New York Law Review

Tag: construction contract

  • Rockland County v. Primiano Construction Co., Inc., 51 N.Y.2d 1 (1980): Judicial Review of Arbitration Agreements

    Rockland County v. Primiano Construction Co., Inc., 51 N.Y.2d 1 (1980)

    Courts decide whether parties agreed to arbitration, if a dispute falls within the agreement’s scope, and if conditions precedent to arbitration were met; procedural stipulations within arbitration are for the arbitrator.

    Summary

    Rockland County contracted with Primiano Construction for a building project. After completion, Primiano claimed delay damages due to the county’s breach and sought arbitration. The county sought to stay arbitration, arguing that the contract required initial referral to the architect and that the demand for arbitration was untimely. The Court of Appeals held that the claim for delay damages, asserted after project completion, didn’t require initial referral to the architect and that the arbitrator should resolve the timeliness issue. The court differentiated between conditions precedent to arbitration (for courts) and procedural rules within arbitration (for arbitrators).

    Facts

    Rockland County and Primiano Construction entered a contract for Primiano to construct a building. After the project’s substantial completion, Primiano claimed delay damages due to the County’s breach of contract. Primiano sought arbitration for its claim on September 20, 1978. The contract contained provisions for arbitration, with some disputes requiring initial referral to the architect.

    Procedural History

    The County sought a stay of arbitration; Primiano cross-moved to compel it. Special Term denied the stay and compelled arbitration, holding that referral to the architect wasn’t required and that timeliness was for the arbitrator. The Appellate Division reversed, granting the stay. The Court of Appeals then reversed the Appellate Division and reinstated the Special Term ruling, compelling arbitration and assigning the timeliness issue to the arbitrator.

    Issue(s)

    1. Whether Primiano’s claim for delay damages required initial referral to the architect as a condition precedent to arbitration under the contract.
    2. Whether the timeliness of Primiano’s demand for arbitration was an issue for the court or the arbitrator to decide.

    Holding

    1. No, because claims asserted after substantial completion of the work do not fall within the scope of disputes requiring initial referral to the architect.
    2. No, because the timeliness of the demand for arbitration is a procedural stipulation for the arbitrator, not a condition precedent for the court.

    Court’s Reasoning

    The Court distinguished between three threshold questions in arbitration disputes: (1) whether a valid agreement to arbitrate exists; (2) if so, whether the agreement was complied with; and (3) whether the claim would be time-barred in court. The first two are for judicial determination. The court stated, “It is for the courts to determine whether the parties agreed to submit their disputes to arbitration, if so, whether the particular dispute comes within the scope of their agreement, and finally whether there has been compliance with any condition precedent to access to the arbitration forum.”

    Regarding the first issue, the court reviewed the contract’s provisions regarding the architect’s role, noting that the architect’s authority was focused on the operational phases of construction. Therefore, claims arising after substantial completion, like Primiano’s delay damages claim, did not require initial referral to the architect. The court emphasized that the architect’s duties primarily involved “general Administration of the Construction Contract” and ensuring the “Work is proceeding in accordance with the Contract Documents.”

    Regarding the second issue, the court distinguished between conditions precedent to arbitration (decided by the court) and procedural stipulations within the arbitration process (decided by the arbitrator). The court noted, “Sharply to be distinguished from conditions precedent to arbitration are procedural stipulations that the parties may have laid down to be observed in the conduct of the arbitration proceeding itself — conditions in arbitration”. The timeliness of the demand was deemed a procedural matter for the arbitrator. The court emphasized that “the entire arbitration process is a creature of contract” and parties can explicitly designate requirements as conditions precedent or conditions within arbitration.

  • Underhill Construction Corp. v. State Tax Commission, 48 N.Y.2d 843 (1979): Establishing an ‘Irrevocably Entered Into’ Contract for Tax Exemption

    Underhill Construction Corp. v. State Tax Commission, 48 N.Y.2d 843 (1979)

    To qualify for a tax exemption under Tax Law § 1119(a), a taxpayer must provide sufficient evidence to demonstrate that they had “irrevocably entered into” a pre-existing construction contract before the statutory cutoff date.

