Arc Electrical Construction Co. v. George A. Fuller Co., 24 N.Y.2d 102 (1969)

A party’s own act of terminating a contract can prevent them from relying on conditions precedent that the other party could no longer fulfill due to the termination.

Summary

Arc Electrical Construction Company sued George A. Fuller Company for failing to pay for work performed under a subcontract. Fuller terminated the contract, arguing Arc was not entitled to payment because the project architect hadn’t approved the work as required by the contract’s payment terms. The New York Court of Appeals held that Fuller’s termination of the contract prevented Arc from obtaining the architect’s approval, thus Fuller could not rely on the lack of approval to avoid payment for work substantially performed. This case illustrates that a party cannot avoid its contractual obligations by preventing the other party from fulfilling a condition of the contract.

Facts

Arc was the electrical subcontractor for a sugar refinery construction project, with Fuller as an intermediate contractor. The contract stipulated two payment methods: (1) monthly progress payments (90%) subject to architect approval, and (2) full payment if Fuller terminated the contract before completion, without mentioning architect approval. Arc began work in March 1965 and received payment for the first eight requisitions. In December 1965, the architect stopped approving Arc’s requisitions. Fuller then terminated the contract in February 1966, instructing Arc to cease work. Arc sued for payment of work performed since November 1965, plus the 10% reserve.

Procedural History

The Supreme Court awarded Arc the full amount claimed. The Appellate Division unanimously affirmed the trial court’s decision. Fuller appealed to the New York Court of Appeals.

Issue(s)

1. Whether Fuller could require the architect’s approval for payment under the termination provision (Article XXXIII) when Fuller itself terminated the contract, preventing Arc from obtaining such approval.

Holding

1. No, because Fuller’s termination of the contract made it impossible for Arc to satisfy the condition precedent of obtaining the architect’s approval.

Court’s Reasoning

The court reasoned that the contract provided separate methods for computing payments under articles XXXI and XXXIII. While progress payments required architect approval, the termination provision did not. The court stated that after termination, preventing the subcontractor from curing any defects, the contract should be construed as providing for payment for all work actually performed. The court emphasized that Fuller could not rely on a condition precedent (architect’s approval) when its own actions (terminating the contract) prevented Arc from fulfilling that condition. Citing O’Neil Supply Co. v. Petroleum Heat & Power Co., 280 N. Y. 50, 56, the court reiterated that “the defendant cannot rely on [a] condition precedent… where the non-performance of the condition was caused or consented to by itself”. The court further noted that there was no evidence of defects in Arc’s work that would justify the architect’s failure to approve the requisitions. The court cited Nolan v. Whitney, 88 N. Y. 648, stating, “When [the plaintiff] had substantially performed his contract, the architect was bound to give him the certificate, and his refusal to give it was unreasonable, and it is held that an unreasonable refusal on the part of an architect in such a case to give the certificate dispenses with its necessity ” (p. 650).