New York Law Review

Tag: Accrual of Cause of Action

  • Credit Suisse First Boston v. Utrecht-America Finance Co., 80 F.3d 537 (1996): Accrual of Contract Claims for Statute of Limitations Purposes

    Credit Suisse First Boston v. Utrecht-America Finance Co., 80 F.3d 537 (1996)

    For purposes of New York’s borrowing statute (CPLR 202), a contract cause of action accrues where the plaintiff sustains the economic injury, typically the plaintiff’s place of residence or principal place of business.

    Summary

    Credit Suisse First Boston sued Utrecht-America Finance Co. in New York, alleging breach of contract and quantum meruit. Utrecht sought dismissal based on New York’s borrowing statute, arguing that Delaware or Pennsylvania’s shorter statutes of limitations applied because Credit Suisse was incorporated in Delaware and had its principal place of business in Pennsylvania. Credit Suisse argued that the cause of action accrued in New York, where the contract was negotiated, performed, and breached. The court held that the cause of action accrued where Credit Suisse sustained the economic injury, which was either Delaware or Pennsylvania, thus the action was time-barred.

    Facts

    Credit Suisse, a Delaware corporation, contracted with Utrecht-America Finance Co. on February 1, 1988, to provide consulting services.

    In March 1989, Credit Suisse located an investment company to purchase Utrecht’s outstanding shares.

    From February 1988 to August 1989, Credit Suisse advised Utrecht on corporate planning.

    On November 6, 1989, Credit Suisse demanded over $9 million for services, which Utrecht refused the following week.

    Credit Suisse filed suit in federal court in New York on November 9, 1995, but it was dismissed for lack of subject matter jurisdiction.

    Credit Suisse then filed a similar suit in New York Supreme Court.

    Procedural History

    The Supreme Court dismissed the complaint, holding that the cause of action accrued where Credit Suisse suffered injury, i.e., its place of residence.

    The Appellate Division affirmed.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether, for purposes of CPLR 202, a nonresident plaintiff’s contract claim accrues in New York, where most of the relevant events occurred, or in the plaintiff’s state of residence, where it sustained the economic impact of the alleged breach.

    Holding

    No, because for purposes of New York’s borrowing statute, a contract cause of action accrues where the plaintiff sustains the economic injury, which is typically the plaintiff’s place of residence or principal place of business.

    Court’s Reasoning

    The court reasoned that CPLR 202 requires a cause of action to be timely under both New York’s limitations period and the jurisdiction where the cause of action accrued. This prevents nonresidents from forum shopping in New York.

    The court rejected the argument to apply a “grouping of contacts” approach, typically used in substantive choice-of-law questions, to determine accrual under CPLR 202. The court stated that the legislature intended the term “accrued” in CPLR 202 to mean the time when and the place where the plaintiff first had the right to bring the cause of action.

    The court noted that prior cases have consistently employed the traditional definition of accrual in tort cases: a cause of action accrues at the time and in the place of injury. The court used Martin v. Dierck Equip. Co., 43 NY2d 583 as an example.

    When an alleged injury is purely economic, the place of injury is usually where the plaintiff resides and sustains the economic impact of the loss. As the court noted, “For purposes of the New York borrowing statute, a cause of action accrues where the injury is sustained. In cases involving economic harm, that place is normally the state of plaintiffs residence.”(Gorlin v Bond Richman & Co., 706 F Supp 236, 240)

    The court distinguished Insurance Co. v. ABB Power Generation, 91 NY2d 180, stating that in ABB Power, the place of injury and the place where all operative facts occurred were the same (California), so the court did not have to decide between a choice-of-law analysis and a place-of-injury rule.

    The court emphasized that “CPLR 202 is designed to add clarity to the law and to provide the certainty of uniform application to litigants” (Insurance Co. v ABB Power Generation, 91 NY2d 180, 187). A rule requiring determination of the plaintiff’s residence better serves this goal than a rule dependent on a litany of events relevant to the “center of gravity” of a contract dispute.

  • Newburgh Bd. of Educ. v. Stubbins & Assocs., 85 N.Y.2d 535 (1995): Accrual of Action for Defective Construction

    Newburgh Bd. of Educ. v. Stubbins & Assocs., 85 N.Y.2d 535 (1995)

    In cases against architects or contractors for defective construction, the cause of action accrues upon completion of performance, regardless of whether the damages are to real or personal property.

