F & W Welding Service, Inc. v. ADL Contracting Corp.

• Decision Date: 26 February 1991
• Docket Number: No. 14068,14068
• Citation: 587 A.2d 92,217 Conn. 507
• Court: Connecticut Supreme Court
• Parties: , 16 A.L.R.5th 1056 F & W WELDING SERVICE, INC. v. ADL CONTRACTING CORPORATION.

Page 92

587 A.2d 92

217 Conn. 507, 16 A.L.R.5th 1056

F & W WELDING SERVICE, INC. v. ADL CONTRACTING CORPORATION.

No. 14068.

Supreme Court of Connecticut.

Argued Dec. 5, 1990.

Decided Feb. 26, 1991.

Charles A. Sherwood, New Haven, for appellant (plaintiff).

Lawrence J. Carboni, New Haven, for appellee (garnishee town of Orange).

Before PETERS, C.J., and SHEA, CALLAHAN, GLASS and COVELLO, JJ.

GLASS, Associate Justice.

The sole issue in this appeal is whether the money retained (retainage) until completion and acceptance of a contractor's performance under the terms of a municipal construction contract constitutes a "debt due" for purposes of garnishment under General Statutes § 52-329 ¹ before the contractor completes and the municipality accepts performance. The trial court determined that because the performance of ADL Contracting Corporation (ADL) had not been completed or accepted as required under the unambiguous terms of its contract with the town of Orange (town) at the time that ADL's creditor, F & W Welding Service, Inc. (F & W), served the town with a writ of garnishment, the retainage was not a "debt due" to ADL within the meaning of the statute. We affirm the judgment of the trial court.

The relevant facts are as follows. F & W is a Connecticut corporation engaged in the business of selling, renting and servicing heavy construction equipment. ADL is a New York corporation engaged in the business of construction. In 1986, ADL agreed to construct sewer pipelines for the town under the Boston Post Road in Orange. ADL and the town executed a unit price contract, the terms of which required ADL "to fully complete the project within 400 consecutive calendar days" of the date of commencement of performance to be specified in a written "Notice to Proceed." The town's obligation to pay ADL was primarily governed by the General Conditions section of the contract, and particularly paragraph 25 of the General Conditions entitled "Payments to Contractor."

In paragraph 25(1)(a), the town agreed to make partial payments to ADL in accordance with requisitions submitted by ADL and approved by the town's engineer. The amount of each partial payment was to be calculated by adding the total value of the work then completed to the value of certain stored materials, and deducting the amount of all previous payments as well as the scheduled amount of retainage. The retainage schedule in paragraph 25(1)(b) provided that the town would retain up to 10 percent of each partial payment claimed until the project was 50 percent complete, after which the retainage would be reduced to 5 percent of each partial payment "provided that [ADL] is making satisfactory progress and there is no specific cause for greater withholding." When the project was "substantially complete," meaning "operational or beneficial occupancy," the retainage was to be reduced below 5 percent "to only that amount necessary to assure completion of the contract work." ²

"Final payment" was governed by paragraph 25(2)(a) of the contract. In this provision, it was agreed that "after final inspection and acceptance by the [town] of all work under the Contract," ADL would prepare a requisition for final payment. The amount of the final payment was to be determined by adding the unit prices specified in the contract documents for the computed quantity of each item of work, and deducting the amount of all previous payments. It was further agreed that the town would pay "[t]he entire balance found to be due [ADL] including the retained percentages, but except such sums as may be lawfully retained by the [town] ... within thirty (30) days of completion and acceptance of the Contract."

During 1987, ADL rented equipment from F & W for use in constructing the pipelines, and F & W serviced that equipment and other equipment used by ADL. Thereafter, in 1988, F & W demanded that ADL pay the amount of $21,069.89 owed for the rental and servicing of the equipment. ADL refused to pay the amount demanded. F & W then applied to the Superior Court pursuant to § 52-329 for a prejudgment remedy authorizing foreign attachment of $25,000 of the retainage held by the town. On July 14, 1988, the court found probable cause to sustain F & W's claim against ADL and entered an order authorizing garnishment of the retainage as requested. On July 28, 1988, the town was served with a writ of garnishment in the amount of $25,000. ³ At that time, the pipelines had been constructed to the extent that sewage could have been pumped through them if the necessary pump stations had been built, ⁴ but ADL had not yet resurfaced the numerous driveways on the Boston Post Road that had been dug up to allow the installation of the pipelines, and therefore, the pipelines remained exposed. The town had budgeted $94,637.70 for completion of the contract.

