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Boro Construction, Inc. v. Ridley School Dist.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA


March 8, 2010

BORO CONSTRUCTION, INC.
v.
RIDLEY SCHOOL DISTRICT
v.
BORO CONSTRUCTION, INC.
APPEAL OF: BORO CONSTRUCTION, INC.
BORO CONSTRUCTION, INC.
v.
RIDLEY SCHOOL DISTRICT
v.
BORO CONSTRUCTION, INC.
APPEAL OF: RIDLEY SCHOOL DISTRICT

The opinion of the court was delivered by: Senior Judge Kelley

Argued: September 17, 2009

BEFORE: HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE JAMES R. KELLEY, Senior Judge.

OPINION

Boro Construction, Inc. (Boro) and Ridley School District (District) have filed cross appeals from the orders entered in the Court of Common Pleas of Delaware County (trial court) denying their motions for post-trial relief and entering judgment in favor of the District and against Boro on the complaint, and in favor of Boro and against the District on the District's counterclaims. We affirm.

On June 7, 1999, Boro and the District entered into contracts for general construction and electrical construction of a new high school building. See Reproduced Record (RR) at 836a-841a, 858a-863a. The sum due for completion under the General Construction Contract totaled $5,411,800.00, and the sum due for completion under the Electrical Contract totaled $4,599,000.00. Id. at 837a, 859a. Both contracts indicated that Boro would achieve substantial completion of the entire work under the contracts by August 15, 2002. Id.*fn1

RR at 838a, 839a, 860a, 861a (emphasis in original).

In turn, Article 9 of the General Conditions provided, in pertinent part:

9.3.1 At least fifteen days before the date established for each progress payment, the Contractor shall submit to the Construction Manager an itemized Application for Payment for Work completed in accordance with the schedule of values..

9.3.1.1 Such applications may include requests for payment on account of changes in the Work which have been properly authorized by Construction Change Directives but not yet included in Change Orders.

9.6.1 After the Construction Manager and Architect have issued a Project Certificate for Payment, the Owner shall make payment in the manner and within the time provided in the Contract Documents..

9.10.1 Upon completion of the Work, the Contractor shall forward to the Construction Manager a written notice that the Work is ready for final inspection and acceptance and shall also forward to the Construction Manager a final Contractor's Application for Payment. Upon receipt, the Construction Manager will forward the notice and Application to the Architect who will promptly make such inspection. When the Architect, based on the recommendation of the Construction Manager, finds the Work acceptable under the Contract Documents and the Contract fully performed, the Construction Manager and Architect will promptly issue a final Certificate for Payment stating that to the best of their knowledge, information and belief, and on the basis of their observations and inspections, the Work has been completed in accordance with terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor and noted in said final Certificate is due and payable. The Construction Manager's and Architect's final Certificate for Payment will constitute a further representation that conditions listed in Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final payment have been fulfilled.

9.10.2 Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the by failing to pay the final sums due under both the General Construction Contract and the Electrical Contract. In particular, Boro alleged that although the District had paid approximately $10,000,000.00 under the contracts, the District owed Boro the following additional sums: (1) a remaining balance due on the General Construction Contract totaling $44,237.06; (2) a remaining balance due on the Electrical Contract totaling $13,295.20; (3) approved change orders under the Electrical Contract totaling $6,444.60; (4) monies lost due to the improper disposal and use of dumpsters on site by other contractors totaling $64,157.92*fn2 ; (5) damages for delay in completion of the project totaling $40,026.83*fn3 ; (6) costs for cellular telephone usage on site totaling $2,890.05*fn4 ; (7) costs for revising the building locator maps due to changes in the high school's room numbers totaling $4,751.25; and (8) costs for the installation of theatrical wiring outside the scope of the contract work totaling $72,026.89. The case was transferred to the trial court at the District's request.

