Supreme Court of Wyoming Strictly Interprets a Conditional Payment Provision to Trigger Payment Only After GC and All of its Subs Have Been Paid in Full

by Pepper Hamilton LLP
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P&N Invs. v. Frontier Mall Assocs., 2017 Wyo. LEXIS 62 (Wyo. 2017)

This payment dispute arose over conditional language in a lease agreement between a mall and a restaurant operator.  P&N Investments (“P&N”) leased space from Frontier Mall Associates, LP (“Mall”) to operate a restaurant.  The lease contained a “finish allowance” under which Mall agreed to cover some of P&N’s costs to renovate the space, up to $150,180.

The finish allowance was conditioned on the following provision:

[P&N] shall have furnished evidence satisfactory to Mall from its general contractor and any subcontractors that any and all liens that have been, or may be, filed have been satisfied of record or waived and an affidavit that all work has been paid for.

P&N hired CCI as its general contractor, and CCI in turn hired subcontractors, to renovate the space.  P&N paid CCI in full once CCI and its subcontractors completed the work.  The amount paid was $308,930.  CCI, however, failed to pay its subcontractors in full.  The unpaid amount was approximately $90,000.  Mall refused to pay P&N the finish allowance despite the fact that P&N paid CCI in full and submitted an affidavit stating that no liens were, or could be, filed because of time limitations for liens had expired. 

P&N sued Mall to enforce the lease.  Mall argued that the lease provision above entitled it to withhold the finish allowance because: (1) P&N failed to provide written lien waivers from CCI and the subcontractors and (2) CCI still owed money to its subcontractors, meaning that “all work” had not “been paid for.”  The trial court found the lease provision to be unambiguous and granted summary judgment in Mall’s favor.  P&N appealed to the Supreme Court of Wyoming arguing that it satisfied the lease provision and thus Mall must pay the finish allowance.

The Supreme Court upheld the trial court’s decision to grant summary judgment.  Like the trial court, it refused to consider extrinsic evidence, including any standards and customs in the construction industry, to interpret the lease.  The Supreme Court held that P&N failed to satisfy the unambiguous conditions required for payment.  The Court strictly interpreted the lease to require evidence that CCI and the subcontractors had been fully paid.  The subcontractors were not paid in full, and P&N’s affidavit only stated that “[t]he cost was paid in full by [P&N] to CCI.”  The Court explained that had the parties intended to condition payment of the finish allowance on payment in full to only the general contractor, “they could have used language to that effect, such as, ‘the general contractor has been paid in full.’ Instead, they used the term ‘all work.’”

Two Justices dissented.  Although they agreed that the lease was unambiguous, they believed that a more reasonable reading of the finish allowance provision was one that required P&N to attest that it had performed its obligation to pay for all work, which P&N undisputedly did when it paid CCI in full.  The dissent noted that the majority’s interpretation of the lease created an inconsistency between the term that required P&N to provide evidence that all liens were either waived or released and the term that required P&N to attest that all work had been paid for.  No lien waiver or release would be necessary if “all work has been paid for” meant that both the general contractor and all subcontractors had been paid in full.

The end result was that despite paying the total amount of $308,929 that P&N owed to its general contractor for all work on the project, Mall had no obligation to pay P&N the $150,180 finish allowance, because the general contractor failed to pay its subcontractors approximately $90,000.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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