Richard F. Kline, Inc. v. Shook Excavating & Hauling, Inc.

DAVIS, J. Richard F. Kline, Inc., et al., appellant, appeals from a judgment entered on April 29, 2004, by the Circuit Court for Frederick County, in favor of appellee, Shook Excavating & Hauling, Inc, against appellant in the amount of $889,938.11 for breach of contract. The court had previously, in denying appellant’s motion for summary judgment, determined that Article XIX of the subcontract entered into by appellant and appellee is not a “paid if paid” condition precedent, relieving appellant from any obligation to pay appellee. Appellant presents four questions for our review, which we rephrase, in part, as follows. 1. Did the trial court err as a matter of law in denying appellant’s motion for summary judgment and finding that article XIX of the subcontract was not a “paid if paid” condition precedent, relieving appellant from any obligation to pay appellee? 2.

Did the trial court err as a matter of law in rendering a judgment that was outside the cause of action pled in the amended complaint? 3. Did the trial court err as a matter of law in finding that the subcontract between appellant and appellee was modified orally? 4. Did the trial court err as a matter of law in finding article XIX of the subcontract was not a liquidated damages clause? We answer these questions in the negative.

Therefore, we affirm the decision of the circuit court. ²⁶⁷ FACTUAL BACKGROUND Richard F. Kline, Inc., et al., appellant, entered into a contract (hereinafter, “general contract”) with The City of Frederick (hereinafter, “City”) on September 21, 1993, to provide services related to the excavation and construction of Phase IIIB of the Carroll Creek Flood Control Project. 1 Appellant entered into a subcontract with appellee to provide excavation, grading and other related services in support of appellant’s contract with the City on August 31, 1993 (hereinafter, “subcontract”). The project site, where the excavation, grading and construction were to take place, contained hazardous materials in the form of underground storage tanks (hereinafter, “USTs”) and contaminated soil. It is the payment associated with the hauling, stockpiling and handling of the contaminated soil that is ultimately the issue in this appeal. During the project, the engineer and project manager for the City was Rummel, Klepper & Kahl (hereinafter “R.K. & K.”) Later, R.K. & K. Environment was hired to be on site to assess the condition of the soil and storage tanks on a daily basis.

The Maryland Department of the Environment (hereinafter, “MDE”), has regulatory authority over the excavation and disposal of storage tanks and contaminated soil for the State of Maryland. The City and R.K. & K. deferred to the determinations of MDE relating to the excavation and disposal of storage tanks and the disposition of soils believed to be contaminated. The subcontract incorporated by reference all of the terms and conditions of the general contract. The general contract contained a contingent item, Item 220, that dealt with removal of contaminated soil.

Initially, it was appellant that was responsible for the handling of contaminated soil during the project. The subcontract did not contain any provisions for handling contaminated soil and appellee was only responsible for the removal of USTs on the site. ²⁶⁸ Beginning on November 17, 1993, storage tanks were excavated and removed from the job site. As the USTs were removed, the soil was segregated pursuant to the directions of MDE and R.K. & K. Although not a part of the subcontract between appellant and appellee, appellee hauled the soil to the site as directed by appellant. Appellant and appellee amended the subcontract on December 7, 1993, to add “item 220,” the contingent pay item, making appellee responsible for handling contaminated soils on the site.

Handling contaminated soil on the site involved moving the soil from the area around the USTs and hauling the soil to another location on the site where it could be mixed in order to expose it to the air. The mixing of the soil was to reduce the level of contamination in the soil to an acceptable level. Once the contamination level in the soil was reduced, it was then to be used in backfilling on the project. By letter dated August 11, 1994, the City issued a directive for the handling of soils on the project believed to be contaminated.

In that letter, addressed to appellant, the City stated that appellant was to be compensated on a time and materials basis after receiving approval, from R.K. & K., to treat the soil as contaminated. By letter dated March 17, 1995, the City directed that appellant was to cease work on the contaminated soil stockpile because MDE, through its testing, had determined that the soils were not contaminated. Both parties continued to believe the soils were contaminated, despite MDEs determination that the soils were not. William Shook testified on behalf of appellee that sometimes the smell of the soil on the site made him, as well as members of his crew, sick.

He also testified that the soil appeared oily, had an odor of petroleum, and contaminants had caused him to develop a rash on his arm. Following receipt of the March 17, 1995 letter, appellant had the soil on the site tested by an independent laboratory to determine the level of contamination. The testing confirmed that the soil on the project site contained higher amounts of contaminants than reported by MDE. ²⁶⁹ On May 23, 1995, appellee began to move soil from the stockpile to an earth berm as required by the subcontract with appellant. Appellee contends that it moved the soil in accordance with the instructions given by appellant, which were to continue to treat the soil as contaminated.