    Summary

    A library sued the architects and contractors responsible for its design and construction, alleging negligence after a pipe burst and damaged books and other personal property 15 years after completion. The New York Court of Appeals held that the cause of action accrued upon completion of construction, barring the suit. The court reasoned that the library was the intended beneficiary of the construction contract, placing it in functional privity with the defendants. It also rejected the argument that the accrual rule should differ for personal versus real property damage when stemming from defective construction.

    Facts

    In 1972 or 1973, the Urban Development Corporation (UDC) agreed to assist the Newburgh School District in designing, financing, and constructing a library. The UDC contracted with Solart Builders, Inc. (general contractor), Hugh Stubbins & Associates, Inc. (architect), and Van Zelm, Heywood & Shadford (engineers). Construction was completed in late 1975, and the UDC sold the building to the plaintiff, Newburgh Board of Education. A defectively assembled pipe fitting caused a water pipe to burst on October 13, 1990, causing $1,500,000 in damage to personal property (books, shelves, supplies) and $500,000 to real property.

    Procedural History

    The Newburgh Board of Education sued the defendants, alleging negligence. Supreme Court dismissed the complaint as barred by the statute of limitations. The Appellate Division affirmed. The New York Court of Appeals affirmed the Appellate Division’s decision.

    Issue(s)

    1. Whether a cause of action for defective construction accrues when construction is complete, even when the plaintiff was not a direct party to the original construction contract but an intended beneficiary?

    2. Whether the accrual date for a cause of action arising from defective construction differs when the damage is to personal property rather than real property?

    Holding

    1. Yes, because the plaintiff was the intended beneficiary of the contract, placing it in functional privity with the defendants, and the general rule is that an owner’s claim arising out of defective construction accrues on the date of completion.

    2. No, because both claims arise from a breach of contractual obligation, and there is no rational basis to extend a cause of action to an owner for harm to personal property when a claim for damage to real property would be denied under the same circumstances.

    Court’s Reasoning

    The Court of Appeals relied on the established rule that in cases against architects or contractors, the accrual date for statute of limitations purposes is the completion of performance, citing Sosnow v Paul, 36 NY2d 780. The court emphasized that the nature of the claim (negligence, malpractice, breach of contract) is irrelevant; an owner’s claim arising from defective construction accrues on the date of completion because all liability stems from the contractual relationship. The court found that the plaintiff, while not a direct party to the contract, was the intended beneficiary. The UDC undertook construction on behalf of the plaintiff, a fact known to all parties during contract negotiations. The plaintiff reviewed architectural plans, controlled the budget, and had a daily presence at the construction site, creating the “functional equivalent” of privity, citing Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417, 419.

    The court rejected the argument that damages to personal property should trigger a different accrual date. It reasoned that because both real and personal property claims arise from a breach of contractual obligation, there’s no rational distinction to justify extending a cause of action for personal property damage when a similar real property claim would be barred. The court highlighted that damage to either type of property stemming from faulty design or construction is foreseeable, and steps can be taken to mitigate such risks. The court distinguished personal injury claims, which were not at issue in this case. The court quoted Matter of Paver & Wildfoerster [Catholic High School Assn.], 38 NY2d 669, 675 in support of its reasoning: “In both instances, liability arises out of the contractual relationship, where damage to real or personal property flowing from faulty design or construction can be anticipated, and steps taken to protect against the consequences of such damage.”

  • Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399 (1993): Accrual of Breach of Contract Claims and the Statute of Limitations

    Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399 (1993)

    In New York, a breach of contract cause of action accrues at the time of the breach, not when damages are discovered, and the statute of limitations begins to run from the moment the contract is breached, even if the injured party is unaware of the breach.

    Summary

    Ely-Cruikshank, a real estate broker, sued Bank of Montreal for breach of contract, alleging the bank secretly negotiated the sale of a building, depriving the broker of its commission. The New York Court of Appeals held that the statute of limitations began to run when the bank allegedly failed to disclose the preliminary negotiations, not when the building was sold. Because the lawsuit was filed more than six years after the alleged breach, the claim was time-barred, even though the broker may not have known about the breach until later. The court emphasized that ignorance of a breach does not typically toll the statute of limitations in contract actions.

