Howard-Green Elec. Co. v. Chaney & James Const. Co.

182 S.E.2d 601 (1971)

12 N.C. App. 63

HOWARD-GREEN ELECTRICAL COMPANY, Inc. v. CHANEY & JAMES CONSTRUCTION CO., Inc., et al.

No. 7110SC458.

Court of Appeals of North Carolina.

August 4, 1971.

*603 Purrington & Purrington by A. L. Purrington, Jr., Raleigh, for plaintiff appellee.

Poyner, Geraghty, Hartsfield & Townsend by Marvin D. Musselwhite, Jr., Raleigh, for defendants appellants.

PARKER, Judge.

Defendant Construction Co. acknowledges that it owes plaintiff a balance of $13,430.45 on account of plaintiff's completed performance under the subcontract for the electrical work, and the sole dispute between the parties is whether that balance is presently due and payable. The written subcontract between plaintiff and defendant Construction Co. contains the following:

"3. Payments shall be made monthly in accordance with the following procedure: "(a) On the 25th of each month (or 2 days before the date on which the contractor has agreed to submit its estimate to the owner, if such date would be earlier in the month) Sub-Contractor shall submit to the Contractor an estimate of materials on hand and work done. Estimates submitted after the submission date in any month may be held by Contractor until the next submission date for processing. "(b) If satisfactory, the estimate will be forwarded to the Owner, incorporated with the Contractor's estimate. "(c) To the extent that the Owner recognize the Sub-Contractors estimate and not later than ten days after payment to the Contractor, the Contractor will pay the Sub-Contractor the per cent of the Sub-Contractor's estimate shown in Paragraph 3 of the Basic Contract, provided that it shall not be incumbent upon the Contractor to make payments in an amount that would not leave a sufficient balance to cover all obligations of the Sub-Contractor for labor, materials, etc., previously furnished or to be furnished by the Sub-Contractor under this Sub-Contract. "(d) Final payment will be paid within 15 days of acceptance of and payment for the entire contract by the Owner, but not before delivery of executed releases of the Sub-Contractor as required by the Contractor."

Appellants contend that the foregoing language in the written subcontract, particularly the language in subparagraph 3(d), postponed the time of payment of the balance due under the subcontract from defendant Construction Co. to plaintiff until the Construction Co. receives its final payment from Motel Properties, Inc., the Owner. We do not agree.

"The heart of a contract is the intention of the parties, which is to be ascertained from the expressions used, the subject matter, the end in view, the purpose sought, and the situation of the parties at the time." Morris Gould Electric Co. v. Atlantic Fire Insurance Co., 229 N.C. 518, 50 S.E.2d 295. Here, plaintiff contracted solely with the prime contractor and did not contract with or extend credit to the Owner, nor did plaintiff accept responsibility for any part of the building project other than the electrical work. Viewing the language of the electrical subcontract in light of the situation of the parties, the end which they sought to accomplish, and against the background of customary practices in the construction industry, it is our opinion that by paragraph 3(d) of their contract the parties created no condition precedent by which plaintiff's right to receive full payment from defendant Construction Co. was conditioned upon the Construction Co. being first paid in full by *604 the Owner. Rather, in our opinion, paragraph 3(d) relates solely to the time of payment, and in that regard postpones payment only until, in the usual course of business, final settlement of accounts between the general contractor and the Owner could reasonably be expected.

Our conclusion is supported by the decision in A. J. Wolfe Company v. Baltimore Contractors, Inc., 355 Mass. 361, 244 N.E.2d 717, a case which presented a factual situation very similar to the case now before us. In that case a subcontractor for electrical work on an apartment house sued the general contractor and the bonding company. The subcontract called for monthly progress payments and provided that "[t]he balance of the contract price shall be paid * * * within thirty * * * days after full and final payment for the work" by the owners to the general contractor. The general contractor and the bonding company defended on the grounds that the subcontractor had not produced evidence that the owners ever paid the general contractor amounts due for the several classes of work done by the subcontractor. In affirming the trial court's judgment in favor of the subcontractor, the Supreme Judicial Court of Massachusetts said:

"We interpret art. II[a] merely as setting the time of payment and not as creating a condition precedent to payment. In the absence of a clear provision that payment to the subcontractor is to be directly contingent upon the receipt by the general contractor of payment from the owner, such a provision should be viewed only as postponing payment by the general contractor for a reasonable time after requisition (and completion of the subcontractor's work mentioned in the requisition) so as to afford the general contractor an opportunity to obtain funds from the owner."

To the same effect is the decision in Thos. J. Dyer Co. v. Bishop International Engineering Co., 303 F.2d 655 (6th Cir. 1962). That case also involved an action brought by a subcontractor against the general contractor and the surety on its bond. Paragraph 3 of the subcontract provided that the subcontractor should be paid a specified amount for performance under the subcontract, "no part of which shall be due until five (5) days after Owner shall have paid Contractor therefor. * * *" The work was completed, but before making full payment to the general contractor, the Owner filed for reorganization under Chapter X of the Federal Bankruptcy Act. In the subcontractor's action against the general contractor, the latter defended on the grounds that, under paragraph 3 of the subcontract, no payment was due. In affirming a summary judgment in favor of the plaintiff-subcontractor the Court said:

"In our opinion, paragraph 3 of the subcontract is a reasonable provision designed to postpone payment for a reasonable period of time after the work was completed, during which the general contractor would be afforded the opportunity of procuring from the owner the funds necessary to pay the subcontractor. Stewart v. Herron, 77 Ohio St. 130, 149, 82 N.E. 956. To construe it as requiring the subcontractor to wait to be paid for an indefinite period of time until the general contractor has been paid by the owner, which may never occur, is to give to it an unreasonable construction which the parties did not intend at the time the subcontract was entered into."

In the case now before us, the payment bond which was executed by defendant Construction Co., as principal, and by defendant Insurance Co., as surety, provides as follows:

"2. The above named Principal and Surety hereby jointly and severally agree with the Owner that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on *605 which the last of such claimant's work or labor was done or performed or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon. * * *"

No question is raised but that plaintiff is a claimant within the meaning of the bond. Neither payment by the Owner to the general contractor, nor completion of work of other subcontractors, are among conditions imposed by the bond. By executing the bond, defendant-appellants have themselves recognized the 90-day period as a reasonable time after which payment to plaintiff becomes due.

The judgment in favor of plaintiff is

Affirmed.

BRITT and MORRIS, JJ., concur.