Frey Lutz Corp. v. E.R. Stuebner, Inc. ( 2015 )

J-A25043-14
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
FREY LUTZ CORPORATION, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
E.R. STUEBNER, INC.,
Appellee No. 883 EDA 2014
Appeal from the Order Entered February 18, 2014
in the Court of Common Pleas of Chester County
Civil Division at No.: 2013-03233-CT
BEFORE: DONOHUE, J., WECHT, J., and PLATT, J.*
MEMORANDUM BY PLATT, J.: FILED APRIL 07, 2015
Appellant, Frey Lutz Corporation, appeals from the order sustaining
the preliminary objections of Appellee, E. R. Stuebner, Inc., and dismissing
Appellant’s complaint with prejudice. Appellant, an HVAC 1 contractor, claims
as a third party beneficiary to a contract provision making Appellee, the
general contractor, financially responsible to other prime contractors on the
same project for undue delay, notwithstanding a separate definitional
provision disclaiming the creation of any contractual relationship except
between the school district and the general contractor. We vacate and
remand.
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*
Retired Senior Judge assigned to the Superior Court.
1
Heating, ventilating, and air conditioning.
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This is a contract dispute between two prime contractors for the
construction of an elementary school in the Kennett Consolidated School
District (sometimes referred to in the contract documents as the Owner).
Appellant executed a contract as of January 12, 2010, with the School
District to provide HVAC construction for the New Bancroft Elementary
School. Appellee executed a similar contract as of the same date, for
general construction of the same project. Both contracts were executed on
a model form contract, with additional specific information inserted.2
Appellant alleges Appellee is liable for delays on the project.
Two provisions of the Stuebner contract are at issue in this appeal.
For clarity and completeness we present both provisions in their entirety:
§ 1.1.2 THE CONTRACT
The Contract Documents form the Contract for Construction.
The Contract represents the entire and integrated agreement
between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. The
Contract may be amended or modified only by a Modification.
The Contract Documents shall not be construed to create a
contractual relationship of any kind (1) between the Architect
and Contractor, (2) between the Construction Manager and
Contractor, (3) between the Architect and Construction Manager,
(4) between the Owner and a Subcontractor or Sub-
subcontractor or (5) between any persons or entities other than
the Owner and Contractor. The Construction Manager and
Architect shall, however, be entitled to performance and
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2
Both contracts used the same form: the AIA [American Institute of
Architects] Document A101/CMa ─ 1992, “Standard Form of Agreement
Between Owner and Contractor where the basis of the payment is a
STIPULATED SUM” (Construction Manager-Adviser edition).
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enforcement of obligations under the Contract intended to
facilitate performance of their duties.
* * *
§3.10.2 [CONTRACTOR’S CONSTRUCTION SCHEDULE]
* * *
.3: The Contractors [sic] shall cooperate and consult with
other Prime Contractors during the construction of this Project.
The Contractor shall schedule and execute his Work so as to
avoid delay to other contractors. The Contractor is financially
responsible to the other prime contractors for undue
delay caused by him to other prime contractors on the
Project. The Contractor shall indemnify and hold harmless the
Owner, Architect, and Construction Manager for any claims,
losses or delays of any kind made by other contractors.
(E.R. Stuebner, Inc. Contract with Kennett Consolidated School District,
dated as of January 12, 2010, §§ 1.1.2; 3.10.2.3) (emphasis added).
On April 9, 2013, Appellant filed a complaint against Appellee under
section 3.10.2.3 of the contract between the Owner/School District and
Appellee. (See Complaint, 4/09/13, at 3-4).
Appellee filed preliminary objections, maintaining that Appellant could
not recover as a third party beneficiary because under § 1.1.2 of the General
Conditions, both parties, Appellee and the School District, disclaim the
intention to create a contractual relationship of any kind between various
enumerated entities. (See Preliminary Objections, 5/22/13, at 4).