    Summary

    Underhill Construction Corp. sought revision of a tax commission determination, claiming exemption from sales and use taxes under Tax Law § 1119(a) because they allegedly entered into a construction contract before April 1, 1969. The Court of Appeals affirmed the Appellate Division’s decision, holding that Underhill failed to provide sufficient evidence to prove they had “irrevocably entered into” the contract before the deadline. The court emphasized the lack of comprehensive contractual documentation and corroborating evidence, which undermined Underhill’s claim for tax exemption.

    Facts

    Underhill Construction Corp. claimed to have entered into a lump-sum construction contract before April 1, 1969. To support their claim for a tax exemption, Underhill presented only two pages of the purported contract: the first page, dated June 21, 1968, specifying a payment obligation of $2,451,000, and the last page, signed by both parties and dated August 19, 1969. The intervening pages were not provided. Underhill offered testimony about previous transactions and work done before April 1, 1969, but lacked comprehensive documentation of a binding agreement before the statutory deadline.

    Procedural History

    The State Tax Commission determined that Underhill Construction Corp. was liable for sales and use taxes. Underhill sought a revision of the commissioner’s determination. The Appellate Division affirmed the Tax Commission’s decision. The Court of Appeals affirmed the Appellate Division’s judgment, upholding the tax commission’s determination.

    Issue(s)

    Whether the taxpayer provided sufficient evidence to establish that they had “irrevocably entered into” a pre-existing lump sum or unit price construction contract prior to April 1, 1969, as required by Tax Law § 1119(a) for a tax exemption.

    Holding

    No, because the taxpayer’s proof was insufficient to establish that a construction contract of the substance required by the statute had been “irrevocably entered into” prior to the cutoff date.

    Court’s Reasoning

    The court found substantial evidence supported the Tax Commission’s determination that Underhill had not irrevocably entered into a pre-existing construction contract by April 1, 1969. The court emphasized the insufficiency of Underhill’s evidence, particularly the missing pages of the alleged contract and the lack of corroborating evidence like a performance bond. The court noted, “Taxpayer’s predicament stems from the insufficiency of the proof submitted in support of his application for revision of the commissioner’s determination of his liability for sales and use taxes.” While acknowledging that a written contract before the deadline wasn’t necessarily required, the court found the presented proof inadequate. The court highlighted the unexplained delay between the alleged agreement date (June 28, 1968) and the signing date (August 19, 1969). The court concluded that without more compelling evidence, the Tax Commission reasonably determined that Underhill failed to prove the existence of a binding agreement before the cutoff date.

  • Grow Construction Co., Inc. v. State, 56 N.Y.2d 914 (1982): Quantum Meruit Damages in Construction Contract Interference

    Grow Construction Co., Inc. v. State, 56 N.Y.2d 914 (1982)

    When a state’s interference with a subcontractor’s work on a project causes increased costs, the general contractor, acting on behalf of the subcontractor, can recover damages from the state based on quantum meruit, calculated as actual job cost plus overhead and profit, less amounts already paid.

    Summary

    Grow Construction Co., the general contractor for a highway improvement project, sued the State on behalf of its subcontractor, D. Lambert Railing Co., alleging breach of contract due to the State’s interference with Lambert’s guide rail work. The Court of Claims found the State liable, and the Appellate Division affirmed. The Court of Appeals affirmed, holding that the State’s interference disrupted Lambert’s work schedule, increasing costs. Damages were properly calculated on a quantum meruit basis, representing the reasonable value of Lambert’s work performed: actual job cost, plus overhead and profit, minus payments already made. The State had the opportunity to present evidence to reduce damages at the Court of Claims.

    Facts

    D. Lambert Railing Co. was subcontracted to handle the guide rail work for a Cross Westchester Parkway improvement project. A dispute arose between Lambert and the State’s engineer-in-chief regarding preparatory work and the nature of the guide rail work itself. The State interfered with Lambert’s work, causing severe disruptions to the work schedule and resulting in increased costs for Lambert.

