OBS Co., Inc. v. Pace Const. Corp.

• Citation: 558 So.2d 404
• Decision Date: 15 February 1990
• Docket Number: No. 73296,73296
• Parties: 15 Fla. L. Weekly S66 OBS COMPANY, INC., Petitioner, v. PACE CONSTRUCTION CORPORATION, et al., Respondents.
• Court: United States State Supreme Court of Florida

Page 404

558 So.2d 404

15 Fla. L. Weekly S66

OBS COMPANY, INC., Petitioner, v. PACE CONSTRUCTION CORPORATION, et al., Respondents.

No. 73296.

Supreme Court of Florida.

Feb. 15, 1990.

Rehearing Denied April 23, 1990.

Donald D. Clark, David E. Gurley, Joel W. Walters and Anthony J. Abate of Abel, Band, Brown, Russell & Collier, Chartered, Sarasota, for petitioner.

J.M. Crowder of Crowder & O'Friel, Tampa, J.D. Humphries, III of Varner, Stephens, Wingfield, McIntyre & Humphries, Atlanta, Ga., for respondents.

McDONALD, Justice.

We review Pace Construction Corp. v. OBS Co., 531 So.2d 737 (Fla. 2d DCA 1988), based on express and direct conflict with Cohen v. Lunsford, 362 So.2d 383 (Fla. 1st DCA 1978). We have jurisdiction. Art. V, § 3(b)(3), Fla. Const. We quash Pace and approve Cohen.

This suit involves a claim by a subcontractor for money due for work performed when the general contractor has not been paid by the owner. Pace Construction (Pace) was the general contractor on a project owned by Shumann Investments (owner). To protect the owner from mechanic's liens, Pace entered into a labor and material payment bond with Transamerica Insurance Company and Seaboard Surety Company as sureties. The payment bond authorized any subcontractor, who had not been paid ninety days after completing its work, to sue under the bond instead of proceeding against the owner's property. OBS Company, Inc. (OBS), subcontracted with Pace to perform the framing, drywall, insulation, and stucco work for the project. OBS completed all of its work as required under the subcontract, but neither Pace nor the surety companies paid OBS the final payment of $47,917.60. There is no dispute as to the proper amount due or that OBS satisfactorily performed its work. The sole reason given for nonpayment was that Pace had not been paid by the owner.

To support its refusal to pay OBS, Pace relied upon provision 6.3 of the subcontract which states:

In addition to any other requirements of this Subcontract and the Contract Documents, Final Payment shall not become due unless and until the following conditions precedent to Final Payment have been satisfied: (a) approval and acceptance of Subcontractor's work by Owner, Architect and Contractor, (b) delivery to Contractor of all manuals, "as-built" drawings, guarantees, and warranties for material and equipment furnished by Subcontractor, or any other documents required by the Contract Documents, (c) receipt of Final Payment for Subcontractor's work by Contractor from Owner, (d) furnishing to Contractor of satisfactory evidence by Subcontractor that all labor and material accounts incurred by Subcontractor in connection with his work have been paid in full, (e) furnishings [sic] to Contractor a complete Affidavit, Release of Lien and Waiver of Claim by Subcontractor in the form attached hereto as Exhibit "D", and as required by the Contract Documents.

(Emphasis added.)

As a result of Pace's failure to make final payment, OBS filed a two-count complaint, seeking damages against Pace for breach of contract and damages against the sureties under the payment bond. At the trial level OBS argued that, because the subcontract expressly included the terms of the agreement between Pace and the owner, provision 6.3 of the subcontract was ambiguous and therefore unenforceable. In the alternative, OBS asserted that the sureties' obligations were predicated on entirely different conditions and any inability to proceed against Pace could not be extended to the sureties. OBS prevailed at trial, but the district court reversed and held Pace not liable because provision 6.3 of the subcontract was unambiguous. It further held that, because Pace was not liable under the subcontract, the sureties could not be liable under the payment bond.

We first address the breach of contract claim against Pace. In Peacock Construction Co. v. Modern Air Conditioning, Inc., 353 So.2d 840 (Fla.1977), we held that as a general rule the interpretation of contract provisions relative to time and conditions of payment between a contractor and subcontractor was a question of law and not of fact. We further stated:

That intent in most cases is that payment by the owner to the general contractor is not a condition precedent to the general contractor's duty to pay the subcontractors. This is because small subcontractors, who must have payment for their work in order to remain in business, will not ordinarily assume the risk of the owner's failure to pay the general contractor. And this is the reason for the majority view in this country, which we now join.