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The trial court agreed, sustained the preliminary objections, and
dismissed the complaint with prejudice. (See Order, 2/18/14; Trial Court
Opinion, 5/05/14, at 1). This timely appeal followed.3
Appellant raises two questions for our review on appeal.
1. Whether the Court of Common Pleas erred when it
sustained the Preliminary Objections of E.R. Stuebner, Inc.
because Section 3.10.2.3. of the General Conditions establishes
Frey Lutz Corporation as a third party beneficiary?
2. Whether the Court of Common Pleas erred when it
sustained the Preliminary Objections of E.R. Stuebner, Inc.
because Section 1.1.2 of the General Conditions does not
expressly disclaim Frey Lutz Corporation’s third party beneficiary
rights?
(Appellant’s Brief, at 4).
Appellant argues that the trial court’s exclusionary reading of the “no
contractual relationship” language of section 1.1.2(5) would render
“superfluous” the “financially responsible to the other prime contractors”
language of section 3.10.2.3. (Appellant’s Brief, at 9). We agree.
Our standard of review when the trial court sustains preliminary
objections is well-settled:
Our standard of review of an order of the trial court
overruling or granting preliminary objections is to
determine whether the trial court committed an error of
law. When considering the appropriateness of a ruling on
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3
Appellant filed a timely statement of errors on April 25, 2014. See
Pa.R.A.P. 1925(b). The trial court filed an opinion on May 5, 2014. See
Pa.R.A.P. 1925(a).
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preliminary objections, the appellate court must apply the
same standard as the trial court.
Preliminary objections in the nature of a demurrer test the
legal sufficiency of the complaint. When considering
preliminary objections, all material facts set forth in the
challenged pleadings are admitted as true, as well as all
inferences reasonably deducible therefrom. Preliminary
objections which seek the dismissal of a cause of action
should be sustained only in cases in which it is clear and
free from doubt that the pleader will be unable to prove
facts legally sufficient to establish the right to relief. If
any doubt exists as to whether a demurrer should be
sustained, it should be resolved in favor of
overruling the preliminary objections.
* * *
It is also well[-]established that under the law of contracts,
in interpreting an agreement, the court must ascertain the
intent of the parties.
In the cases of a written contract, the intent of the parties
is the writing itself. If left undefined, the words of a
contract are to be given their ordinary meaning. When the
terms of a contract are clear and unambiguous, the intent
of the parties is to be ascertained from the document
itself. When, however, an ambiguity exists, parol evidence
is admissible to explain or clarify or resolve the ambiguity,
irrespective of whether the ambiguity is patent, created by
the language of the instrument, or latent, created by
extrinsic or collateral circumstances.
With specific reference to what constitutes “ambiguity” in
the context of contract interpretation, our Supreme Court has
opined as follows:
Contractual language is ambiguous if it is reasonably
susceptible of different constructions and capable of being
understood in more than one sense. This is not a question
to be resolved in a vacuum. Rather, contractual terms are
ambiguous if they are subject to more than one reasonable
interpretation when applied to a particular set of facts. We
will not, however, distort the meaning of the language or
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resort to a strained contrivance in order to find an
ambiguity.
Additionally, [i]t is axiomatic that contractual clauses must be
construed, whenever possible, in a manner that effectuates all
of the clauses being considered. It is fundamental that one
part of a contract cannot be so interpreted as to annul another
part and that writings which comprise an agreement must be
interpreted as a whole.
Lenau v. Co-eXprise, Inc., 102 A.3d 423, 428-30 (Pa. Super. 2014)
(citations and internal quotation marks omitted) (emphases added).
Similarly,
The interpretation of any contract is a question of law and this
Court’s scope of review is plenary. Moreover, we need not defer
to the conclusions of the trial court and are free to draw our own
inferences. In interpreting a contract, the ultimate goal is to
ascertain and give effect to the intent of the parties as
reasonably manifested by the language of their written
agreement. When construing agreements involving clear and
unambiguous terms, this Court need only examine the writing
itself to give effect to the parties’ understanding. This Court
must construe the contract only as written and may not modify
the plain meaning under the guise of interpretation.
