Transtar Elec., Inc. v. A.E.M. Elec. Servs. Corp.
| Decision Date | 14 December 2012 |
| Docket Number | No. L–12–1100.,L–12–1100. |
| Parties | TRANSTAR ELECTRIC, INC., Appellant v. A.E.M. ELECTRIC SERVICES CORPORATION, Appellee. |
| Court | Ohio Court of Appeals |
OPINION TEXT STARTS HERE
Luther L. Liggett, Jr. and Heather Logan Melick, Columbus, for appellant.
James P. Silk, Jr., Toledo, for appellee.
{¶ 1} Appellant appeals the award of summary judgment in a suit seeking payment on a contract for electrical subcontracting. Because we conclude that the purported pay-if-paid contract provision does not manifest the intent of the parties to shift the risk of owner non-payment from the general contractor to the subcontractor, we reverse.
{¶ 2} Appellee, A.E.M. Electric Services Corp., was general contractor on the construction of a swimming pool at a Holiday Inn in Maumee, Ohio. In January 2007, appellee entered into a subcontract agreement with appellant, Transtar Electric, Inc., for certain electrical work to be performed on the Maumee job.
{¶ 3} Section 4(c) of the agreement between the parties provided as follows:
(c) The Contractor [appellee] shall pay to the Subcontractor [appellant] the amount due [for work performed] only upon the satisfaction of all four of the following conditions: (i) the Subcontractorhas completed all of the Work covered by the payment in a timely and workmanlike manner, * * * (ii) the Owner has approved the Work, * * * (iii) the Subcontractor proves to the Contractor's sole satisfaction that the Project is free and clear from all liens * * * and (iv) the Contractor has received payment from the Owner for the Work performed by Subcontractor. RECEIPT OF PAYMENT BY CONTRACTOR FROM OWNER FOR WORK PERFORMED BY SUBCONTRACTOR IS A CONDITION PRECEDENT TO PAYMENT BY CONTRACTOR TO SUBCONTRACTOR FOR THAT WORK. (Emphasis sic.)
{¶ 4} Appellant invoiced appellee for work performed in the amount of $186,709. Appellee paid appellant a total of $142,620.10. The remaining $44,088.90 was not paid.
{¶ 5} On September 27, 2010, appellant sued appellee for the unpaid amount on the contract, on account and in unjust enrichment. Appellee denied liability. Following discovery, the matter was submitted to the trial court on cross-motions for summary judgment.
{¶ 6} Appellee supported its motion with the affidavit of its president who ratified the unpaid amount appellant sought, but averred that the project owner had failed to pay appellee that amount, as well as more. Appellee's president stated that appellee had and would continue to attempt to collect the money from the owner and pledged that appellant would be paid if collection efforts were successful. Absent such payment, however, appellee insisted it was not contractually obligated to pay. Moreover, appellee maintained, neither account nor unjust enrichment was a sustainable claim in the presence of an enforceable contract.
{¶ 7} Appellant argued that the contractual provision that appellee characterizes as a pay-if-paid should be deemed a pay-when-paid clause. Contractual language that shifts the risk of non-payment from the general contractor to a subcontractor is not favored in the law and provisions which effect such a transfer of risk must be carefully scrutinized and approved if, and only if, such risk-shifting is manifestly intended in clear and unequivocal form. Absent such language, the provision should be interpreted to govern only the time at which payment is to be made. If no specific time is stated, then it must be determined what period constitutes a reasonable delay.
{¶ 8} According to appellant, any other interpretation means that the subcontractor has promised to provide materials and labor and the general contractor has made no promise to pay. In this circumstance, appellant reasoned, the contract failed for want of consideration.
{¶ 9} The trial court concluded that the contract clause at issue was a pay-if-paid provision. Since appellant did not dispute appellee's affidavit averring that, despite appellee's efforts, payment on this portion of the work had not been made, applying this portion of the contract meant that appellant had no present claim. Since a valid contract existed between the parties, claims on account and unjust enrichment were precluded. Accordingly, the court denied appellant's motion for summary judgment and granted appellee's motion. From this judgment, appellant now brings this appeal.
{¶ 10} Appellant sets forth the following two assignments of error:
First Assignment of Error: The trial court erred in not determining the Subcontract clause to be a “pay-when-paid” clause, allowing A.E.M. a reasonable time to collect payment.
Second Assignment of Error: The trial court erred when granting summary judgment without a fact determination as to the basis for the owner's non-payment and A.E.M.'s culpability, rendering the Subcontract void as without consideration, and leaving Transtar without a remedy.