Subsequently, ADL encountered financial difficulties and was unable to resurface the driveways. ADL therefore obtained a subcontractor, the Empire Paving Company (Empire), to do the resurfacing work. Empire resurfaced the driveways sometime in early December, 1988, and the town paid for the work on December 15, 1988, with a joint check payable to ADL and Empire in the amount of $90,000. ⁵ Once the driveways had been resurfaced, on December 21, 1988, the town viewed the contract as "substantially completed."

In late 1988 or early 1989, however, a dispute arose regarding road crossings constructed by ADL that the town's engineers considered defective. ⁶ On April 14, 1989, ADL notified the town that it would not complete the contract.

In the meantime, F & W had filed an action in the Superior Court seeking to collect from ADL $21,069.89 owed for the rental and servicing of the equipment. On June 9, 1989, the court rendered judgment by stipulation in favor of F & W, and awarded damages to F & W in the amount of $25,153.34. F & W then applied for an execution of the judgment as provided for under General Statutes § 52-356a(a). ⁷ The execution was issued on July 20, 1989. When the town refused to pay the execution, F & W filed a motion in the Superior Court pursuant to General Statutes § 52-356b ⁸ for a turnover order directing the town to pay the amount of the judgment plus interest and costs.

The court held an evidentiary hearing on F & W's motion on October 6, 1989. After the hearing, the court determined that the plain and unambiguous language of the contract permitted the town to hold retainage necessary to ensure full performance of the contract, and did not permit release of the retainage upon substantial completion of performance. Since the contract had not been fully performed at any time up to and including the date of the hearing, the court concluded that the retainage was not due to ADL on the date of garnishment, and as a consequence, the retainage was not garnishable by F & W under § 52-329 for satisfaction of its judgment against ADL. The court found further that even if it were to conclude that the retainage had been due upon substantial completion of performance of the contract in December, 1988, F & W's derivative right to the retainage was subordinate to and would be defeated by the town's claims against ADL for completion of performance and correction of defective work, claims that exceeded the total amount of retainage held. Accordingly, the court denied F & W's motion. ⁹

F & W appealed from the order denying its motion to the Appellate Court, and we transferred the appeal to this court in accordance with Practice Book § 4023. F & W now raises two issues for our consideration: (1) whether the court improperly determined that the retainage held by the town was not a "debt due" to ADL under § 52-329; and (2) whether the court improperly determined that its right to garnishment was defeated by the town's claims against ADL since those claims were not liquidated either on the date of garnishment or the date that the court heard F & W's motion for a turnover order. Because we affirm the judgment on the ground that the retainage did not constitute a "debt due" to ADL under § 52-329, and thus F & W's garnishment of the retainage was ineffective, it is unnecessary to address the second of these issues.

While F & W's arguments are somewhat unclear, its basic claim seems to be that the contract contained no provision concerning the town's use of the retainage, and therefore, the court improperly determined that the town could withhold retainage necessary to ensure full performance of the contract. F & W appears to argue that, rather than to ensure full performance, the retainage was meant to be used by the town to set off any future claim it might have against ADL for work defectively performed. F & W accordingly characterizes the town's obligation to pay the retainage as subject to a condition subsequent, i.e., the debt, although subject to defeasance if the town's subsequent claims exceeded the total amount of retainage held, was nonetheless due on the date of garnishment. F & W also advances the alternative contention that because ADL had substantially completed performance of the contract on the date of garnishment, ADL could have sued the town for recovery of the retainage on that date. F & W therefore claims that for this additional reason, the retainage was a debt due to ADL that it was entitled to garnish as subrogee to the rights of ADL.

The town responds that under the terms of the contract, its obligation to pay the retainage to ADL was subject to dual conditions precedent, namely, ADL's completion of performance of the contract and the town's acceptance of all work required under the contract. ¹⁰ In light of ADL's abandonment of the contract prior to completing performance, the town argues that at the time of garnishment, none of these conditions had been satisfied. The town therefore maintains that when it was served with the writ of garnishment, the retainage was not a "debt due" to ADL within the meaning...