* * *
Moreover, when the language of a contract is clear and
unequivocal, courts interpret its meaning by its content alone,
within the four corners of the document.
Stephan v. Waldron Elec. Heating and Cooling LLC, 100 A.3d 660,
665 (Pa. Super. 2014) (internal quotation marks and citations omitted).
[W]e accept as true the material facts set forth in [a]ppellee’s
complaint along with any reasonable inferences therefrom. The
question presented by the demurrer is whether, on the facts
averred, the law says with certainty that no recovery is possible.
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Shafer Elec. & Const. v. Mantia, 96 A.3d 989, 994 (Pa. 2014) (citations
and internal quotation marks omitted). Furthermore, it is well-settled that
“[a]n agreement or instrument which reduces legal rights which would
otherwise exist is strictly construed against the party asserting it and must
spell out with the utmost particularity the intention of the parties.”
Maloney v. Valley Medical Facilities, Inc., 946 A.2d 702, 707 (Pa. Super.
2008), affirmed, 984 A.2d 478 (Pa. 2009) (citation omitted). “Pennsylvania
contract law prescribes that, ‘an interpretation will not be given to one part
of the contract which will annul another part of it.’” Id. (citing Capek v.
Devito, 767 A.2d 1047, 1050 (Pa. 2001)).
Here, in its Rule 1925(a) opinion, the trial court concluded that
Appellant offered “a tortured interpretation” of the definitional language in
section 1.1.2. (Trial Ct. Op., at unnumbered page 4). We are constrained
to disagree.
Preliminarily, we note that the trial court’s reasoning reads more into
the definitional section than the context, or any controlling authority,
requires or permits. Section 1.1.2, in relevant part, says no more than that
the contract documents “shall not be construed to create a contractual
relationship of any kind,” with five relationships enumerated. (Stuebner
Contract, at § 1.1.2).
However, Appellant is not claiming as a contracting party under the
Stuebner contract. It is claiming as a third party beneficiary. A contracting
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party and a third party beneficiary to a contract are mutually exclusive
positions; neither Appellee nor the trial court offers any legal authority in
support of their assumed equivalence. The trial court erred by accepting
Appellee’s argument and reading them as equivalent.
The legal principles controlling third party beneficiary status are well-
settled.
“In order for a third party beneficiary to have standing to
recover on a contract, both contracting parties must have
expressed an intention that the third party be a beneficiary, and
that intention must have affirmatively appeared in the contract
itself.” Scarpitti v. Weborg, 530 Pa. 366, 609 A.2d 147, 149
(1992). Furthermore,
to be a third party beneficiary entitled to recover on a
contract it is not enough that it be intended by one of the
parties to the contract and the third person that the
latter should be a beneficiary, but both parties to the
contract must so intend and must indicate that intention
in the contract; in other words, a promisor cannot be held
liable to an alleged beneficiary of a contract unless the
latter was within his contemplation at the time the contract
was entered into and such liability was intentionally
assumed by him in his undertaking.
Spires v. Hanover Fire Ins. Co., 364 Pa. 52, 70 A.2d 828,
830–31 (1950) (emphasis in original). While Spires was
overruled by Guy v. Liederbach, 501 Pa. 47, 459 A.2d 744
(1983), it was only overruled “to the extent that it states the
exclusive test for third party beneficiaries.” Id. at 751; accord
Burks v. Fed. Ins. Co., 883 A.2d 1086, 1088 (Pa. Super.
2005).
