Tibbetts Contracting Corp. v. O & E Contracting Co., 15 N.Y.2d 324 (1965)

A party’s acceptance of work performed under a subcontract constitutes a waiver of a previously issued notice of termination of the principal contract, entitling the subcontractor to payment through the general contractor’s recovery.

Summary

Tibbetts Contracting Corp. (plaintiff), a subcontractor, sought to foreclose on a mechanic’s lien against Vioe Realty Corp. (defendant), the property owner. Vioe had contracted with O & E Contracting Co. for site work, and O & E subcontracted with Tibbetts for drainage work. Vioe claimed it terminated its contract with O & E, but Tibbetts continued working. The court held that Vioe’s acceptance of Tibbetts’ work waived the contract termination, entitling Tibbetts to recover payment from Vioe through O & E’s recovery for breach of contract. This case clarifies the importance of conduct in waiving contractual rights and the derivative nature of a subcontractor’s lien rights.

Facts

Vioe contracted with O & E for excavation, grading, and drainage work.
O & E subcontracted with Tibbetts to lay drainage pipes.
Vioe notified O & E of contract termination due to alleged breaches.
Tibbetts continued and completed the drainage work with Vioe’s knowledge.
O & E failed to pay Tibbetts, who then filed a mechanic’s lien.
Vioe re-let the unfinished contract work to County Asphalt Corporation who completed the work.

Procedural History

Tibbetts sued to foreclose the mechanic’s lien; Vioe sued O & E for breach of contract; the cases were consolidated.
The trial court found in favor of O & E and Tibbetts, holding that Vioe breached the contract and that Tibbetts had a valid lien.
The Appellate Division modified, finding Vioe justified in terminating the contract, denying the lien’s validity, but awarding Tibbetts a judgment against Vioe on a quasi-contract theory.
All parties appealed to the New York Court of Appeals.

Issue(s)

Whether Vioe’s acceptance of Tibbetts’ continued performance under the subcontract constituted a waiver of its notice of termination of the principal contract with O & E.
Whether Tibbetts can recover directly from Vioe in the absence of a direct contractual relationship.

Holding

Yes, because by permitting Tibbetts to continue with the performance of its subcontract at the same time insisting that Tibbetts could look only to O & E for remuneration, Vioe waived its notice of termination of the principal contract with O & E.
No, because Tibbetts’ right to recover from Vioe is derivative through O & E’s right to payment under the contract; Tibbetts’ remedy is to assert a lien against the funds owed by Vioe to O & E.

Court’s Reasoning

The Court of Appeals favored the trial court’s findings, concluding that Vioe breached the contract with O & E.
The court reasoned that Vioe’s conduct in allowing Tibbetts to continue working after the alleged termination indicated a waiver of that termination. As stated by the court, “By permitting Tibbetts to continue with the performance of its subcontract at the same time insisting that Tibbetts could look only to O & E for remuneration, Vioe waived its notice of termination of the principal contract with O & E.”
The court emphasized that no direct contract existed between Vioe and Tibbetts and specifically stated, “No contract between them could be implied in fact, inasmuch as Vioe has disclaimed any such relationship throughout and Tibbetts acquiesced in that interpretation by billing Vioe only for the drains which it laid under contract with Vioe, and billing O & E under the subcontract after the work was completed.”
Tibbetts’ recovery against Vioe was derivative, based on O & E’s entitlement to payment from Vioe. The court found that Tibbetts, as a subcontractor, was entitled to a lien on the proceeds owed by Vioe to O & E, pursuant to Lien Law §§ 4, 70, and 71.
The court found the contract between Vioe and O & E was an entire contract, not severable and that Vioe could not accept benefits of the contract without recognizing that O & E (through Tibbetts) was continuing performance of the underlying contract. The court quoted the trial court opinion, stating “The assertion of a repudiation of the contract is nullified by a subsequent acceptance of benefits growing out of the contract”.