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Two
Recent Superior Court Decisions Under the
Contractor and Subcontractor Payment
(“Prompt Payment”) Act
Jack W. Plowman*
The Pennsylvania legislature adopted the Contractor and Subcontractor
Payment Act (73 P.S. 501, et seq.) (the “Act”) in 1994 and, as
specified in section 515, that provided it would be applicable to all
construction contracts entered into after its effective date, April
18, 1994. It is an interesting piece of legislation, in some ways
benefiting the construction industry, and in other ways a disadvantage
to it.
In Nippes v. Lucas, 2003 Pa. Super.10, 815 A.2d 648, decided on
January 10, 2003, the Superior Court of Pennsylvania held that section
503(a) of the Act precluded a claim under the Act for construction
contracts involving six (6) or fewer residential units “which are
under construction simultaneously.” In that case Nippes contended
that the Act applied to a contract involving a single family
residence.
“[Nippes]
would urge us to find that the Act applied to all construction contracts…except those involving
two to six residential units simultaneously.”
Nippes contended that while the Act specifically provided that it was
inapplicable to six or fewer residential units “under construction
simultaneously,” since work on one residential unit would not be
performed simultaneously, the Act applied. The Superior Court,
dismissed this contention out of hand, holding that the Act applied
only “to construction contracts… where seven or more residential units
are simultaneously under construction and “was not meant to apply to
construction contracts involving a single family residence.”
The Superior Court’s decision in Joseph F. Capelli & Sons, Inc. v.
Keystone Custom Homes, Inc., 2003 Pa. Super. 8, 815 A.2d 643,
decided January 9, 2003, was less obvious, although just as easily
disposed of by the Court. There the owner of a development entered
into what was entitled a “Subcontract Agreement” with Capelli whereby
Capelli was to construct roads and other site improvements. When
Keystone failed to pay, Capelli sued and invoked the terms of the Act
to recover punitive interest and attorneys’ fees, as provided in
sections 507 and 512. Keystone took the position that it was to be
regarded as a contractor, not an owner. Since the Act excused a
contractor from paying a subcontractor where the owner had not paid
the contractor, Keystone contended that, as Capelli was a
subcontractor, Keystone, was not liable for punitive interest or
attorneys’ fees. The Court rejected that contention, refusing to be
bound by the term “Subcontract” when in fact Keystone was an owner.
To hold otherwise, said the Court, would permit Keystone “to
unilaterally avoid the payment duties of a contractor simply by not
‘paying’ itself.”
The Court next considered whether Keystone could take refuge in the
provisions of section 506, which excuses a contractor who, in good
faith, withholds payment because of deficiencies in the work. This
was a jury question, said the Court, and there was ample
evidence for the jury to conclude that Keystone did not act in good
faith in withholding payment to Capelli.
Finally,
the Superior Court held that the trial Court acted properly in
awarding attorneys’ fees, as permitted by section 512 of the Act,
although Capelli did not request such until after the verdict. At
that time the trial Court scheduled a hearing on attorneys’ fees, and
an award was made. The Court held that “no order issued prior to
resolution of the attorneys’ fee issue was final.”
*Of counsel, Bentz Law Firm, P.C.; fellow, American
College of Trial Lawyers; member, American Bar Association Forum on
the Construction Industry; member, American Bar Association Fidelity
and Surety Committee; Member, National Bond Claims Association;
Adjunct Professor, Emeritus, Duquesne University School of Law,
Author, Pennsylvania Mechanics’ Liens (Professional Education Systems,
1989); Author, with K.W. Lee, Construction Contracting for Public
Entities in Pennsylvania (Lorman Education Services, 2002).
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