    Procedural History

    Grow Construction Co., acting on behalf of Lambert, sued the State in the Court of Claims. The Court of Claims found the State liable for breach of contract. The Appellate Division affirmed the Court of Claims’ decision regarding liability and the calculation of damages. The State appealed to the Court of Appeals.

    Issue(s)

    Whether the State’s interference with the subcontractor’s work constituted a breach of contract, entitling the general contractor to damages on behalf of the subcontractor. Whether the damages were properly calculated on a quantum meruit basis, reflecting the reasonable value of the work performed.

    Holding

    Yes, because the State’s interference caused severe disruption in Lambert’s work schedule and resulted in increased costs, constituting a breach of contract. Yes, because damages were appropriately measured on a quantum meruit basis, including actual job cost plus allowance for Lambert’s overhead and profit, less amounts already paid.

    Court’s Reasoning

    The Court of Appeals affirmed the lower courts’ findings regarding the State’s liability, noting that these findings were supported by the record and thus beyond their review. The court agreed with the Appellate Division’s calculation of damages based on quantum meruit. The court stated that Grow Construction, seeking the reasonable value of the work performed by Lambert, was entitled to recover damages measured as actual job cost plus allowance for Lambert’s overhead and profit minus the amounts thus far paid. Citing D’Angelo v State of New York, 41 AD2d 77, 80, the court emphasized that quantum meruit is the appropriate measure when seeking the value of work actually performed. The court highlighted that the State had the opportunity to submit proof to reduce the amount of damages before the Court of Claims but failed to do so. The holding emphasizes that when the state interferes with contract work, the contractor is entitled to be compensated for the actual value of the work performed, reflecting a practical approach to ensuring fair compensation in construction disputes.

  • Berley Industries, Inc. v. City of New York, 45 N.Y.2d 683 (1978): Proof Required for Home Office Overhead Delay Damages

    Berley Industries, Inc. v. City of New York, 45 N.Y.2d 683 (1978)

    A contractor seeking delay damages for increased home office overhead expenses must provide sufficient evidence linking the delay to actual increases in overhead costs; a purely mathematical formula, without proof of actual increased costs, is insufficient.

    Summary

    Berley Industries sued the City of New York for breach of contract, seeking delay damages including increased home office overhead. Berley’s sole proof was a formula presented by its comptroller to calculate increased overhead. The Court of Appeals reversed a judgment in Berley’s favor, holding that the formula, without evidence of actual increased costs tied to the delay, was speculative and insufficient. The court emphasized that while proving overhead damages can be complex, there must be a definite link between the evidence and the damages claimed.

    Facts

    Berley Industries contracted to provide heating, ventilation, and air conditioning for a city project. The city caused significant delays, extending the project by 355 days beyond the original two-year term. Berley had completed 87% of the work within the original timeframe, leaving only $60,000 worth of work remaining. Berley was engaged in 11 construction contracts during this period, totaling over $5.8 million.

    Procedural History

    Berley sued the City seeking delay damages, including increased home office overhead expenses. At trial, Berley presented a formulaic calculation of increased overhead damages. The trial court submitted the comptroller’s formula to the jury, which found in favor of Berley. The Appellate Division affirmed the judgment based on a prior precedent. The New York Court of Appeals reversed, remitting the case for a new trial limited to the issue of delay damages.

    Issue(s)

    Whether a contractor can recover delay damages for increased home office overhead expenses based solely on a mathematical formula, without providing evidence of actual increased costs attributable to the delay.

    Holding

    No, because a contractor must establish a clear link between the delay and actual increased overhead costs; a formula alone, lacking evidence of increased expenses, is insufficient and speculative.

    Court’s Reasoning

    The Court of Appeals emphasized that a party claiming damages must prove the extent of the harm suffered. While acknowledging the difficulty in directly proving the connection between home office overhead and delays, the court stated that such proof is still required. Here, Berley failed to demonstrate any actual increase in home office activity or expenses due to the delay. The court criticized the presented formula as lacking any component representing an actual item of increased costs. The court noted, “At not a single point in the equation which it set up was there a component which represented an actual item of increased costs, whether attributable to the delay on the city’s job or not.”

