Powerhouse Wholesale Elec. Supply, Inc. v. Spartan Bldg. Corp.

• Decision Date: 17 May 1988
• Docket Number: No. CA,CA
• Citation: 525 So.2d 1216
• Parties: POWERHOUSE WHOLESALE ELECTRICAL SUPPLY, INC. v. SPARTAN BUILDING CORPORATION. 87 0564. 525 So.2d 1216
• Court: Court of Appeal of Louisiana — District of US

Page 1216

525 So.2d 1216

POWERHOUSE WHOLESALE ELECTRICAL SUPPLY, INC. v. SPARTAN BUILDING CORPORATION.

No. CA 87 0564.

525 So.2d 1216

Court of Appeal of Louisiana First Circuit.

May 17, 1988.

Judy Cannella Schott, New Orleans, for plaintiff, appellant.

James I. Regan, Covington, for defendant, appellee.

Before WATKINS, CARTER and FOIL, JJ.

FOIL, Judge.

This case involves a dispute between a general contractor and the assignee of a subcontractor, which arose after the owner of the 1984 Louisiana World's Fair, Louisiana World Exposition, Inc. (LWE), filed for bankruptcy before having fully paid its general contractors. Here, LWE entered into a construction contract with a general contractor, Spartan Building Corporation (Spartan), for one of the Fair's projects known as the "Logo Shops" project. Spartan subcontracted the electrical work on the project to a subcontractor, Sunbelt Electrical Contractors, Inc. (Sunbelt). On October 22, 1984, after the project was completed, Sunbelt made a general assignment of several of its accounts receivable, including those arising out of the Logo Shops project, to plaintiff, Powerhouse Wholesale Electrical Supply, Inc. (Powerhouse). Powerhouse was a supplier of electrical materials to Sunbelt.

After LWE failed, Powerhouse, as assignee of the subcontractor Sunbelt, demanded payment from Spartan for the work satisfactorily completed by Sunbelt. Defendant, Spartan, relying on a certain provision in the subcontract known as a "pay when paid" clause, refused to make final payment. This clause of the subcontract provides, in pertinent part:

IN CONSIDERATION WHEREOF, The said Contractor agrees that he will pay to the said Sub-Contractor the sum of Thirty-six Thousand Three Hundred Dollars and No/100 ($36,300.00) for such materials and work, said amount to be paid as follows: Ninety per cent (90%) of the value of the work completed and accepted each month for which payment has been made by said Owner to said Contractor, to be paid on or about the 25th of the following month except that final payment will be made by said Contractor to said Sub-Contractor immedifately [sic] following final completion and acceptance of such materials and work by the Architect, and final payment received by said Contractor ... (Emphasis Added)

Spartan also claimed that the assignment from Sunbelt to Powerhouse was invalid because (1) Sunbelt failed to get Spartan's consent to the assignment as required in the subcontract, and (2) the assignment failed to meet the requirements of the Louisiana Assignment of Accounts Receivable Act (La.R.S. 9:3101, et seq). Alternatively, in the event the court found that Spartan did owe payment to Powerhouse, Spartan claimed set-off and compensation as a result of damages incurred when Sunbelt breached its contract on a separate, unrelated project known as the Sea King Restaurant project.

Trial was held on the matter, after which the trial court took the case under advisement. In written reasons for judgment, the court found that the assignment of accounts receivable from Sunbelt to Powerhouse was valid. However, the court ruled in favor of the general contractor, Spartan, holding that the effect of the "pay when paid" clause in the subcontract made payment by the owner to the contractor a suspensive condition to the contractor's obligation to make payment to its subcontractor. Thereafter, plaintiff Powerhouse perfected this appeal, urging as its only assignment of error that, pursuant to a recent decision of the Louisiana Supreme Court, the trial court erred in holding that the subcontract contained a suspensive condition. Defendant Spartan concedes on appeal that the trial court's interpretation of the "pay when paid" clause is contrary to the recent Supreme Court case. However, Spartan answered plaintiff's appeal, urging four assignments of error of its own in the event the trial court is reversed. These are as follows:

(1) The trial court erred in concluding the assignment was valid without the required consent of Spartan.