On May 19, 2005, the District filed an answer to the complaint with new matter and counterclaims. In the counterclaims, the District sought damages totaling $27,736.02 for the costs of reinstalling doors and door hardware that had been improperly installed by Boro. The District also sought credit change orders owed by Boro totaling $10,981.02. In addition, the District sought attorney fees pursuant to the "no damages for delay" clause of Section 8.3.4 of the Supplementary Conditions which provided that they could be recovered based on Boro's claim for delay damages. See RR at 947a.*fn5

A non-jury trial was conducted before the trial court on July 5 through July 7, 2006. On November 6, 2006, the trial court entered a verdict in favor of the District and against Boro on the complaint, and in favor of Boro and against the District on the District's counterclaims.

On May 24, 2007, the trial court issued orders denying the parties' motions for post-trial relief.*fn6 Boro and the District then filed the instant appeal and cross-appeal from the trial court's orders.*fn7, *fn8 contract awarding process that it was bidding on a contract with a public entity. As a matter of law in Pennsylvania, contractors are particularly on notice that with regard to public entities and public funds, contractors must comply strictly with the payment procedures before they can receive payment.

Pennsylvania Courts have held that contractors cannot recover against public entities where the contractors have failed to submit the proper paperwork, even if the actions of the public entity suggest that such a submission would be unnecessary. Morgan v. City of Johnstown, [306 Pa. 456, 160 A. 696 (1932)]; Emporium Area Joint School Authority v. Anundson, 156 A.2d 554 (Pa. Super. [1959), rev'd on other grounds, 402 Pa. 81, 166 A.2d 269 (1960)]. While both of these cases deal with contract revisions regarding work order changes, these cases represent the general concept in Pennsylvania that municipal contract provisions are to be strictly construed. Moreover, if the contractor fails to submit a final application for payment, then the public entity, such as [the District], cannot evaluate the payment requested. If the public entity is not given the opportunity to inspect the charges, there may be reckless disbursement of public funds. Therefore, strict adherence is necessary for dealing with municipal and/or quasi-municipal contracts.

Accordingly, the trial court properly found that Boro admitted that it knowingly failed to submit a final payment application as required under the general construction contract, which prevented [the District] from evaluating the requested payment. That failure by Boro violated the express terms of the contract and, therefore, barred Boro's claim.

Trial Court Opinion at 3, 4-5.

With respect to the District's counterclaims and request for attorney fees, the trial court stated the following, in pertinent part:

After hearing all the evidence presented on [the District]'s counterclaim, the trial court found that [the District] failed to meet its burden of proof that Boro allegedly was responsible for the improper installation of the doors and hardware. Since the Court found in favor of Boro on [the District]'s claim regarding the door

The sole claim raised by Boro in its appeal is that the trial court erred in determining that it was not entitled to recover its claims for the remaining balances due under the General Construction Contract and the Electrical Contract because it failed to submit applications for final payment. In contrast, in its appeal, the District claims that the trial court erred in determining that the District was not entitled to attorney fees because they are specifically provided for in a "no damages for delay" clause of the contract.

Boro claims that the trial court erred in determining that it was not entitled to recover its claims for final payment due under the General Construction Contract or the Electrical Contract because it failed to submit applications for final payment. We do not agree.*fn9

With respect to Boro's claim for final payment under the contracts, it is well settled that the fundamental rule in construing the provisions of a contract is to ascertain and to give effect to the intention of the parties. Empire Landfill v. Riverside School District, 739 A.2d 651 (Pa. Cmwlth. 1999). If the contract terms are clear and unambiguous, the intention of the parties must be ascertained from the document itself. Id. This Court's inquiry should focus on what the agreement itself expressed, and not on what the parties may have silently intended. Id. It is not appropriate, under the guise of contract construction, to alter the terms to which the parties expressly agreed, whether in wisdom or folly. Id.