    Facts

    Ely-Cruikshank and Bank of Montreal entered a written agreement in 1980, granting Ely-Cruikshank exclusive rights to negotiate the sale of the bank’s building. The agreement allowed either party to terminate with 30 days’ notice after January 31, 1981. The bank terminated the agreement effective November 30, 1983. On February 1, 1984, the bank sold the building directly to RREEF USA Fund-II, Inc. Ely-Cruikshank sued the bank on January 26, 1990, alleging that the bank had secretly negotiated the sale before terminating the brokerage agreement, thus depriving the broker of its commission.

    Procedural History

    The Supreme Court granted the bank’s motion to dismiss. The Appellate Division modified, reinstating the breach of contract claim, finding the statute of limitations began running on the sale date. The Appellate Division granted leave to appeal to the Court of Appeals, certifying the question of whether the breach of contract claim was time-barred.

    Issue(s)

    Whether the breach of contract cause of action accrued when the bank allegedly failed to disclose its preliminary negotiations for the sale of the building, or when the building was actually sold, for statute of limitations purposes?

    Holding

    No, because in New York, a breach of contract claim accrues at the time of the breach, regardless of whether the injured party is aware of it. The alleged breach occurred when the bank purportedly failed to reveal its preliminary discussions, not when the sale occurred.

    Court’s Reasoning

    The Court of Appeals emphasized that, generally, a statute of limitations begins to run when a cause of action accrues. In breach of contract cases, accrual occurs at the time of the breach. The court cited Kronos, Inc. v AVX Corp., stating that “settled law marks accrual [for an action sounding in contract] from the contractual breach”. Ely-Cruikshank’s claim was based on the bank’s alleged secret negotiations prior to termination, not on the sale itself, as the bank had the right to terminate the contract and sell the building independently. The court also rejected the argument that the bank breached an implied covenant of good faith, stating that even if true, the breach occurred at the termination of the agreement, making the lawsuit untimely. The court cited Schmidt v Merchants Desp. Transp. Co., stating that “[e]xcept in cases of fraud where the statute expressly provides otherwise, the statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury”. The court reasoned that adopting a discovery rule for contract actions would undermine the purpose of statutes of limitations, which are “statutes of repose” designed to bar stale claims, even if that results in “occasional hardship”.

  • Whalen v. Gerzof, 76 N.Y.2d 914 (1990): Statute of Limitations and Accrual of Claims in Fiduciary Relationships

    Whalen v. Gerzof, 76 N.Y.2d 914 (1990)

    In cases involving alleged contractual or derivative fiduciary relationships, the statute of limitations may be tolled until the plaintiff becomes entitled to earnings or becomes aware of their accrued rights under the agreement.

    Summary

    This case concerns a dispute over a real estate enterprise agreement between Whalen and Gerzof. Whalen claimed entitlement to half of Gerzof’s interest in Pearcove Associates, with benefits accruing after Gerzof received over $50,000 in income. The lower courts granted summary judgment to Gerzof based on the statute of limitations. The Court of Appeals reversed, holding that the statute of limitations did not begin to run until Whalen became entitled to earnings or aware of her rights. Because the lawsuit was filed in the same year the cause of action accrued, it was timely.

    Facts

    In November 1975, Whalen and Gerzof exchanged letters outlining an agreement where Whalen would receive one-half of Gerzof’s partial interest in Pearcove Associates. According to the agreement, Whalen would receive benefits after Gerzof received the first $50,000 in income or sale proceeds. Whalen alleged she did not become entitled to earnings until 1983. She filed suit in 1983 claiming breach of contract and breach of fiduciary duty.

    Procedural History

    The trial court granted summary judgment in favor of Gerzof, dismissing Whalen’s claims based on the statute of limitations. The Appellate Division affirmed this decision. The New York Court of Appeals modified the Appellate Division’s order, denying Gerzof’s motion for summary judgment and remitting the case for further proceedings. The Court of Appeals affirmed the dismissal of claims against the other defendants.

    Issue(s)

    Whether the Statute of Limitations began to run in 1975 when the agreement was made, or at a later date when Whalen became entitled to earnings under the agreement.

    Holding

    No, because under the alleged agreement, the Statute of Limitations was tolled until Whalen became entitled to earnings from the partnership interest above the $50,000 threshold payment and until she demanded or became aware of her accrued rights to earnings under their agreement.