In Guy, our Supreme Court established a “narrow class of
third party beneficiaries.” Scarpitti, 609 A.2d at 151. This
narrow exception established a “restricted cause of action” for
third party beneficiaries by adopting Section 302 of the
Restatement (Second) of Contracts (1979). Scarpitti, 609 A.2d
at 151. Section 302 involves a two-part test to determine
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whether one is a third party beneficiary to a contract, which
requires that (1) the recognition of the beneficiary’s right must
be appropriate to effectuate the intention of the parties, and (2)
the performance must satisfy an obligation of the promisee to
pay money to the beneficiary or the circumstances indicate that
the promisee intends to give the beneficiary the benefit of the
promised performance. Guy, 459 A.2d at 751 (quotation marks
omitted); accord Burks v. Fed. Ins. Co., 883 A.2d 1086, 1088
(Pa. Super. 2005). Thus, even when the contract does not
expressly state that the third party is intended to be a
beneficiary, the party may still be a third party beneficiary under
the foregoing test. Burks, 883 A.2d at 1088. “But Guy did not
alter the requirement that in order for one to achieve third party
beneficiary status, that party must show that both parties to the
contract so intended, and that such intent was within the parties’
contemplation at the time the contract was formed.” Id.
Kirschner v. K & L Gates LLP, 46 A.3d 737, 762 (Pa. Super. 2012), appeal
denied, 65 A.3d 414 (Pa. 2013).
Here, on review, we conclude that both of the parties (Appellee
Stuebner and the school district), expressly intended that the other prime
contractors be third party beneficiaries under the plain meaning of the
“financially responsible to the other prime contractors for undue delay”
language of section 3.10.2.3. The trial court’s exclusionary reading of
section 1.1.2 annuls the protection of the financial responsibility clause, in
violation of the contract interpretation principles set forth in Lenau, supra
at 430. The trial court erred in interpreting the contract by ignoring the
plain unambiguous meaning of the financial responsibility clause. See
Kirschner, supra at 762; Maloney, supra at 707.
The trial court also posits that Appellant has an indirect remedy
because it could sue the school district. (See Trial Ct. Op., at unnumbered
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page five). However, the relevant provision of the contract only says that
that the School District has a right to reimbursement from Appellee
Stuebner. The trial court offers no controlling authority for its inferential
interpretation that Appellant Frey Lutz can claim indirectly through the
School District. Furthermore, the trial court offers no authority in support of
its assumption that the School District’s right of indemnification against
Stuebner includes a contractual obligation of reimbursement to Appellant.
(See id.).
Moreover, as noted by Appellant, section 8.3.2 of the Stuebner
contract (as well as the Frey Lutz contract) expressly prohibits claims
against the School District for delays “from any cause whatsoever . . .
including . . . the actions or inactions of other contractors[.]” (Stuebner
Contract, at § 8.3.2) (emphasis added). The trial court’s assumption of an
alternative available remedy is contradicted by the plain language of the
contracts.4
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4
Appellee also maintains in a footnote that Appellant Frey Lutz was not
intended to be a beneficiary of the Stuebner contract under the Separation
Act, (71 P.S. § 1618). (See Appellee’s Brief, at 22 n.2). Appellee asserts,
correctly, that the Separation Act applies to public school building
construction contracts. (See id., (citing Mechanical Contractors Ass'n of
E. Pa., Inc. v. Commonwealth, Dept. of Educ., 934 A.2d 1262, 1271 (Pa.
2007))). However, here there is no dispute that the Separation Act,
(mandating separate contracts), was complied with in the contract under
review. Further, the specific claim of waiver at issue in Mechanical
Contractors, supra, is not present in this appeal. We conclude the
argument based on the Separation Act is undeveloped and without merit.
(Footnote Continued Next Page)
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We are constrained to conclude that the trial court erred in its
interpretation of the contract, in sustaining the preliminary objections, and
in its dismissal of the complaint with prejudice.
Order vacated. Case remanded to the trial court for disposition in
accordance with this decision.
Judge Wecht joins the Memorandum.
Judge Donohue files a Concurring Memorandum in which Judge Wecht
joins.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 4/7/2015
_______________________
(Footnote Continued)
On independent review, we find nothing in the Separation Act which
mandates a result contrary to our disposition.
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