In addition, "[t]he public contract here is subject to the Procurement Code, specifically Chapter 39. 62 Pa.C.S. § 102(a); 3901-3942. Section 3931 entitles a contractor who performs in accordance with the contract to prompt payment by the government agency. 62 Pa.C.S. § 3931*fn10 .." James Corporation v. North Allegheny School District, 938 A.2d 474, 488 (Pa. Cmwlth. 2007) (footnote added). Nevertheless, Section 3932(a) of the Procurement Code provides, in pertinent part, that "[t]he government agency shall pay the contractor . strictly in accordance with the contract." 62 Pa.C.S. § 3932(a).*fn11

Moreover, as this Court has previously noted, a "condition precedent" may be defined as a condition that must occur before a duty to perform under a contract arises. Beaver Dam Outdoors Club v. Hazleton City Authority, 944 A.2d 97 (Pa. Cmwlth. 2008). While the parties to a contract do not need to use any particular words to create a condition precedent, an event or act enumerated in a contract will not be construed as a condition precedent unless it clearly appears to have been the parties' intention. Id. In determining the purpose of conditions precedent, the general rules of contract interpretation are applied and the intention of the parties is controlling. Id. If a contract contains condition precedent, that condition must be met before a duty to perform under the contract arises. Id. Thus, where a condition precedent has not been fulfilled, the duty to perform under the contract lays dormant and no damages are due for non-performance. Shovel Transfer and Storage, Inc. v. Pennsylvania Liquor Control Board, 559 Pa. 56, 739 A.2d 133 (1999).

As noted above, in this case, both the General Construction Contract and the Electrical Contract contained specific provisions regarding final payment which required "[a] final Project Certificate for Payment [that] has been issued by the Construction Manager and Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the final Project Certificate for Payment, or as follows . [i]n accord with Document 00700, Article 9.." RR at 838a, 839a, 860a, 861a (emphasis in original). In turn, the General Conditions incorporated thereby required Boro, upon completion of the work under the contracts, to forward to the Construction Manager a written notice that the work was ready for final inspection and acceptance along with a final application for payment. Id. at 907a. Upon receipt, the Construction Manager was to forward the notice and application to the Architect who would promptly make the inspection. Id. When the Architect, based on the recommendation of the Construction Manager, found the work to be acceptable and that the contracts were fully performed, the Construction Manager and Architect would promptly issue the final certificate for payment. Id. The General Conditions specifically provided that "[t]he Construction Manager's and Architect's final Certificate for Payment will constitute a further representation that conditions listed in Subparagraph 9.10.2*fn12 as precedent to the Contractor's being entitled to final payment have been fulfilled." Id.

Such conditions that are precedent to the tender of final payment under construction contracts have long been recognized by the courts of this Commonwealth. See, e.g., John Conti Co., Inc. v. Donovan, 358 Pa. 566, 571-572, 57 A.2d 872, 874-875 (1948) ("'[W]here the contract provides . the work be performed subject to the approval of an architect, . before the builder has a right to recover compensation on his contract, such provision is binding on the parties, and, either expressly or impliedly, makes a . decision . of an architect a condition precedent to the right of the builder to recover compensation on his contract, his employer being under no liability to pay unless this is done, or unless the obtaining of such approval . is excused or waived..'") (citation omitted); Payne v. Roberts, 214 Pa. 568, 580, 64 A. 86, 90 (1906) ("Such a provision as this, requiring the work and materials to meet the satisfaction of the architects, is neither unusual nor unreasonable. True, it confides much in the judgment, impartiality, and integrity of the architect; but it has long been a feature in building contracts, and that it obtains to-day as largely as ever shows that experience has approved it..").*fn13

Thus, it is clear that Boro was required to establish that it strictly complied with the final payment provisions of the contracts by submitting a final application for payment to the Construction Manager and the Architect as a condition precedent to the District's duty to tender final payment under those contracts. See, e.g., Sections 3932(a) and 3941(a) of the Procurement Code, 62 Pa.C.S. §§ 3932(a), 3941(a); John Conti Co., Inc., 358 Pa. at 572, 57 A.2d at 875 ("In the absence of proof of waiver of the stipulated condition precedent to payment or of collusion between the defendant and the architect, plaintiff is bound by the decision of the architect.. [N]o 'collusion' between the defendant and the architect is alleged and for plaintiff to succeed in its action against defendant it is incumbent that it meet the burden of proof resting upon it; to wit, it must duly establish a waiver by the defendant of the condition precedent. No such waiver is alleged.").*fn14

Although it is not disputed that Boro failed to comply with these express provisions, Boro contends that the condition precedent to the District's duty to tender final payment was excused in this case. More specifically, Boro asserts that the District committed an anticipatory breach of the contracts thereby relieving Boro of its duty to submit the applications for final payment. In support of this assertion, Boro relies upon the testimony of its Chief Operating Officer at trial in which he stated that some unnamed representative of the District indicated to him that the District would not tender final payment under the contracts unless he dropped his claims regarding payment for extra work outside of the contracts. See Brief for Appellant at 13-16.

