State of New York v. Lundin, 60 N.Y.2d 987 (1983)
A cause of action for breach of contract accrues, and the statute of limitations begins to run, when the contract is substantially completed, regardless of when the final payment is due or made.
Summary
The New York Court of Appeals held that the State’s breach of contract claim against a contractor, Lundin, was time-barred because the action was commenced more than six years after Lundin substantially completed the work, even though the final payment and related disputes occurred later. The court reasoned that the cause of action accrued upon substantial completion, not upon final payment or resolution of payment disputes. This case clarifies that the focus for statute of limitations purposes is on when the work was done, not when the money was (or wasn’t) paid.
Facts
In April 1967, the plaintiff, was awarded a contract to build an ice skating rink at Clove Lake Park in Staten Island. The contract was a unit-price contract, meaning the actual cost was to be determined after construction. The contractor did not present the premises for a final inspection until September 28, 1971. In January 1978, the plaintiff commenced an action seeking to recover for extra materials, additional work, losses due to project delays, and alleging a total breach of contract.
Procedural History
The defendant answered and asserted that the action was barred by the Statute of Limitations. Both the Supreme Court and the Appellate Division denied the defendant’s motion to dismiss the complaint. The Court of Appeals reversed, granting the motion to dismiss.
Issue(s)
Whether a breach of contract action accrues, for statute of limitations purposes, upon substantial completion of the contract or upon the final determination of payment owed under the contract.
Holding
No, because a cause of action in contract accrues when a breach occurs, and in construction contracts, the breach typically occurs when the work is substantially completed, regardless of when payment is finalized or disputes are resolved.
Court’s Reasoning
The Court of Appeals determined that the State’s cause of action accrued when the contractor substantially completed the work in 1971. The court emphasized that “a cause of action accrues when a breach of contract occurs.” The court rejected the argument that the cause of action accrued when the final payment was determined or when the State disputed the amount owed. The court reasoned that the liability arose out of the contract and the alleged improper performance thereof, and not out of the nonperformance of payment. The court distinguished between a suit on “liability arising out of the contract” and one for “nonperformance of payment,” stating that the gravamen of any contract action is that one party claims that it is owed certain obligations because of the agreement and that the other party has not performed those obligations. A dissenting opinion argued that the cause of action for payment does not accrue until the owner refuses to pay all that was requested, viewing the owner’s audit and determination of payment as a condition precedent to the contractor’s right to sue for final payment. However, the majority did not accept this argument. The court found the action was commenced more than six years after the completion, it was time-barred.