    Court’s Reasoning

    The Court of Appeals reasoned that the Statute of Limitations did not begin to run when the agreement was initially made in 1975. Instead, the court emphasized that the statute was “in repose” until the conditions precedent to Whalen’s entitlement to earnings were met. The court stated, “[U]nder the alleged agreement, the Statute of Limitations was in repose until Whalen became entitled to earnings from the partnership interest above the threshold $50,000 payment, and until she demanded or became aware of her accrued rights to earnings under their agreement.” Since these conditions allegedly occurred in 1983, the lawsuit, also begun in 1983, was deemed timely. The court highlighted the unique nature of the agreement between Whalen and Gerzof, implying that traditional Statute of Limitations principles would not automatically apply. The court considered the alleged fiduciary relationship and its impact on when the cause of action accrued. The Court affirmed the decision of the Appellate Division regarding the other defendants, but it did not provide any specific reasoning for their decision regarding those parties.

  • Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169 (1986): Statute of Limitations in Negligence Actions Against Insurance Brokers

    Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169 (1986)

    A cause of action against an insurance broker for failure to timely notify insurers of a loss accrues when the insurers disclaim liability, not when the broker’s alleged negligence occurred, because that is when the insured suffers actual damages.

    Summary

    Aetna sued its insurance broker, Nelson, alleging negligence for failing to timely notify excess insurers of a loss. The primary insurer covered the loss, but the excess insurers disclaimed coverage due to the late notice. The central issue was when the statute of limitations began to run: at the time of the broker’s alleged negligence or when the excess insurers denied coverage. The Court of Appeals held that the cause of action accrued when the excess insurers disclaimed liability, as that was when Aetna sustained actual damages. The dissent argued that no injury occurred until the insurers denied the claim.

    Facts

    Aetna sustained a loss and sought coverage under its insurance policies. Nelson, Aetna’s insurance broker, was responsible for notifying the insurers. The primary insurer covered the loss. However, the excess insurers disclaimed liability because Nelson allegedly failed to provide timely notice of the loss. Aetna then sued Nelson for negligence, seeking to recover the amount that would have been covered by the excess insurers.

    Procedural History

    The lower courts ruled in favor of Nelson, finding that the statute of limitations had expired because it began running from the date of the alleged negligent act (failure to timely notify). Aetna appealed to the New York Court of Appeals. The Court of Appeals reversed, holding that the statute of limitations began to run when the excess insurers disclaimed coverage.

    Issue(s)

    Whether the statute of limitations in an action against an insurance broker for failure to timely notify insurers of a loss accrues at the time of the alleged negligent act or at the time the insurers disclaim liability due to the late notice.

    Holding

    Yes, because a cause of action is incomplete until the loss is suffered, and in this case, the loss occurred when the excess insurers denied coverage due to the broker’s alleged negligence. The Court stated, “[A]n action does not accrue until ‘all of the facts necessary to the cause of action have occurred so that the party would be entitled to relief in court”.

    Court’s Reasoning

    The Court reasoned that a cause of action does not accrue until all the elements of the claim are present, including damages. In a negligence action against an insurance broker for failing to provide timely notice, the insured does not sustain damages until the insurer denies coverage based on the late notice. Prior to the disclaimer, the insured’s claim is merely speculative. The Court distinguished the case from situations where a breach and injury occur simultaneously. Here, the breach (failure to notify) preceded the injury (denial of coverage). The dissent argued that the cause of action should not accrue before any injury is suffered. They emphasized that limitations begin to run based on a balancing of policy considerations, including preventing stale claims where evidence is lost. However, the majority focused on the principle that a wronged party should have a reasonable chance to assert a claim. The court cited *McDermott v City of New York*, 50 NY2d 211, 217, stating that a cause of action is incomplete until the loss is suffered. The practical implication is that insured parties have six years from the date of the disclaimer to sue their broker for negligence in failing to provide timely notice, ensuring that the insured has a real, rather than speculative, injury before the limitations period begins. The court directly addressed the nature of the cause of action when it stated that an action accrues when “all of the facts necessary to the cause of action have occurred so that the party would be entitled to relief in court”.

  • Aetna Life & Casualty Co. v. Nelson, 67 N.Y.2d 169 (1986): Statute of Limitations for No-Fault Insurance Liens

    Aetna Life & Casualty Co. v. Nelson, 67 N.Y.2d 169 (1986)

    The statute of limitations for an insurance company to enforce a statutory lien against an insured’s recovery from a third party for the same losses covered by no-fault benefits begins to run when the insured actually receives payment from the third party, not when judgment is entered.