It is true that an anticipatory repudiation by an obligor will discharge an obligee's duty to perform a condition precedent. Jonnet Development Corporation v. Dietrich Industries, Inc., 463 A.2d 1026 (Pa. Super. 1983). However, with respect to the essential elements demonstrating an anticipatory breach, the Pennsylvania Supreme Court has noted:

The requisite elements of an anticipatory breach were established by this Court in McClelland v. New Amsterdam Casualty Co., 322 Pa. 429, 185 A. 198 (1936). This Court, following the standards set out by the U.S. Supreme Court in Dingley v. Oler, 117 U.S. 490 [(1886)], stated that to constitute anticipatory breach under Pennsylvania law there must be 'an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so.' [McClelland], 322 Pa. at 433, 185 A. [at 200]. The McClelland standard is still the rule of law in Pennsylvania.."

2401 Pennsylvania Avenue Corporation v. Federation of Jewish Agencies of Greater Philadelphia, 507 Pa. 166, 172, 489 A.2d 733, 736 (1985).*fn15 Thus, "Pennsylvania law is well-settled that more than a threat of non-performance is needed before conduct can amount to an anticipatory breach of contract. The conduct must manifest an absolute and unequivocal refusal to perform.." McAlpine v. Aamco Automotive Transmissions, Inc., 461 F. Supp. 1232, 1253 (E.D. Mich. 1978) (citations omitted). See also Jonnet Development Corporation, 463 A.2d at 1031 ("'An anticipatory breach of a contract occurs whenever there has been a definite and unconditional repudiation of a contract by one party communicated to another. A statement by a party that he will not or cannot perform in accordance with [an] agreement creates such a breach.'") (citations omitted).

Based on the foregoing, it is clear that the Chief Operating Officer's testimony, even if deemed to be credible*fn16 , does not establish the essential elements demonstrating an anticipatory breach of the contracts by the District. The conditional threat purportedly expressed by an unnamed representative of the District does not objectively constitute the required "absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so." See, e.g., 2401 Pennsylvania Avenue Corporation, 507 Pa. at 173-174, 489 A.2d at 737 ("[A]ppellee's statement that it had no use for the space and would not consider approving the extension without a release from its obligations under the lease indicates that appellee did recognize at the very least a possible obligation under the contract. The fact that a party seeks to preserve what it deems to be a legal defense to the required performance does not reflect an intention to deliberately breach the agreement. To the contrary, it reflects an intention to avoid performance only if there is a legal basis for the refusal of performance.").*fn17, *fn18

Based on the foregoing, it is clear that Boro's assertion that it was relieved of its duty to submit an application for final payment to the Construction Manager and the Architect as a condition precedent to the District's duty to tender final payment under the contracts is patently without merit. It is equally clear that the trial court did not err in determining that Boro was not entitled to recover its claims for the remaining balances due under the General Construction Contract and the Electrical Contract because it failed to submit applications for final payment as required by the express terms of those contracts.*fn19 In short, Boro's allegation of error in this regard is patently without merit.*fn20

Finally, the District claims that the trial court erred in determining that it was not entitled to attorney fees where they are specifically provided for in a "no damages for delay" clauses of Section 8.3.4 of the Supplementary Conditions to the General Construction Contract and the Electrical Contract. More specifically, the District asserts that because Boro both pleaded and litigated a claim for delay damages in contravention of Section 8.3.4, and did not prevail on this claim, the trial court erred in failing to award attorney fees under that section.

As the Pennsylvania Supreme Court has recently noted: "[T]he general rule within this Commonwealth is that each side is responsible for the payment of its own costs and counsel fees absent bad faith or vexatious conduct." This so-called "American Rule" holds true "unless there is express statutory authorization, a clear agreement of the parties, or some other established exception."