(2) The trial court erred in concluding the assignment was valid as it failed to comply with the requirements of the Louisiana Assignment of Accounts Receivable Act.

(3) The trial court erred in admitting Change Order No. 1 (Plaintiff's Exhibit B-1) into evidence as it is an unsigned document and there was no evidence that the work described therein was actually performed by Sunbelt.

(4) Spartan is entitled to set-off the amount of damages incurred on the Sea King Restaurant project against any sum which it may be held to owe Powerhouse.

"PAY WHEN PAID" CLAUSE

Recently, in two consolidated cases factually on point with the case at bar, the Louisiana Supreme Court concluded "that the contract provisions reciting essentially that the subcontractor would receive payment after receipt of payment by the general contractor from the owner (the so-called 'pay when paid' clauses) are not suspensive conditions, but rather terms for payment which only delay the execution of the respective general contractors' obligations to make payment, and then only for a reasonable period of time." Southern States Masonry, Inc. v. J.A. Jones Construction Company, 507 So.2d 198 (La.1987). Clearly, the trial court's interpretation of an identical clause is contrary to this decision. Accordingly, the judgment of the trial court rejecting the demands of plaintiff on this basis must be reversed, subject to our determination of the issues presented by defendant-appellee Spartan.

VALIDITY OF ASSIGNMENT

First, Spartan claims that the assignment of accounts receivable from Sunbelt to Powerhouse is invalid because Sunbelt failed to get written consent from Spartan as required in the subcontract. Paragraph 8 of the subcontract provides that the contract may not be assigned by the subcontractor without the written permission of the general contractor. In this case, the subcontractor Sunbelt completed the electrical work on the Logo Shops project which it agreed to do in the subcontract. We feel that the language used in Paragraph 8 of the subcontract envisions the situation wherein one subcontractor wishes to assign the contract to another subcontractor in order that the assignee-subcontractor complete the work owed under the original subcontract. Here, Sunbelt did not assign the contract to Powerhouse, but its interest in the accounts receivable arising out of Sunbelt's performance of the work owed under the Logo Shops project subcontract. Moreover, the provision of the subcontract in question is only effective as between the parties to the agreement. Spartan may have some recourse against Sunbelt for any alleged breach of the subcontract; however, such breach, if any, cannot be the basis for denying Powerhouse's claim against Spartan. See Super Construction Co., Inc. v. New Orleans Levee Board, 286 So.2d 134 (La.App. 4th Cir.1973), writ denied, 288 So.2d 643 (La.1974). This principle is supported by a provision of the Louisiana Assignment of Accounts Receivable Act which states that, once a notice of assignment is filed, the assignment shall be valid as to third parties notwithstanding the fact that any debtors of the account are not notified or do not consent to the assignment. La.R.S. 9:3102(B).

In its second assignment of error, Spartan contends that the assignment is invalid due to its failure to comply with the requirements of the Louisiana Assignment of Accounts Receivable Act (La.R.S. 9:3101, et seq). Specifically, Spartan claims that the notice of assignment of accounts receivable filed in the instant case failed to contain a description of the accounts assigned, as required by La.R.S. 9:3103.

La.R.S. 9:3101 through 9:3111 is not to be considered as the exclusive method of assigning accounts receivable, but instead provides an additional method for doing so. However, if the parties file a notice of assignment, then the Act shall provide the exclusive method by which the assignee may perfect a security interest in those accounts receivable assigned. La.R.S. 9:3109. A "perfected security interest" is defined in the Act as an assignment of accounts receivable effective against third persons. La.R.S. 9:3101(7). Third parties are not affected by an assignment of accounts receivable until the filing of the notice of assignment in the manner prescribed by the Act. La.R.S. 9:3102. Section 3103 of the Act provides a sample written form for the notice of assignment. It requires only that the form of notice used be "substantially" as stated in the statute. The sample form includes a general description of the accounts assigned. La.R.S. 9:3103. As stated above, however, filing of the notice merely renders the assignment effective against third parties. Moreover, it is effective whether or not any debtor(s) of the account are notified of or consent to the assignment. La.R.S. 9:3102.

As between the parties, an assignment is...