    Summary

    Aetna, an insurer, sought to recoup no-fault benefits paid to the Nelsons, who were injured in a car accident, by enforcing a statutory lien against the Nelsons’ settlement with the State of New York. The Nelsons had already received compensation from Aetna for medical expenses and lost earnings. The Nelsons argued that the three-year statute of limitations for liabilities created by statute barred Aetna’s claim. The Court of Appeals held that while the three-year statute of limitations applied, Aetna’s cause of action accrued when the Nelsons received payment from the State, not when the judgment was entered, making Aetna’s action timely.

    Facts

    Kenneth Nelson was injured in a car accident on August 14, 1977, when his car skidded on water and hit a utility pole. His wife suffered permanent brain damage, and Aetna paid them first-party benefits under New York’s No-Fault Law for medical expenses and lost earnings. The Nelsons sued the State for negligence in maintaining the highway, and the Court of Claims found the State liable. Judgment was entered against the State on September 23, 1980. The State appealed, staying enforcement of the judgment. The parties then settled, reducing the judgment, and the State paid the Nelsons on May 28, 1981. A portion of the settlement represented reimbursement for losses already covered by Aetna’s first-party benefits.

    Procedural History

    Aetna sued the Nelsons on November 7, 1983, to recover the first-party benefits, relying on Insurance Law § 673(2), which creates a lien in favor of the insurer. The Nelsons moved to dismiss, arguing that the three-year statute of limitations barred the claim, as it accrued on September 23, 1980, when judgment was entered against the state. Aetna moved for summary judgment. The trial court denied the motion to dismiss and granted Aetna’s motion for summary judgment. The Appellate Division affirmed, holding that the three-year statute applied, but the cause of action accrued upon settlement, not judgment. The Nelsons appealed to the Court of Appeals.

    Issue(s)

    1. Whether the insurer’s suit is governed by the three-year Statute of Limitations applicable to liabilities created or imposed by statute (CPLR 214 [2]), or by the six year “residual” Statute of Limitations (CPLR 213 [1]).

    2. Whether the insurer’s cause of action against the defendants accrued when the defendants’ judgment against the State was entered, or later, when the case was finally settled on appeal and the State actually paid the defendants.

    Holding

    1. Yes, because Insurance Law § 673(2) creates a new liability subject to the three-year statute of limitations (CPLR 214[2]).

    2. No, because the Statute of Limitations commenced when the defendants actually received payment from the State, not when the judgment was entered.

    Court’s Reasoning

    The Court of Appeals held that the three-year statute of limitations under CPLR 214(2) applies to liabilities that would not exist but for a statute. Insurance Law § 673(2) offers an insurer two means of recoupment: a direct action against the tortfeasor (akin to subrogation) and a lien against the injured party’s recovery from the tortfeasor. Both options create new liabilities subject to the three-year statute. The court reasoned that the No-Fault Law creates new and independent statutory rights and obligations to efficiently adjust financial responsibilities from car accidents. As to when the statute of limitations began to run, the court stated, “The Statute of Limitations begins to run once a cause of action accrues (CPLR 203 [a]), that is, when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.” The court emphasized that the lien could only be enforced against “any recovery” obtained by the insured, as expressed in Insurance Law § 673(2). The purpose of the lien is to prevent double recovery. Therefore, the insurer’s right to foreclose on the lien accrues only when the insured actually obtains funds representing a “double recovery.” The Court affirmed the order of the Appellate Division, finding that Aetna’s suit was timely.

  • State v. Lundin, 60 N.Y.2d 987 (1983): Accrual of Construction Defect Claims

    60 N.Y.2d 987 (1983)

    In a construction defect case, the cause of action accrues upon the physical completion of the construction project, not the issuance of a final certificate, especially when the owner controls the issuance of that certificate.