    The Court distinguished the case from situations where the difficulty of ascertaining damages warrants allowing the jury to draw reasonable inferences. The Court rejected the “Eichleay formula” as a substitute for direct evidence, emphasizing that it lacked foundation. The Court highlighted that the formula would have the city pay a share based on the entire contract, including the 87% of work that was not delayed, which would multiply the damages. The Court noted the potential for unfair results, quoting Justice Murphy’s dissent below, “The damages computed under the ‘Eichleay formula’ would be the same in this case whether the plaintiff had completed only 1% or 99% of the job on the scheduled completion date… This rather bizarre result is caused by the fact that the ‘Eichleay formula’ focuses on the length of the delay to the exclusion of many other important factors bearing on actual damages…”

  • Laquila Construction, Inc. v. Town of Huntington, 30 N.Y.2d 954 (1972): Finality of Judgment for Appeal Purposes

    Laquila Construction, Inc. v. Town of Huntington, 30 N.Y.2d 954 (1972)

    A judgment is not considered final for appeal purposes if it determines liability but leaves open the amount of recovery and a related counterclaim is also unresolved.

    Summary

    In this case, Laquila Construction, Inc. sued the Town of Huntington to recover money under a construction contract. The Supreme Court issued an “interlocutory judgment” determining the town’s liability for a specific sum, but subject to further determination of an affirmative defense that could reduce the amount. The court also dismissed the town’s counterclaim. The Court of Appeals held that the Appellate Division’s order affirming this judgment was not final and therefore not appealable because the amount of recovery was left open and the counterclaim was related to the main controversy. Because the final amount due was undetermined, the judgment reviewed by the Appellate Division was deemed nonfinal.

    Facts

    Laquila Construction, Inc. sued the Town of Huntington for breach of a construction contract, seeking to recover a specified sum of money.
    The Supreme Court, Suffolk County, issued what it termed an “interlocutory judgment.”
    This judgment determined that Laquila was entitled to recover a specific sum from the Town.
    However, the judgment was subject to further determination of an affirmative defense raised by the Town, which, if successful, could have reduced the amount Laquila was entitled to.
    The same judgment also dismissed a counterclaim brought by the Town against Laquila, which was based on the performance of the work in question.

    Procedural History

    The Supreme Court, Suffolk County, issued an interlocutory judgment in favor of Laquila Construction, Inc.
    The Town of Huntington appealed this judgment to the Appellate Division.
    The Appellate Division affirmed the Supreme Court’s judgment.
    Laquila Construction, Inc. sought to appeal the Appellate Division’s order to the Court of Appeals.

    Issue(s)

    Whether the order of the Appellate Division affirming the “interlocutory judgment” of the Supreme Court was a final order subject to appeal to the Court of Appeals, when the judgment determined liability but left open the amount of recovery due to a pending affirmative defense and also dismissed a related counterclaim.

    Holding

    No, because the judgment left open the amount of recovery, due to a pending affirmative defense, and the counterclaim was dependently related to the main controversy such that resolution of the entire controversy was left open.

    Court’s Reasoning

    The Court of Appeals reasoned that because the plaintiff’s cause of action was for the recovery of money, and the “interlocutory judgment” left the amount of recovery open to further determination based on the Town’s affirmative defense, the judgment was not final. The court emphasized that the counterclaim was inextricably linked to the main cause of action regarding whether the contract was performed or breached.

    The court distinguished this case from situations where a counterclaim is entirely independent of the main claim. Here, because the amount due in resolution of the entire controversy was left undetermined by the judgment that was appealed to the Appellate Division, the Appellate Division’s decision was deemed nonfinal.

    The Court cited Behren v. Papworth, 30 Y 2d 532 and compared it with Sirlin Plumbing Co. v. Maple Hill Homes, 20 Y 2d 403 to illustrate the principle of finality in judgments. The court implied that if the counterclaim were entirely independent and resolved, the judgment might have been considered final even with the affirmative defense still pending.

