Opinion
No. CA-5605.
April 9, 1987. Writ Granted June 19, 1987.
APPEAL FROM CIVIL DISTRICT COURT, PARISH OF ORLEANS, STATE OF LOUISIANA, HONORABLE PAUL B. DEAL, J. AD HOC.
Gerald G. Metzger, Michael F. Little (APLC), Metairie, for appellee.
Gerald J. Gallinghouse, Porteous Hainkel Johnson Sarpy, New Orleans, for appellants.
Before REDMANN, SCHOTT, BYRNES, CIACCIO and WARD, JJ.
Landis Construction Company, Inc. (Landis) and its surety, United States Fidelity and Guaranty Company (USF G) appeal a district court ruling which awarded plaintiff-appellee, Arteck Services, Inc. (ASI) $32,568.26 under its contract with Landis. ASI also appeals the ruling below insofar as it refused ASI's request for statutory attorney's fees and denied ASI full recovery of the amount it claimed was due as a result of work completed under its contract with Landis. For reasons cited below we reverse the trial court's judgment.
This is one of series of cases arising out of the 1984 World's Fair and the subsequent bankruptcy proceedings entered into by the Fair's owner, the Louisiana World Exposition, Inc. (LWE). In the present case, ASI entered into two sub-contracts with Landis, a general contractor, to furnish labor and materials in the construction of several buildings at the World's Fair site.
Under its contracts with Landis, ASI was to be paid:
Ninety percent (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 twentieth of the following month, except that final payment will be made by said Contractor to said Sub-contractor immediately following final completion and acceptance of such materials and work by the Architect, and final payment received by said Contractor, and after satisfactory evidence has been furnished to said Contractor by said Sub-Contractor that all labor and material accounts for use on this particular work have been paid in full. (emphasis added)
In accordance with this provision, Landis made periodic payments to ASI as the work progressed and as LWE paid Landis. After ASI has substantially completed its work and it was accepted by the project architect, a balance of $37,646.38 remained unpaid. Upon demand, Landis claimed that it was under no contractual obligation to pay ASI this balance since LWE had failed to pay Landis for the same work under the general contract between LWE and Landis. In support of its position, Landis cited the above portion of its contracts with ASI. Landis asserted that these "pay when paid" provisions constituted suspensive conditions to its obligation to pay ASI. ASI argued that the 'pay when paid' provisions were not suspensive conditions but were only intended to provide a reasonable term for payment by the general contractor to the sub-contractor.
At trial, the court weighed both arguments and found that the "pay when paid" language was arguably ambiguous. The court then interpreted the contract against Landis, who drafted the contract, and found that the "pay when paid" provision merely provided a timetable by which Landis was to pay ASI. Judgment was accordingly entered against Landis and its surety, USF G and in favor of ASI for $32,568. 26; a sum reflecting the amount due under its contract with Landis, less $5,078.12 which ASI owed to a supplier. The trial court denied ASI's demand for statutory attorney's fees on the ground that it was recovering less then the full amount demanded in its pleadings.
"PAY WHEN PAID" PROVISION
In resolving this issue, we are bound by this court's ruling in Strahan v. Landis, 499 So.2d 417 (La.App. 4th Cir. 1986), writ granted, 500 So.2d 414 (1987). Strahan, involved a form contract drafted by Landis which was identical to the contract in the present case. Likewise, Strahan arose in the context of the World's Fair and the litigation caused by its financial failure. In Strahan, this court analyzed the language of the "pay when paid" provision and found that there was no doubt, ambiguity, uncertainty, or obscurity about the words of the provision.
In reaching this conclusion the court found that:
Nothing can be clearer than the words regarding final payment which was to be made when three things occurred including "final payment received by said Contractor." There is no need to invoke the provisions of Arts. 1957 and 1958 because no doubt exists here. Plaintiff must abide by the clear provisions of the subcontract he signed.
Inasmuch as the contract under consideration here is identical to that in Strahan, we reverse the trial court's ruling that it was ambiguous and hold that Landis' obligation to pay ASI is suspended until Landis is paid by LWE.
LIABILITY OF USF G
ASI also argues that even if it cannot recover from Landis due to the suspensive condition imposed by the "pay when paid" provision of its contract, it should be allowed to recover on the bond which USF G, as surety, issued in favor of LWE and sub-contractors like ASI. We do not agree.