{¶ 11} Appellate review of a summary judgment is de novo, Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996), employing the same standard as applied in trial courts. Lorain Natl. Bank v. Saratoga Apts., 61 Ohio App.3d 127, 129, 572 N.E.2d 198 (9th Dist.1989). The motion may be granted only when it is demonstrated:
(1) that there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor. Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 67, 375 N.E.2d 46 (1978), Civ.R. 56(C).
{¶ 12} When seeking summary judgment, a party must specifically delineate the basis upon which the motion is brought, Mitseff v. Wheeler, 38 Ohio St.3d 112, 526 N.E.2d 798 (1988), syllabus, and identify those portions of the record that demonstrate the absence of a genuine issue of material fact. Dresher v. Burt, 75 Ohio St.3d 280, 293, 662 N.E.2d 264 (1996). When a properly supported motion for summary judgment is made, an adverse party may not rest on mere allegations or denials in the pleadings, but must respond with specific facts showing that there is a genuine issue of material fact. Civ.R. 56(E); Riley v. Montgomery, 11 Ohio St.3d 75, 79, 463 N.E.2d 1246 (1984). A “material” fact is one which would affect the outcome of the suit under the applicable substantive law. Russell v. Interim Personnel, Inc., 135 Ohio App.3d 301, 304, 733 N.E.2d 1186 (6th Dist.1999); Needham v. Provident Bank, 110 Ohio App.3d 817, 826, 675 N.E.2d 514 (8th Dist.1996), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
{¶ 13} In this matter, there are no questions of material fact; the issue to be determined is the meaning of the contract between the parties.
{¶ 14} The cardinal principle in contract interpretation is to give effect to the intent of the parties. Skivolocki v. East Ohio Gas Co., 38 Ohio St.2d 244, 313 N.E.2d 374 (1974), paragraph one of the syllabus. Such intent is presumed to reside in the language the parties chose to employ in the agreement. Kelly v. Med. Life Ins. Co., 31 Ohio St.3d 130, 509 N.E.2d 411 (1987), paragraph one of the syllabus. If the language of the contract is clear and unambiguous, the contract must be enforced as written. Corl v. Thomas & King, 10th Dist. No. 05AP–1128, 2006-Ohio-2956, 2006 WL 1629740, ¶ 26. Ambiguity exists only when the terms of an agreement cannot be determined within the four corners of the contract or where the language of the agreement is susceptible to two or more reasonable interpretations. United States Fid. & Guar. Co. v. St. Elizabeth Med. Ctr., 129 Ohio App.3d 45, 55, 716 N.E.2d 1201 (2d Dist.1998).
I. Pay if Paid or Pay when Paid
{¶ 15} In its first assignment of error, appellant maintains that the trial court erred when it concluded that the subcontractor payment provision was a pay-if-paid provision which, without payment by the owner, absolved appellee of any obligation to pay appellant for the labor and material expended on the job.
{¶ 16} Ordinarily, as between a general contractor and a subcontractor, the risk of the insolvency of the owner rests with the general contractor. The general contractor is in the best position to assess the owner's creditworthiness. The ability to best minimize the risk of an owner's default also resides with the general contractor. Thus, normally and legally the insolvency of the owner does not defeat the claim of a subcontractor against a general contractor. Thos. J. Dyer Co. v. Bishop Internatl. Eng. Co., 303 F.2d 655, 660–661 (6th Cir.1962), Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App.3d 784, 2011-Ohio-4979, 965 N.E.2d 1007, ¶ 10 (10th Dist.), Power & Pollution Servs. v. Suburban Power Piping, 74 Ohio App.3d 89, 91, 598 N.E.2d 69 (8th Dist.1991).
{¶ 17} Pay-if-paid provisions in construction contracts seek to alter the distribution of risk of owner default between the contractor and subcontractor by contractually making the owner's payment to the contractor a condition precedent to the contractor's payment to the subcontractor. Chapman Excavating Co. v. Fortney & Weygandt, Inc., 8th Dist. No. 84005, 2004-Ohio-3867, 2004 WL 1631118, ¶ 22. Such provisions have been inserted into construction contracts for decades. 8 Lord, Williston on Contracts (4th Ed.2010) 633, Section 19:59.
{¶ 18} Pay-if-paid provisions are disfavored. Many jurisdictions, including North Carolina and Wisconsin, have enacted legislation voiding such clauses as against public policy. Id. at 637, fn. 5, N.C.Gen.Stat. § 22C–2, Wis.Stat.Ann. § 779.135(1). Illinois, Maryland and Missouri have also enacted legislation limiting such clauses. New York and California have judicially declared pay-if-paid provisions to be against public policy as abrogating the states' lien...
To continue reading
Request your trial