Kalisch-Jarcho, Inc. v. City of New York, 72 N.Y.2d 727 (1988)
A ‘disputed work’ clause in a public construction contract, requiring the contractor to perform work directed by the municipality and postpone claims for additional compensation until project completion, is enforceable so long as the disputed work is arguably within the contract and the municipality’s directive is made in good faith.
Summary
Kalisch-Jarcho, a plumbing contractor, disputed whether it was responsible for installing concrete pads under fuel tanks in a project for New York City. The city insisted it was. Instead of following the contract’s ‘disputed work’ clause, Kalisch-Jarcho sought a declaratory judgment. The Court of Appeals reversed the lower courts, holding that the clause was enforceable. The court distinguished this case from Borough Constr. Co. v. City of New York, emphasizing that the disputed work was arguably within the contract’s scope, and the city acted in good faith. The court upheld the contract’s procedure for resolving disputes, designed to prevent project delays while preserving the contractor’s right to seek compensation later.
Facts
The City of New York contracted with Kalisch-Jarcho for plumbing work on a new sanitation depot. A dispute arose immediately regarding the responsibility for excavating and installing concrete pads beneath underground fuel tanks. Kalisch-Jarcho argued this fell under the general construction contract, while the City insisted it was the plumbing contractor’s duty. The project architect and the Commissioner of the Department of Sanitation both determined the work was Kalisch-Jarcho’s responsibility, directing them to proceed under the contract’s dispute resolution clause.
Procedural History
Kalisch-Jarcho bypassed the contract’s dispute resolution mechanism and filed a lawsuit seeking a declaratory judgment that it was not obligated to perform the disputed work. The trial court granted summary judgment to Kalisch-Jarcho. The Appellate Division affirmed. The New York Court of Appeals reversed the Appellate Division’s order, holding that Kalisch-Jarcho was obligated to comply with the contract’s dispute resolution clause.
Issue(s)
Whether a ‘disputed work’ clause in a municipal contract, requiring a contractor to perform disputed work and postpone claims for additional compensation, is enforceable, or whether it violates public policy as articulated in Borough Constr. Co. v. City of New York.
Holding
No, because the public policy concerns defined in Borough Constr. Co. v City of New York are not implicated when the disputed work is arguably within the contract’s scope and the municipality is acting in good faith.
Court’s Reasoning
The Court of Appeals reasoned that while declaratory judgment actions are generally permissible for settling contract disputes, they are inappropriate when the contract specifies a different, reasonable means for resolution. Article 27 of the contract outlined such a procedure. The court distinguished this case from Borough Constr. Co. v City of New York, which protected against collusive claims for extra work. Here, the work was arguably within the contract, the City acted in good faith, and the contract provision served the legitimate public interest of avoiding project delays. The court emphasized the importance of honoring contracts negotiated at arm’s length by sophisticated parties. The court stated: “The principle is surely fundamental that a rule developed to govern a situation not addressed in the parties’ contract does not ordinarily preclude parties from agreeing in a contract to resolve the problem in a different manner from the rule that would otherwise apply.” The court also noted that concerns about Administrative Code of the City of New York § 6-110 and article 25 of the contract prohibiting extra work increasing the price by more than 10% do not apply because the Commissioner determined the work was required by the contract, not extra work.