Appellee was to be paid on a monthly basis by submitting estimates to appellant. William Shook testified that he was paid monthly for other work performed on the job, but not for work involving contaminated soils. Appellee then demanded payment from appellant in accordance with the contingent rate for contaminated soils agreed upon in the contract amendment. As required by Article XIX of the subcontract, appellant demanded payment from the City at contingent rate for contaminated soils.

Article XIX of the subcontract states: The Sub-Contractor hereby agrees that in the event SubContractor has any claim against Contractor which arises out of, relates to, or is based upon, in whole or in part, an act, omission, order, right or fault of the owner, then the Contractor, upon receipt of timely notice from Sub-Contractor, acting on behalf of the Sub-Contractor and at SubContractor’s expense, will present any such claim to the Owner [City of Frederick], and the Sub-Contractor shall accept in full payment and discharge of any such claim, such amount or relief, if any, as the Owner shall grant pursuant to the terms of the Principal Contract; and except as above provided, the Sub-Contractor hereby waives any rights it otherwise might have against the Contractor, and agrees never to look to the Contractor for payment on account of any such claim except to such extent, if any, as the Contractor may be paid by the owner on account of any such claim of the Sub-Contractor. The City refused to pay, and appellant filed suit to recover payment from the City for appellee’s work. Appellant was unsuccessful in obtaining payment from the City as part of the lawsuit because the court found appellant failed to obtain authorization from R.K. & K. and MDE prior to removing the contaminated soil, as required. Appellee then sued appellant ²⁷⁰ for payment for hauling the contaminated soil.

Appellant defended that suit on the grounds that Article XIX of the subcontract prevents appellee from recovering payment because the City failed to pay appellant. In essence, appellant claimed that Article XIX is a condition precedent, relieving it of any obligation to pay appellee unless or until, appellant receives payment from the City. In denying appellant’s motion for summary judgment, the circuit court ruled: The court finds that the language in Article XIX does not establish a condition precedent. Therefore, whether the City’s non-payment can be viewed as an act or omission is a moot point.

A condition precedent is a “fact, other than a mere lapse of time, which, unless excused, must exist or occur before a duty of immediate performance of a promise arises.” [Gilbane Bldg. Co. v. Brisk Waterproofing Co., Inc., 86 Md.App. 21, 26 , 585 A.2d 248 (1991) ] (citing 17 Am.Jur.2d, Contracts § 320). “Whether a provision in a contract constitutes a condition precedent is a question of ‘construction dependent on the intent of the parties to be gathered from the words they have employed and in case of ambiguity, after resort to the other permissible aids of interpretation.’ ” New York Bronze Powder Co., Inc. v. Benjamin Acquisition Corp., 351 Md. 8 , 14 n. 2, 716 A.2d 230 (1998) (citing Chirichella v. Erwin, 270 Md. 178, 182 , 310 A.2d 555 (1973)). In the instant case, Article XIX states that Shook is “never” to look to Kline for payment upon the occurrence of certain conditions. This provision does not contain the language typically associated with the creation of a condition precedent, including the words and phrases “when” “after” “as soon as” “subject to” “provided that” and “if’.

Chirichella v. Erwin, 270 Md. at 182 , 310 A.2d 555 . However, condition precedents can be created absent “special” language. In determining whether a particular agreement ²⁷¹ makes an event a condition, the Court of Appeals in Bronze notes that courts will: interpret doubtful language as embodying a promise or constructive condition rather than an express condition. This interpretative preference is especially strong when a finding of express condition would increase the risk of forfeiture by the obligee.

New York Bronze Powder Co., Inc., 351 Md. at 17 , 716 A.2d 230 . The Court further comments: In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicated he has assumed the risk. Id. at 17 n. 5, 716 A.2d 230 (emphasis added). Neither the Subcontract nor the Addendum clearly state which party had a duty to obtain the required authorization to remove and dispose of the contaminated waste.

See Article 1, supra, and Addendum. Consequently, there is no indication that the City’s non-payment was an event within Shook’s control. There is also no indication that Shook assumed the risk of non-payment by the owner. See New York Bronze Co., Inc., supra.