    The central issue revolved around whether the judgment fully resolved all aspects of the claim for money recovery. Since the affirmative defense could potentially reduce the amount owed, the judgment lacked the finality required for appeal to the Court of Appeals.

  • People v. Yonkers Contracting Co., 17 N.Y.2d 322 (1966): Establishing Larceny Through Overbilling Requires Proof of Intent

    People v. Yonkers Contracting Co., 17 N.Y.2d 322 (1966)

    To establish larceny based on overbilling, the prosecution must prove that the defendant knowingly made false claims with the intent to steal; mere negligence or opportunity to overbill is insufficient.

    Summary

    This case concerns indictments for grand larceny and bribery against Yonkers Contracting Co. and its officers, as well as members of the engineering firm, Briggs, Blitman, and Posner. The indictments stemmed from alleged overpayments for “unsuitable material” removed during a Thruway construction project. The Court of Appeals held that while there was sufficient evidence to sustain charges against the corporation, Yonkers, the evidence was insufficient to establish that individual defendants or the engineering firm knowingly participated in a scheme to defraud the State. The Court emphasized that proof of intent to steal is a necessary element of larceny.

    Facts

    Yonkers Contracting Co. was awarded a contract to construct a portion of the New York State Thruway. The State contracted with Briggs, Blitman, and Posner to supervise Yonkers’ work, including certifying the quantities of excavated material, which were paid at a unit price. The dispute arose over item 2BX, “Unclassified Excavation,” specifically concerning “unsuitable material.” The State alleged Yonkers was overpaid for excess unsuitable material removed. The engineering firm’s supervision was neglected, and they often relied on figures provided by Yonkers without independent verification.

    Procedural History

    The Grand Jury indicted Yonkers and its officers, as well as members of the Briggs, Blitman, and Posner firm, for grand larceny. Yonkers and two of its officers were also indicted for bribery. The Appellate Division held that the Grand Jury minutes disclosed sufficient evidence to sustain the charges. However, they also found that the individual defendants had acquired immunity, except for certain defendants on the grand larceny charge and the bribery charges against Yonkers. The defendants appealed, arguing insufficient evidence. The People appealed the dismissal of indictments against the individual defendants.

    Issue(s)

    1. Whether the evidence before the Grand Jury was sufficient to establish that Yonkers knowingly overstated the quantity of unsuitable material excavated, thus committing grand larceny.

    2. Whether the evidence was sufficient to establish that the engineers, Posner and Snook, knowingly participated in the alleged larceny by certifying false quantities and receiving additional fees.

    Holding

    1. Yes, because there was prima facie evidence that the quantity of unsuitable material for which Yonkers was paid was knowingly overstated.

    2. No, because the evidence did not establish that the engineers knowingly participated in the scheme or were aware that the contractor had inflated the quantities of excavated material.

    Court’s Reasoning

    The Court reasoned that to establish grand larceny, the prosecution must prove that Yonkers knowingly claimed and received payment for more excavation work than was actually done, with the intent to steal. The Court found that evidence suggested Yonkers overstated the quantity of unsuitable material. However, the Court held that evidence of opportunity to steal does not equate to evidence of actual theft. Concerning the engineers, the Court emphasized that neglect of duty or laxity is not equivalent to larceny. To be guilty of larceny, the engineers had to have knowledge that the contractor had inflated the quantities of excavated material. The Court noted, “In certifying to the correctness of the contractor’s, figures and receiving the additional engineering fees, the engineers, in order to be guilty of larceny, had to have notice that the contractor had inflated the quantities of excavated material. Insofar as the engineers are concerned, neglect of duty is not equivalent to theft nor is laxity equivalent to larceny.”

