Appellate Division Says Architect Does Not Have the Final Word on Impossibility of Performance

In Sato Construction Co. v. 17 and 24 Corporation the owner of the project hired the contractor to restore several windows of a building that had been designated as historical landmarks.  After the restoration work began the architect sent a letter to the corporation advising that due to the severely deteriorated condition of the windows, restoration was not possible.  The owner then terminated the contract with the contractor pursuant to a contractual provision that allowed the owner to terminate the agreement "upon certification by the architect that sufficient causes exists to justify such an action."   After the contractor sued for breach of contract, the owner filed a motion to dismiss claiming that the architect's finding of impossibility conclusively justified termination.  In disagreeing and denying the motion, the Court found that

"while the architects may have made a factual determination that the job for which [the contractor] had been retained was impossible to complete, such determination does not, as alleged by the [owner], conclusively establish impossibility of performance or that reasonable cause to terminate the contract existed."


The lesson for owners and developers is that regardless of what the contract says, or what the architect tells you, you may still have to prove that a contractor was properly terminated.  Owners cannot simply rely upon the statements of the architect in terminating the contract (although of course if it is later established that the termination was justified then the reliance on the architect can ultimately be proper).

Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC.  His practice focuses primarily on the areas of construction law.  He can be reached at vtp@kushnicklaw.com or (631) 752-7100.  You can also visit our firm site at www.nyconstructionlaw.com

Decision of Note

In 400 15th Street, LLC v. Promo-Pro, Ltd., 28 Misc. 3d 1233(A) (2010 NY Slip Op 51580(U)) an owner sought damages from a contractor and a surety that issued a performance bond on the project.  Apparently, the owner entered into an agreement with the contractor (an AIA A101 that incorporated the AIA A201).  Certain payment dates were set forth in the subject construction agreement.  Notably, General Condition 14.1.1 provided that the contractor could terminated the contract if the owner did not make payments as set forth in the agreement.  Section 14.2.1 of the agreement provided that the owner could terminate the contractor if the contractor failed to promptly and diligently prosecute the work and pay subcontractors and suppliers.  A number of other contract provisions are discussed but I will not go into them in detail here. 

Suffice to say that after the contractor commenced work a dispute arose with the owner over whether the excavation and underpinning operations had been performed in accordance with the contract specifications.  The owner claims that due to the contractors negligence, a brick wall adjacent to the site cracked, became unstable and required replacement.  An adjoining property collapsed and the owner of that property brought an action against the contractor.  That action included injunctive relief that delayed the owner's project in this case.  The contractor was ultimately terminated, which the owner alleged was for cause.  This action resulted.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com

Subcontractor liable for damages flowing from its abandonment of project

In Farrell Bldg. Co., Inc. v. Shinnecock Electric, Inc. a general contractor sued its former subcontractor for breach of contract.  The subcontractor, an electrician, apparently intentionally abandoned the subject project (so says the Second Department) and unilaterally terminated the contract.  The court found that the subcontractor was liable for the damages that the general contractor incurred including the additional expenses of hiring completion contractors to finish the work that the original subcontractor failed to complete. 

This case should serve as an important reminder to subcontractors out there that damages can flow from your contract even if you have properly completed all of the work that you have been paid for up to the time that you improperly terminated the contract.  These damages, as was the case here, can include the completion costs that the general contractor incurs.  For example, if you have a subcontract for the electrical work for $500,000.00 and you terminate the contract (improperly) with $200,000 of work left and it costs the general contractor $300,000 to complete that work, you could be liable for the additional $100,000 in costs that the general contractor incurred.  A breach can occur for a variety of reasons from lack of capital to purchase materials to lack of manpower to a disagreement over the scope of work.  But regardless of the reason, if the termination is improper you could be exposing your business to tremendous damages.  Sometimes it is better to complete the contract at a small loss or under unpleasant conditions in order to avoid the consequences that may flow from your breach.

If you are planning on terminating a contract before the project is complete it is strongly advisable to speak to your attorney before hand to see make sure you fully understand the ramifications of your actions.  It is also a good idea to speak to your attorney before you enter into a contract to see try and draft the contract in such a way as to avoid any problems that may come up down the line in the event a termination is necessary.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com