Main Elec., Ltd. v. Printz Services Corp.

• Decision Date: 15 March 1999
• Docket Number: No. 97SC601,97SC601
• Citation: 980 P.2d 522
• Parties: 1999 CJ C.A.R. 1353 MAIN ELECTRIC, LTD.; and Connie J. Sullivan-Brown d/b/a C.J. Masonry, Petitioners, v. PRINTZ SERVICES CORPORATION, a Colorado corporation, d/b/a T.L. Printz Constructors, Respondent.
• Court: Colorado Supreme Court

Page 522

980 P.2d 522

1999 CJ C.A.R. 1353

MAIN ELECTRIC, LTD.; and Connie J. Sullivan-Brown d/b/a C.J. Masonry, Petitioners, v. PRINTZ SERVICES CORPORATION, a Colorado corporation, d/b/a T.L. Printz Constructors, Respondent.

No. 97SC601.

Supreme Court of Colorado En Banc.

March 15, 1999.

Warren, Mundt & Martin, P.C., Robert B. Warren, Colorado Springs, Colorado, Attorneys for Petitioner Main Electric, Ltd.

Hendricks, Hendricks & Shakes, P.C., David L. Shakes, Davyne A. Ryals, Colorado Springs, Colorado, Attorneys for Petitioner Connie J. Sullivan-Brown d/b/a C.J. Masonry.

Holland & Hart, LLP

David S. Prince, Elaine H. Turner, Colorado Springs, Colorado, Attorneys for Respondent.

Hall & Evans, L.L.C., Jeffrey B. Stalder, Denver, Colorado, Attorneys for Amicus Curiae R.N. Robinson & Son, Inc.

Woodrow & Gruskin, Professional Corporation, Mark D. Gruskin, Denise LaBier Pilkington, Denver, Colorado, Attorneys for Amicus Curiae American Subcontractors Association.

BENDER, Justice.

In this case we interpret the payment provisions of a construction contract to require a general contractor to pay a subcontractor even though the owner has failed to pay the general contractor. This provision is referred to as a "pay-when-paid" clause. We hold that the "when" of this clause is not a contingency, but rather means that payment may be delayed. We decline to find that this clause is a "pay-if-paid" clause that excuses the general contractor's obligation to the subcontractor if the owner does not pay.

In Printz Services Corp. v. Main Electric, Ltd., 949 P.2d 77 (Colo.App.1997), the court of appeals held that the relevant language in the construction contract between the general contractor and a subcontractor was a pay-if-paid clause which barred the subcontractor from receiving payment from the general contractor because the owner became insolvent and never paid the general contractor. We reverse on this issue. We construe the relevant payment phrase in this contract, that the subcontractor would be paid "provided like payment shall have been made by owner to contractor," to be insufficient to constitute a condition precedent that results in shifting the risk of the owner's nonpayment from the general contractor to the subcontractor. We hold that in order to create a condition precedent, the language of the parties' agreement must clearly express their intent that the subcontractor is to be paid only if the owner first pays the general contractor. Thus, we hold that the payment clause in this contract constitutes a pay-when-paid clause - that is, an unconditional promise by the general contractor to pay its subcontractor even if the owner becomes insolvent.

As part of this case, a second subcontractor sought to recover from the same general contractor based upon an implied oral contract. We agree with the analysis of the court of appeals that the second subcontractor's claim is not ripe for appellate review because the trial court did not make findings of fact concerning the terms, if any, of the payment clause of their oral agreement. Hence, with respect to the court of appeals' opinion, we reverse in part and affirm in part and return this case to that court with directions to remand this case to the trial court for further proceedings consistent with this opinion.

I. Facts and Proceedings Below

Respondent Printz Services Corporation was the general contractor on a casino construction project in Cripple Creek, Colorado. Petitioners C.J. Masonry and Main Electric were subcontractors on the project. The relationship between Printz and C.J. Masonry was governed by a preprinted form contract prepared by Printz, the general contractor. The form contains the following pertinent payment provisions:

3. SUBCONTRACT AMOUNT. In consideration of the faithful performance of the covenants and agreements herein, ... Contractor agrees to pay, or cause to be paid, Subcontractor ... at the times and in the manner following in Articles 4 and 5.

4. PROGRESS PAYMENTS.

....

D. Contractor shall make payment on or before the 25th day of the next month following receipt of the Payment Request provided like payment has been made by Owner to Contractor.

....