    Summary

    The State of New York sued a general contractor and architect for allegedly defective construction and design of the Empire State Plaza. The defendants argued the statute of limitations had expired, as the lawsuit was filed more than six years after the project’s completion. The Court of Appeals affirmed the lower court’s grant of summary judgment for the defendants, holding that the cause of action accrued upon the actual physical completion of construction, not the issuance of the final certificate of acceptance. The court reasoned that the state fully occupied the building before July 31, 1973, it had assumed responsibility for building security, and it had permitted fire and liability insurance carried by the contractor to be canceled. The Court found that, despite some paperwork continuing after that date, the construction was demonstrably complete before July 31, 1973. Since the suit was filed July 31, 1979, it was time-barred.

    Facts

    The State of New York contracted with a general contractor and architect for the construction of the Empire State Plaza. The State later claimed the construction was defective. The State fully occupied the building, assumed responsibility for building security, and allowed the contractor’s insurance to lapse before July 31, 1973. A lawsuit was filed on July 31, 1979, alleging improper design, installation, and supervision of the marble facing on the Swan Street building.

    Procedural History

    The Supreme Court granted the defendants’ motions for summary judgment, concluding construction was completed before July 31, 1973. The Appellate Division affirmed this decision. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether the State’s cause of action for defective construction accrued more than six years before the commencement of the action, thus barring the claim under the statute of limitations.

    Holding

    Yes, because the cause of action for defective construction accrues upon the actual physical completion of the work, which occurred before July 31, 1973, making the lawsuit filed on July 31, 1979, time-barred.

    Court’s Reasoning

    The Court of Appeals held that the cause of action accrued upon the completion of the actual physical work. The Court distinguished this case from Board of Educ. of Tri-Valley Cent. School Dist. v Celotex Corp., noting that here, the owner (the State) controlled the issuance of the final certificate, unlike the architect-controlled certification in Tri-Valley. The Court found that the ongoing relationship between the State, architect, and contractor after July 31, 1973, related to post-construction price negotiations and incidental matters, not the performance of contractual duties. The Court considered the fact that the State had fully occupied the building, assumed security responsibilities, and allowed the contractor’s insurance to be canceled, all before July 31, 1973, as strong evidence that construction was complete. The Court dismissed arguments based on contractor forms indicating later payroll periods, finding they did not specify actual work done after July 31, 1973. Even a minimal amount of work done after that date couldn’t change the fact that the project was demonstrably complete before then. The Court emphasized that despite volumes of affidavits and exhibits, there was no mention of any actual ongoing construction after July 31, 1973, but only paperwork. Judge Jasen dissented, arguing the record contained sufficient evidence of work continuing after July 31, 1973, to warrant a hearing. He pointed to supplemental agreements for supervisory services, vouchers submitted by the architect, and affidavits from the contractor and subcontractors indicating work performed beyond that date. He also noted applications for payment certifying work performed after July 31, 1973. The majority dismissed the dissent’s arguments, stating the payment applications reflected equitable adjustments, supplemental agreements, and retainage, rather than work performed.

  • McDermott v. City of New York, 50 N.Y.2d 211 (1980): Statute of Limitations for Indemnification Claims

    McDermott v. City of New York, 50 N.Y.2d 211 (1980)

    An indemnification claim’s statute of limitations accrues when the party seeking indemnity suffers a loss, typically upon payment to the injured party, regardless of the underlying breach of duty.

    Summary

    Joseph McDermott, a sanitation worker, sued New York City after his arm was severed by a sanitation truck’s hopper. The city then filed a third-party claim against Heil Company, the truck’s manufacturer, seeking indemnification, alleging the injury was due to Heil’s breach of duty in providing an unfit and dangerous product. The trial court dismissed the third-party complaint as time-barred under the Uniform Commercial Code’s (UCC) four-year statute of limitations for breach of warranty, measured from the truck’s delivery date. The Court of Appeals reversed, holding that the indemnification claim accrued only when the city made payment to McDermott, making the action timely.

    Facts

    On February 5, 1969, New York City received a sanitation truck manufactured by Heil Company. On February 24, 1969, while using the truck, Joseph McDermott’s arm was severed by the hopper mechanism. McDermott and a coworker testified they did not activate the hopper, which was designed to activate only when a button was pressed. The City settled with McDermott for $150,000.

    Procedural History

    McDermott sued the City in 1969. In June 1975, the City brought a third-party action against Heil Company. The trial court dismissed the third-party complaint as time-barred under the UCC’s statute of limitations. The Appellate Division affirmed. The City appealed to the New York Court of Appeals.