    The Court acknowledged that Posner should have informed the State about his firm’s failure to independently verify the quantity of excavated material. However, the central question was whether there was prima facie evidence that he was guilty of grand larceny. The Court emphasized that the engineers were not charged with receiving money from the contractor in a nefarious joint enterprise. Though the engineers may have been derelict in their duties, they were not guilty of grand larceny unless they knew that the quantity of unsuitable material had been inflated. The court found no evidence that the engineers knew the quantities were exaggerated. The court quoted the County Court’s finding that there was no testimony that whoever changed the lines in the engineer’s diagrams “intended to defraud the State or harbored any such criminal purpose or criminal consciousness.”

    The Court also noted that the State had withheld payment from the Briggs firm more than the amount the indictment charged the firm with stealing, which undermined the claim that the engineers had received ill-gotten gains. The court emphasized that “Receipt of money may be larcenous where no services have been rendered or for goods sold that have never been delivered, where the whole transaction is fictitious.” This was not such a case.

  • Schlier v. City of New York, 15 N.Y.2d 94 (1965): Enforceability of Contractual Notice Provisions When Waived by Conduct

    Schlier v. City of New York, 15 N.Y.2d 94 (1965)

    A party to a contract can waive contractual notice or protest provisions through its conduct, particularly when that conduct demonstrates an intent to follow a procedure other than that specified in the written agreement, and is chargeable with notice of the work progress.

    Summary

    Schlier sued New York City for the reasonable value of extra work and damages from construction delays. The lower court awarded Schlier damages, but the Appellate Division reversed, citing Schlier’s failure to comply with the contract’s notice and protest provisions for extra work claims and a written waiver for delay damages. The New York Court of Appeals reversed regarding the extra work claim, holding that the City’s conduct could constitute a waiver of the contractual notice requirements, making it a jury question. However, the court upheld the dismissal of the delay damages claim, finding no economic duress.

    Facts

    Schlier was awarded a plumbing contract for Elmhurst General Hospital in 1952. Delays arose due to changes in construction plans and poor coordination. Bernard Farrell, the Director of Buildings, directed Schlier to hire an engineer to assist with coordination and redesign, with a promise of later compensation. The contract required extra work orders to be in writing and signed by the Commissioner. For disputed work, the contractor had to notify the Commissioner in writing and obtain a determination, protesting within five days if adverse. Schlier presented 91 claims for extra compensation, most of which were settled without strict compliance with the protest provisions. The claim for engineering services was treated similarly initially, but later the City relied on the strict contractual terms for denial.

    Procedural History

    The Supreme Court awarded Schlier $23,951.88 for the extra work claim and $120,000 for the delay claim. The Appellate Division reversed, dismissing the complaint. Schlier appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the City’s conduct constituted a waiver of the contractual requirement that extra work be authorized in writing by the Commissioner and subject to protest provisions, thus entitling Schlier to compensation for extra engineering services.

    2. Whether economic duress by the City induced Schlier to sign a waiver of delay claims in exchange for an extension of the completion date and a substantial completion payment.

    Holding

    1. Yes, because the City’s prior conduct of settling similar claims without requiring strict compliance with the contract’s protest provisions and treating the engineering services claim as a valid extra, subject to approval, created a question of fact for the jury regarding waiver and estoppel.

    2. No, because there was no showing that the City did anything more than affirm its previously stated position, and that the City was in no way responsible for the plaintiff’s financial distress.

    Court’s Reasoning

    The Court reasoned that while the contract required written authorization from the Commissioner for extra work, the City’s conduct suggested an intent to follow a different procedure. Specifically, the City had previously settled similar extra work claims without insisting on strict compliance with the contract’s notice and protest requirements. The court noted, “The procedure which was followed is clear…work was usually done before the issuance of change orders and that such work was either disputed work from the beginning…or where the question was left open for future determination, and change orders were subsequently issued.” The court also emphasized that Farrell, a senior representative of the city, was in charge of work coordination and progress. Since there was no question of collusion or bad faith, the court held that the jury should determine whether the City had waived its right to enforce the contractual requirements. As to the delay damages claim, the court found no evidence of duress because the City merely affirmed its position. The court also noted that the plaintiff waited two years to disaffirm the waiver, which was not a reasonable time.