It is clear Shook intended to receive payment for the services it performed. Accordingly, this court declines to find that the language in Article XIX establishes a condition precedent to payment. Rather, this court finds that Article XIX constitutes a pay-when-paid provision, thus entitling [Appellee] to payment. In conclusion, because the contract does not clearly state who was supposed to obtain authorization and because obligee Shook risks forfeiture, summary judgment is granted in favor of [Appellee] Shook Hauling & Excavating, Inc. As previously noted, appellee prevailed at trial and appellant was ordered to pay appellee for work involving the handling of contaminated soil.

This timely appeal followed. ²⁷² LEGAL ANALYSIS I. Motion for Summary Judgment Appellant argues that the trial court erred in denying its motion for summary judgment and finding that Article XIX of the contract did not create a condition precedent. Article XIX of the subcontract, avers appellant, created a “paid if paid” provision which shifts the risk of nonpayment by the owner from the contractor to the subcontractor. The act of nonpayment by the City, it contends, barred any claims of appellee. Summary judgment is proper when there is no genuine dispute of a material fact and the moving party is entitled to judgment as a matter of law.

See Prince George’s County v. The Washington Post Co., 149 Md.App. 289, 304 , 815 A.2d 859 (2003); Beatty v. Trailmaster Products, Inc., 330 Md. 726, 737 , 625 A.2d 1005 (1993). Therefore, in order to overturn a grant of summary judgment, appellant must show there exists “a genuine dispute as to a material fact.” Herrington v. Red Run Corp., 148 Md.App. 357, 361 , 811 A.2d 894 (2002). An appellate court reviews the facts, and all inferences therefrom, in the light most favorable to the nonmoving party. The Washington Post Co., 149 Md.App. at 304 , 815 A.2d 859 .

When there is no dispute as to a material fact, we review the denial of the motion for summary judgment to determine if the trial court was legally correct. See Beatty, 330 Md. at 737 , 625 A.2d 1005 ; The Washington Post Co., 149 Md.App. at 305 , 815 A.2d 859 ; Heat and Power Corp. v. Air Products & Chemicals, Inc., 320 Md. 584, 592 , 578 A.2d 1202 (1990). Generally, we “will consider only the grounds upon which the lower court relied in granting summary judgment.” The Washington Post Co., 149 Md.App. at 305 , 815 A.2d 859 (citing PaineWebber Inc. v. East, 363 Md. 408, 422 , 768 A.2d 1029 (2001)). We examine whether the court correctly interpreted . and applied the relevant law to the uncontested material facts.

Id. Although the motions presented by appellant and appellee contained multiple issues, the trial court’s decision ²⁷³ deals with one — whether Article XIX of the subcontract creates a condition precedent. In Chirichella v. Erwin, 270 Md. 178 , 310 A.2d 555 (1973), the Court of Appeals defined a condition precedent as “a fact, other than a mere lapse of time, which, unless excused, must exist or occur before a duty of immediate performance of a promise arises.” Id. at 182 , 310 A.2d 555 (citing 17 Am.Jur.2d, Contracts, § 320). In determining whether Article XIX of the subcontract created a condition precedent, we examine the language of the contract.

Gilbane Building Co. v. Brisk Waterproofing Co., Inc., 86 Md.App. 21, 27 , 585 A.2d 248 (1991). “The question whether a stipulation in a contract constitutes a condition precedent is one of construction, dependent on the intent of the parties to be gathered from the words they have employed and, in case of ambiguity, after resort to the other permissible aids to interpretation.” Chirichella, 270 Md. at 182 , 310 A.2d 555 (citing 17A C.J.S., Contracts, § 388). In Maryland, the objective law of contracts is followed when interpreting the language of a contract. General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306 (1985). Therefore, when the language is clear and unambiguous “we must presume that the parties meant what they expressed,” leaving no room for construction.

Id. Appellant argues that Article XIX unambiguously requires payment from the City as a condition precedent to its obligation to pay appellee. In other words, appellant is attempting to shift the risk of nonpayment from itself to appellee pursuant to this clause. In order to shift that risk, the contract should contain an express condition, clearly showing that to be the intent of the parties.

See Gilbane, 86 Md.App. at 25 , 585 A.2d 248 (quoting Atlantic States Construction Co. v. Drummond & Co., 251 Md. 77, 82 , 246 A.2d 251 (1968) (citations omitted)). In Gilbane , we held that the unambiguous language of the subcontract established a condition precedent. 86 Md.App. at 28 , 585 A.2d 248 . In that case, the contract provided: “It is specifically understood and agreed that the payment to the ²⁷⁴ trade contractor is dependent, as a condition precedent, upon the construction manager receiving contract payments[.]” Id.