    Issue(s)

    Whether the statute of limitations for an indemnification claim against a product manufacturer begins to run from the date of the product’s delivery or from the date the indemnitee (here, the City) makes payment to the injured party.

    Holding

    No, because an indemnification claim accrues when the party seeking indemnification suffers a loss, which occurs when payment is made to the injured party, making the City’s claim timely.

    Court’s Reasoning

    The Court of Appeals emphasized the distinction between contribution and indemnification. Contribution involves proportional reimbursement between joint tortfeasors, while indemnification, rooted in equity and contract (express or implied), seeks full reimbursement. The court stated: “The right to indemnity, as distinguished from contribution, is not dependent upon the legislative will. It springs from a contract, express or implied, and full, not partial, reimbursement is sought”.

    Implied indemnification is based on fairness, preventing unjust enrichment. The court reasoned that it is fundamentally unfair if “[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity”.

    Because the indemnification action is quasi-contractual, the contract statute of limitations (six years in New York) applies. The cause of action accrues upon payment by the party seeking indemnity. The court stated, “Because the indemnity claim is a separate substantive cause of action, independent of the underlying wrong, this accrual rule remains the same, whatever the underlying breach of duty for which indemnification is sought.”

    The court rejected Heil’s argument that the indemnification claim, based on a defective product, should be treated differently. The court reasoned that recent developments in products liability law had eroded the theoretical underpinnings of earlier cases that refused to allow indemnification actions based on breach of warranty. The court also held that the City’s settlement with the plaintiff did not preclude the indemnity action under General Obligations Law § 15-108, as that section applies only to contribution claims.

    Finally, the Court found sufficient evidence to establish a prima facie case of products liability, based on testimony suggesting the hopper mechanism self-activated, allowing the fact finder to infer a defect existed at the time of delivery.

  • John J. Kassner & Co., Inc. v. City of New York, 46 N.Y.2d 544 (1979): Enforceability of Contractual Limitations Extending Statutory Periods

    John J. Kassner & Co., Inc. v. City of New York, 46 N.Y.2d 544 (1979)

    Parties can agree to shorten the statute of limitations in a contract, but agreements to extend it, made before a cause of action accrues, are generally unenforceable as against public policy.

    Summary

    John J. Kassner & Co. sued the City of New York for breach of contract, seeking payment for engineering work. The City raised a statute of limitations defense. The contract contained a clause requiring actions to be commenced within six months of the final payment certificate filing. Kassner argued this clause extended the statutory period. The Court of Appeals held that while parties can contractually shorten the statute of limitations, agreements to extend it, especially those made before a cause of action accrues, are unenforceable as they violate public policy. The action was time-barred.

    Facts

    Kassner, an engineering firm, contracted with New York City in 1967 to relocate utility facilities. The contract stipulated a lump-sum payment in installments, subject to the City Comptroller’s audit. After completing work, Kassner submitted a statement claiming a $39,523.69 balance. The Comptroller disallowed $38,423.69, authorizing only $1,100. Kassner protested the decision around July 1, 1968. After six years, on September 19, 1974, Kassner requested the undisputed $1,100 balance, which was paid. A certificate of final payment was filed on November 8, 1974. Kassner sued on April 18, 1975, seeking the disallowed amount.

    Procedural History

    Kassner sued in Supreme Court. The City asserted a statute of limitations defense. Kassner moved to dismiss the defense, relying on the contractual limitations provision; the City cross-moved for summary judgment. The Supreme Court granted Kassner’s motion and denied the City’s cross-motion, finding the contractual provision controlling. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. When did the cause of action accrue for statute of limitations purposes?
    2. Can a contractual limitations clause that begins to run later than the statutory accrual date effectively extend the statute of limitations?

    Holding

    1. No, the cause of action accrued no later than July 1, 1968, when Kassner was informed of the Comptroller’s decision to disallow a portion of the claim, because that’s when the breach, if any, occurred.
    2. No, because agreements to extend the statute of limitations made at the inception of liability are generally unenforceable.

    Court’s Reasoning

    The Court reasoned that a cause of action accrues at the time of the breach. In contract cases involving conditional payments, the obligation arises when the condition is fulfilled. Here, the condition was the Comptroller’s audit. Once completed and communicated to Kassner, the cause of action accrued. The Court highlighted, “But once the audit was completed and the plaintiff was informed of the results, the cause of action accrued.”

