supreme Court of California in Wm. R. Clarke Corporation v. Safeco Insurance, Company, 15 Cal.4th 882 (1997), also agreed with this analysis. These cases are distinguishable because the lien law in New York provides, as the court in West-Fair noted, that a subcontractor may not file and enforce a mechanic's lien until it becomes due and payable and a subcontractor can enforce a lien against the person liable for the debt giving rise to the lien, in addition to any rights in the real property. Connecticut law does not provide, in its mechanic's lien statutes, for the right to enforce a lien against the person liable for the debt giving rise to the lien or that the debt must be due and payable before a lien can be placed on the property. In addition, a subcontractor has a right, independent of the right to file a mechanic's lien, to seek payment directly from the owner. That right is set forth in General Statutes § 42-158j(d), which was also enacted as part of the Act Concerning Fairness in Financing in the Construction Industry. That statute provides, in pertinent part, that:

Each owner that enters into a contract under this section and fails or neglects to make payment to a contractor for labor and materials supplied under a contract, as required pursuant to this section, shall, upon demand of any person who has not been paid by the contractor for such labor and materials supplied in the performance of the work under the contract, promptly pay the person for such labor or materials. Demand for payment shall be served on the owner and a copy of each demand shall be sent to the contractor by certified mail, return receipt requested to any address at which the owner and contractor conduct business. If the owner fails to make such payment, the person shall have a direct right of action against the owner in the superior court for the judicial district in which the project is located. The owner's obligations for direct payments to the contractor, subcontractors or suppliers giving notice pursuant to this section shall be limited to the amount owed to the contractor by the owner for work performed under the contract at the date such notice is provided.

Lastly, our Supreme Court has noted that: "the provisions of our statute differ sufficiently from the mechanic's lien legislation of other states so that precedents elsewhere are of limited utility in the interpretation of our act." (Internal quotation marks, footnote and citations omitted.) Nickel Mine Brook Associates v. Joseph E. Sakal, P.C., 217 Conn. 361, 365 (1991).

The Plaintiffs also claim, regardless of the validity of the pay-if-paid provision of the contract, that A.P. Construction and Continental Casualty have a separate and independent liability to them under the payment bond. The payment bond provides that: "The Contractor [Ashforth Properties Construction, Inc.] and the Surety [Continental Casualty Company], jointly and severally, bind themselves, their heirs, executors, administrators, successors and assigns to the Owner [Southport Village Partners, LLC] to pay for labor, materials and equipment furnished for use in the performance of the Construction Contract . . ." The Plaintiffs cite American Masons' Supply Company v. F.W. Brown Company, 174 Conn. 219 (1978). However that case dealt with a payment bond on a public works contract pursuant to the requirements of General Statutes § 49-41. That statute provides that on a public works contract the contractor must furnish a bond, with a surety or sureties, "for the protection of persons supplying labor or materials in the prosecution of the work provided for in the contract for the use of each such person." As the Court noted in American Masons' Supply: "The statutory requirement of a bond is designed to protect and benefit those who furnish materials and labor to the contractor on public work, in that they may be sure of payment of their just claims, without defeat or undue delay . . ." (Citation omitted.) Id., 227. "Thus, the statute protects subcontractors against default by the general contractors that hire them. A subcontractor's only recourse when a general contractor defaults on its debt is to sue on a payment bond pursuant to General Statutes 49-42." O G Industries, Inc. v. New Milford, 29 Conn.App. 783, 790 (1992), affirmed, 229 Conn. 303 (1994).

The Plaintiffs claim that the contract language would prohibit a subcontractor from getting paid from the surety if the owner is insolvent or if the general does not get paid by the owner and therefore the contract is, in essence, a waiver of a subcontractor's right to get paid on the payment bond. However the Plaintiffs misconstrue the purpose of the bond. By its terms, the purpose of the bond is to protect the claimants, such as the Plaintiff subcontractors, where the contractor has defaulted on the contract. The bond provides that: "With respect to Claimants this obligation shall be null and void if the Contractor promptly makes payment, directly or indirectly, for all sums due." Pursuant to the contract between the Plaintiffs and A.P. Construction payment is not yet due since it is undisputed that A.P. Construction has not been paid for all of the Plaintiffs' work. In any event, pursuant to their contracts, the Plaintiffs agreed that "the surety on Contractor's payment bond, if any, for payment to the Subcontractor, is subject to the same conditions precedent as are applicable to the Contractor's liability to the Subcontractor." As the court noted above, a plain reading of the contract provision indicates that payments to the Plaintiffs by A.P. Construction are contingent on payments to A.P. Construction by the owner, which has not yet occurred.

Conclusion

Pursuant to the contract between A.P. Construction and the Plaintiffs, the Plaintiffs as subcontractors clearly assumed the risk of the owner's default under its contract with A.P. Construction. The pay if paid provision of their contracts does not waive the Plaintiffs' rights to look directly to the owner for payment either through the use of a mechanic's lien or the remedies set forth in the construction contract statutes, or to make a claim on the payment bond. However the payment bond here does not protect the Plaintiffs from the owner's default or insolvency since the Plaintiffs have contractually assumed that risk and A.P. Construction has not defaulted in its obligations under the contracts. Therefore the Motions for Summary Judgment are denied.