A bond issued under the provisions of the Private Works Act (R.S. 9:4801-4842) is, in effect, a legal suretyship and is regulated by the rules of suretyship as modified by the Act. Thus, for example, the pleas of discussion and division are not available to the surety under the Private Works Act. See R.S. 9:4813(A), 4802(E). Likewise, certain defenses which are ordinarily available to sureties do not apply to sureties under the Private Works Act. See R.S. 9:4812 E(1), (2), and (3). At issue in this case is whether a surety under the Private Works Act can assert the defense that the obligation it secures is not yet enforceable due to a suspensive condition. We hold that it can.
Suretyship is an accessory promise by which the surety agrees to satisfy an obligation in the event that the principal debtor fails to do so. C.C. Art. 3035. Implicit in this statement is the assumption that the surety cannot be called upon to satisfy an obligation which has not matured. In the present case, USF G's bond was issued to guarantee Landis' performance of its obligations to LWE as well as sub-contractors like ASI. Landis has not defaulted on its obligation to ASI. As discussed above, that obligation is suspended because of LWE's failure to pay Landis. If Landis' obligation to pay ASI is not yet enforceable we do not see how USF G can be made to satisfy it. To hold otherwise would do violence to the whole concept of suretyship and make USF G an absolute insurer of LWE's solvency with no defenses. This result is not contemplated by the Private Works Act, nor was it contemplated by the parties to the bond or sub-contract. We therefore hold that USF G's bond is not available to satisfy ASI's claim for payment against Landis at this time. This result is consistent with the Private Works Act and the law of suretyship.
For the foregoing reasons, the judgment of the trial court is reversed at ASI's cost.
REVERSED.
REDMANN, J., dissenting with reasons.
Strahan v. Landis Construction Co., Inc., 499 So.2d 417 (La.App. 4 Cir. 1986), cert. granted 500 So.2d 414, is in point but superseded by the supreme court's writ grant. As demonstrated by Judge Barry in his dissent in Strahan, however, and as suggested by the writ grant, Strahan was wrongly decided. The present case can only be correctly decided by disagreeing with Strahan and overruling Miller v. Housing Authority of N.O., 175 So.2d 326 (La.App. 4 Cir. 1965), rev'd in part 249 La. 623, 190 So.2d 75 (1966), upon which Strahan relied. This case should be referred to the court en banc to approve overruling Miller.
The obvious, commonsense interpretation of the contractual provision for payment to the subcontractor ("final payment will be made by said Contractor to said Sub-contractor immediately following . . . final payment received by said Contractor . . .") is that the subcontractor will be paid when the contractor is paid (within the reasonable time expectable in ordinary course), not that the subcontractor will be paid if the contractor is paid.
The contrary interpretation requires an intent by the parties that, depending on whether the owner pays or not, the contractor collects the profit while the subcontractors suffer any loss. That interpretation is simply not reasonable.
That interpretation, furthermore, would defeat the purpose of the Private Works Act, La.R.S. 9:4801 et seq. (revised to its present state by La.Acts 1981 No. 724, but part of the law of Louisiana since before it became a state; see Digest of 1808 p. 470 art. 75 par. 1). Louisiana law has at all times guaranteed payment to persons whose labor and material improve immovable property, by giving them a high-ranking privilege on the proceeds of the improved property — a privilege that originally outranked even prior-recorded mortgages (see C.C. 3186 and 3269). Perhaps the most profound change in this law over the years (in addition to partial relief for prior-recorded mortgagees) was the provision that a contractor's bond could substitute for that high-ranking privilege of the subcontractor, laborer, materialman, etc. But because the contractor's bond is a substitute for that privilege that the law otherwise grants, it has been held that not even statutory wording can be construed — not even if "construed literally" — to defeat a protected claimant's right against the surety on the contractor's bond. Dixie Building Material Co. v. Massachusetts Bonding Ins. Co., 167 La. 399, 119 So. 405, 406 (1928). To hold that the inexplicit, imprecisely-worded clause in the present case is a condition of a subcontractor's entitlement to be paid would deny the subcontractor the protection that the Private Works Act and its forbears have guaranteed since before Louisiana was a state.
Strahan should be repudiated, in respect to both the contractor's and, especially, the surety's liability. At least the surety must pay the subcontractor (which means, because of the surety's rights of reimbursement, C.C. 3052 (see Cleveland v. Comstock, 22 La.Ann. 597 (1870)), and subrogation, C.C. 3053, apart from the contractual indemnity a commercial surety exacts, the contractor would pay in any case).
The judgment appealed from should be affirmed and Miller should be expressly overruled.