    Regarding the contractual limitations clause, the Court acknowledged parties’ ability to shorten the statute of limitations, as it aligns with the statute’s purpose. However, extending the statute is more restricted due to public policy considerations. Quoting the 1961 Report of the NY Law Revision Commission, the court stated that public policy becomes pertinent where the contract not to plead the statute is in form or effect a contract to extend the period as provided by statute or to postpone the time from which the period of limitation is to be computed.

    Agreements to extend made at the inception of liability are unenforceable because a party cannot waive a statute founded on public policy in advance. The Court observed, “If the agreement to ‘waive’ or extend the Statute of Limitations is made at the inception of liability it is unenforceable because a party cannot ‘in advance, make a valid promise that a statute founded in public policy shall be inoperative’.” The court noted that General Obligations Law § 17-103 permits extensions made after accrual if written and signed by the promisor. Since the clause here was part of the initial contract, it was ineffective to extend the limitations period. The Court suggested that the clause was likely intended to shorten, not extend, the limitations period.

  • Celeste v. Prudential-Grace Lines, 35 N.Y.2d 60 (1974): Accrual of Indemnity Claim in Maritime Law

    Celeste v. Prudential-Grace Lines, 35 N.Y.2d 60 (1974)

    In maritime cases, a cause of action for indemnity does not accrue until the indemnitee’s liability is fixed by a judgment against or payment by the indemnitee.

    Summary

    Carmine Celeste, a longshoreman, sued Prudential-Grace Lines (Prudential) for negligence and unseaworthiness. Prudential initiated a third-party action against American Stevedores, Celeste’s employer, seeking indemnification for breach of warranty of workmanlike service. American Stevedores argued the indemnity claim was time-barred by the six-year statute of limitations. The New York Court of Appeals reversed the lower courts, holding that under federal maritime law, the indemnity claim did not accrue until Prudential’s liability to Celeste was fixed by judgment or payment. The court emphasized the need for uniformity in maritime law and the application of federal laches, not state statutes of limitations, once liability is established.

    Facts

    Carmine Celeste, an employee of American Stevedores, was injured on November 8, 1965, while working on Prudential-Grace Lines’ ship, the S.S. Biddeford Victory.

    Celeste sued Prudential, alleging negligence in the maintenance of the ship’s deck and the vessel’s unseaworthiness.

    Prudential then brought a third-party action against American Stevedores, claiming breach of its warranty of workmanlike service and seeking indemnification for any judgment against Prudential in Celeste’s action.

    Procedural History

    Special Term dismissed Prudential’s third-party complaint, finding it was essentially an indemnity action that accrued when the breach occurred (Celeste’s injury) and was therefore barred by the six-year statute of limitations (CPLR 213).

    The Appellate Division affirmed without opinion.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether, in a maritime indemnity action brought in state court, the cause of action accrues at the time of the underlying injury or when the indemnitee’s liability is fixed by judgment or payment.

    Holding

    No, because under federal maritime law, a cause of action for indemnity does not accrue until the indemnitee’s liability is fixed by a judgment against or payment by the indemnitee.

    Court’s Reasoning

    The court emphasized that maritime actions in state court are governed by federal maritime principles. Federal law dictates that an indemnity cause of action accrues only when the indemnitee’s liability is established, either by judgment or payment. The court cited several federal cases, including United New York Sandy Hook Pilots Assn. v. Rodermond Ind., which directly addressed the issue and held that an indemnity claim does not accrue until the indemnitee’s liability is fixed.

    The court distinguished the Ryan Co. v. Pan-Atlantic Corp. case, clarifying that its analogy of a breach of warranty of workmanlike service to a manufacturer’s warranty was only to emphasize the contract nature of the cause of action, not to determine the applicable statute of limitations.

    The court noted that once liability is fixed, federal laches, rather than the state’s six-year statute of limitations, would govern the continued viability of the indemnity action.

    The court quoted Matter of Rederi (Dow Chem. Co.), stating that state rules of procedure cannot be applied in maritime cases if they significantly affect the outcome of the litigation. Requiring state courts to apply federal law ensures a uniform body of maritime law.

    “The general rule, applicable to this case, is that a claim for indemnity does not accrue until the indemnitee’s liability is fixed by a judgment against or payment by the indemnitee” (United New York Sandy Hook Pilots Assn. v. Rodermond Ind.).