McMullen v. Kutz, ___ Pa. ___, ___, 985 A.2d 769, 775 (2009) (citations omitted). The burden of proving entitlement to attorney fees is on the party claiming such entitlement. Department of Transportation v. Smith, 602 A.2d 499 (Pa. Cmwlth.), petition for allowance of appeal denied, 531 Pa. 657, 613 A.2d 561 (1992). In addition, where, as here, the fee-shifting provisions are contained in a contract, an appellate court will construe the contractual provisions in accordance with their plain and ordinary meaning. Profit Wize Marketing v. Wiest, 812 A.2d 1270 (Pa. Super. 2002). Moreover, "[t]he trial court may consider whether the fees claimed to have been incurred are reasonable, and to reduce the fees claimed if appropriate." McMullen, ___ Pa. at ___, 985 A.2d at 777.

As noted above, Section 8.3.4 of the Supplementary Conditions provides, in pertinent part, that "[n]o payment or compensation or claim for damages shall be made to the Contractor as compensation for damages for any delays or hindrances from any cause whatsoever in the progress of the Work, [. and t]he Contractor's sole remedy for delays shall be an EXTENSION OF TIME ONLY.." RR at 947a (emphasis in original). In addition, Section 8.3.4 provides that "[i]n the event the Contractor shall choose to litigate this clause or issue and loses said litigation, the Contractor shall reimburse the Owner, Construction Manager, and the Architect for their reasonable attorney's and expert witness fees and all other costs and expenses incurred by them in the litigation." Id. Thus, in order to be awarded attorney fees pursuant to the foregoing contractual provisions, the District was required to demonstrate to the trial court's satisfaction that Boro had "los[t] said litigation".

In refusing to award attorney fees in this case, the trial court stated the following in the opinion filed in support of its order:

After hearing all the evidence presented on Defendant's counterclaim, the trial court found that [the District] failed to meet its burden of proof that Boro allegedly was responsible for the improper installation of the doors and hardware. Since the Court found in favor of Boro on Ridley's claim regarding the door installation, the court found that [the District] was not entitled to attorney's fees as a substantially prevailing party under the terms and provisions of the contract.

Trial Court Opinion at 6.

We discern no error in the trial court's determination in this regard. The word "lose" is defined, in pertinent part, as "[t]o fail to win, gain, or obtain <~ a="" prize=""> <~ a="" contest="">.." Merriam-Webster's Collegiate Dictionary 736 (11th ed. 2008). In turn, "litigate" is defined, in pertinent part, as "[t]o carry on a legal contest by judicial process.." Id. at 727. Likewise, "litigation" is defined as "[t]he process of carrying on a lawsuit [or a] lawsuit itself.." Black's Law Dictionary 1017 (9th ed. 2009).

Thus, in light of the specific language of the contracts in this case, the trial court quite properly determined that the District was not entitled to an award of attorney fees based upon its determination that Boro had prevailed with respect to the District's counterclaims in the instant lawsuit. See, e.g., Profit Wize Marketing, 812 A.2d at 1275 ("By entering into a stipulation for the entry of a permanent injunction both Executrain and Appellant managed to preserve certain legal rights and willingly relinquished others.. Such a resolution, in keeping with the nature of most settlement agreements, evidences a compromise. Neither party in this case emerges as the clear-cut winner. As the plain and unambiguous meaning of 'prevail' requires Executrain to 'triumph' or 'win' in the underlying action, we do not find that Executrain is entitled to an award of attorney fees and costs.. Additionally, we are not willing, nor are we permitted, to fashion an equitable remedy in the instant case because Executrain 'partially prevailed'. Although the lower court attempted to craft such a remedy, the language of the contract does not so provide."). In short, the District's allegation of error in this regard is without merit.

Accordingly, the orders of the trial court are affirmed.

ORDER

AND NOW, this 8th of March, 2010, the orders of the Court of Common Pleas of Delaware County, dated May 24, 2007 at No. 05-3046, are AFFIRMED.

JAMES R. KELLEY, Senior Judge


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