Pennsylvania Superior ruled that the commonwealth’s prompt payment act, the Contractor and Subcontractor Payment Act, 73 P.S. § 501 et seq. (CASPA), applies to mixed use construction contracts even when such contracts include residential construction in their scope that would not otherwise be governed by CASPA. Indeed, in El-Gharbaoui v. Ajayi, the appellate court ruled, in a decision marked for publication, that CASPA applied to a contract for renovation to a building that contained a daycare facility, a church, and two residential units. No. 3057 EDA 2019, 2021 WL 3046856 (Pa. Super. Ct. July 20, 2021).

In Ajayi, appellant general contractor sued appellee owners for breach of contract and penalties and attorney’s fees under CASPA for its work a on a commercial/residential mixed use construction project. Id. at *3. In a previous action, appellant successfully foreclosed on its mechanics’ lien and alleged, in the present matter, appellees were collaterally estopped from contesting the facts and legal conclusions established in the mechanics’ lien action. Id. at 3.

In the present matter, the appellate court reversed the trial court’s ruling that CASPA was inapplicable to the construction contract because the scope of work contained renovations to two residential units and CASPA only applies to residential construction of seven or more units. Id.  at *6. In reversing, the court in Ajayi opined on the CASPA’s broad applicability and ruled “CASPA applies to construction contracts except those contracts involving public works projects and construction contracts for the improvement to real property consisting solely of six or fewer residential units under construction simultaneously.” Id. at *7. The appellate court further opined that the construction contract included work to the building’s foundation and, thus, it did not relate only to the building’s residential units. Id.

Appellant also alleged that the trial court erred because that court did not apply the doctrine of offensive collateral estoppel and honor the findings of the prior trial court in the mechanics’ lien action. Id. at *8. Indeed, appellant sought attorney’s fees and penalty interest under CASPA because it alleged the prior mechanics’ lien action established that appellees breached their contract with appellant since appellant successfully foreclosed on the lien. Id.  The appellate court, however, remanded to the trial court on this issue because the trial court ruled that CASPA did not apply. Id. at *12. Therefore, the court did not analyze whether “the doctrine of offensive collateral estoppel precluded re-litigation of certain issues, namely the existence of a construction contract, [Appellees’] breach of that contract, and what damages, if any, Appellant was eligible to recover as a result of that breach.” Id.

The court affirmed the trial court’s ruling that appellant waived its statute of limitations defense against appellees’ counterclaims because appellant failed to plead the defense with sufficient specificity. See id. at *13 (“Appellant alluded to the defense in a single, threadbare declaratory sentence which suggested, without factual elaboration or support, that the [Appellees] counterclaims may be barred by the limitations period.”). The court also affirmed the trial court’s ruling that appellant waived certain evidentiary objections because appellant failed to timely raise same with the trial court.

The Superior Court’s ruling in Ajayi is a strong warning for owners of mixed use commercial/residential construction projects that CASPA applies to construction contracts even if the residential units, standing alone, would not come within the color of CASPA. Perhaps, future case law may rule that Ajayi’s holding, and CASPA, is inapplicable to construction contracts for mixed use projects when the contract’s scope only applies to the residential portion of the building. However, under the current state of the law, this is an uncertain proposition.