Our decision to require judicial interpretation of ambiguous provisions for final payment in subcontracts in favor of subcontractors should not be regarded as anti-general contractor. It is simply a recognition that this is the fairest way to deal with the problem. There is nothing in this opinion, however, to prevent parties to these contracts from shifting the risk of payment failure by the owner to the subcontractor. But in order to make such a shift the contract must unambiguously express that intention. And the burden of clear expression is on the general contractor.

Id. at 842-43 (emphasis added, footnote omitted).

The district court found that provision 6.3 of the subcontract clearly indicated an intent to shift the risk of the owner's nonpayment from Pace to OBS. Pace Construction, 531 So.2d at 739. If we looked solely at that provision in the subcontract, we would agree. We must, however, also consider the general contract and accompanying general conditions between Pace and the owner because they were expressly included as part of Pace's agreement with OBS. ¹ A patent inconsistency exists between the two contracts and creates ambiguity.

Pace argues that it is inappropriate to examine the terms of the general contract and conditions because the subcontract is perfectly clear and precisely reflects the intent of the parties at the time of contracting. We disagree. It is a generally accepted rule of contract law that, where a writing expressly refers to and sufficiently describes another document, that other document, or so much of it as is referred to, is to be interpreted as part of the writing. J.M. Montgomery Roofing Co. v. Fred Howland, Inc., 98 So.2d 484 (Fla.1957); United States Rubber Products v. Clark, 145 Fla. 631, 200 So. 385 (1941); McGhee Interests, Inc. v. Alexander National Bank, 102 Fla. 140, 135 So. 545 (1931). Therefore, in interpreting the agreement between Pace and OBS, we must examine the effect of the general contract and conditions on the otherwise clear and unambiguous risk-shifting provision in the subcontract.

The general contract between Pace and the owner was a "cost plus" or reimbursement type contract which required Pace to pay its subcontractors before the owner reimbursed Pace. ² The concomitant general conditions required Pace to submit an affidavit certifying that its subcontractors had been paid before final payment from the owner became due. ³ In contrast, provision 6.3 of the subcontract clearly required payment from the owner to Pace as a condition precedent to final payment becoming due to OBS. The direct conflict between the subcontract and the general contract and conditions, at the very least, creates some ambiguity as to who should bear the risk of the owner's nonpayment. We must emphasize that, in construing purported risk-shifting provisions, the burden of clear and unequivocal expression is on the general contractor. Peacock, 353 So.2d at 843. In this case Pace has not met that burden.

Once this Court determines that ambiguity exists, such ambiguity must be resolved against the general contractor. Snead Construction Corp. v. Langerman, 369 So.2d 591, 593 (Fla. 1st DCA 1978); Peacock, 353 So.2d at 843. This Court has previously held that, when the intent to shift the risk of nonpayment is not clearly expressed, the payment provision must be interpreted as establishing a reasonable time to pay by the contractor rather than creating a condition precedent to the contractor's obligation to pay the subcontractor. Aetna Casualty & Surety Co. v. Warren Brothers Co., 355 So.2d 785, 786 (Fla.1978); Peacock, 353 So.2d at 841. We find that, when provision 6.3 of the subcontract is read in conjunction with the general contract and conditions, ambiguity exists and prevents the provision from effectively shifting the risk of the owner's nonpayment from Pace to OBS. Pace thus remains liable for the final payment owed OBS.

If there were no labor and material payment bond involved in this case, our inquiry would end at this point. While the parties' intent as to who should bear the risk of the owner's nonpayment is ambiguous, it is clear that OBS could look to the security of the payment bond in the event it failed to receive final payment for its work. ⁴ Thus, we now examine OBS's claim against the sureties.

The district court based its refusal to hold the sureties liable on the general principle that the obligation of a surety under its bond agreement is coextensive with that of its principal. Aetna Casualty, 355 So.2d at 788; Cone v. Benjamin, 150 Fla. 419, 430, 8 So.2d 476, 480 (1942). The district court reasoned that, because Pace was not liable under the subcontract, the sureties were not liable under the payment bond. We have already found Pace to be liable, and, through application of this general principle, it...