5. FINAL PAYMENT. Contractor shall make final payment to Subcontractor after work is complete and accepted by Owner and Architect provided like payment shall have been made by Owner to Contractor....

Main Electric did not sign a written form contract but agreed orally to work for Printz.

Before the project was complete, the owner became insolvent and lost the property in a deed of trust foreclosure. The owner failed to pay Printz, and Printz in turn failed to pay its subcontractors. C.J. Masonry and Main Electric both sought payment for breach of contract against the general contractor. Printz claimed in defense that it was obligated to pay its subcontractors only if it was first paid by the owner.

The trial court interpreted the payment clause "provided like payment shall have been made by Owner to Contractor" in C.J. Masonry's contract to be a promise by Printz to pay the subcontractor when and not if the general contractor was paid by the owner. In the trial court's view, the general contractor remained unconditionally obligated to pay the subcontractor provided the work was performed. The trial court ruled that Printz must pay C.J. Masonry regardless of the owner's insolvency.

Concerning Main Electric's claim, the trial court found that although Printz and Main Electric did not execute a written agreement, Main Electric had performed valuable services for Printz. Ruling that an implied contract existed between the two, the court awarded damages to the subcontractor under a quantum meruit theory.

The court of appeals reversed the trial court on both subcontractors' claims. See Printz Servs. Corp., 949 P.2d at 79. It held that the contract between Printz and C.J. Masonry created a condition precedent rather than a promise to pay, relying substantially on language in Orman v. Ryan, 25 Colo. 383, 55 P. 168 (1897), in which a similarly worded clause in a construction contract was referred to as a condition precedent. See id. at 388, 55 P. at 170. Thus, the court of appeals ruled Printz was not obligated to pay C.J. Masonry. See Printz Servs. Corp., 949 P.2d at 81-82.

Turning to Main Electric's claim, the court of appeals reasoned that since both parties conceded that they had an express oral agreement, an award based on a theory of quantum meruit was inappropriate. The court noted that ordinarily the distinction between enforcement of an oral contract and a quantum meruit award would make no substantive difference and would not require remand. However, because the parties disputed whether the payment clause formed part of their express oral agreement, and since the trial court did not resolve this disputed fact, remand to the trial court was appropriate.

We granted certiorari to determine whether the holding in Orman controls this case and whether the relevant contract provisions between the general contractor and the subcontractor should be interpreted as creating a condition precedent. ¹

II. Orman Does Not Govern Our Analysis

Because the parties and the court of appeals rely so heavily upon Orman, we first examine that case in some detail. In Orman, the subcontractor agreed to perform trestle work on a railroad construction project with the knowledge that the railroad company had no assets, and only by selling its own bonds could the railroad company finance the construction. See Orman, 25 Colo. at 388, 55 P. at 170. The contract provided that the general contractor was to pay the subcontractor after the general contractor received the money from the owner:

During the progress of the work, and until it is completed, there will be a monthly estimate ... of the ... value of the work done during the month, ... eighty-five percent of which value will be paid [to the subcontractor] as soon after the 15th day of the succeeding month as the [general contractor] shall have received the money for said work from the [owner].

Id. (emphasis added).

The railroad company failed to sell any bonds and became insolvent. It never paid the general contractor which filed lien proceedings to recover against the company. The general contractor, in turn, did not pay the subcontractor for its work, arguing that it had not been paid by the railroad company; therefore, under the terms of the contract, it was not obligated to pay the subcontractor. The subcontractor then brought an action against the general contractor contending that by filing lien proceedings against the railroad company, the general contractor had "received money" and was therefore obligated to pay the subcontractor.

The legal issue decided in this case was whether, when the general contractor filed lien proceedings against the insolvent owner, it "received money" as that term was defined by the contract. See Orman, 25 Colo. at 387, 55 P. at 170. The subcontractor's theory of recovery at trial and on appeal was that the relevant contract payment clause established a contingency or a condition precedent that had in fact occurred. See id. at 392, 55 P. at 171. The sole litigated issue was whether this contingency took place. On appeal, the Orman court reversed, holding that when the general contractor filed a lien against the owner's property, it had not "received money" as that term was defined in the contract. See id. at 387, 55 P. at 170.

In its opinion, the Orman court stated that the language in the contract was a condition precedent to the subcontractor's payment:

The language used clearly and explicitly makes the receipt of the money by [the general contractor] a condition precedent to any liability on their part to pay for the work ... and obligate[s] them to pay for the work done by [the subcontractor] only in case they should receive the money for that purpose from the [owner].

Id. at 388, 55 P. at 170....