New York Appellate Division Holds Oral Directions to Perform Extra Work May Override Contract Provisions Requiring Written Authorization

Penava Mechanical Corp. v. Afgo Mechanical Services, Inc.
2010 N.Y. App. Div. LEXIS 1973 (N.Y. App. Div. March 16, 2010)

In a contract dispute, the trial court granted motions for summary judgment filed by the general contractor and owner, dismissing counterclaims asserted by the subcontractor, and denied the subcontractor’s motion for summary judgment as to liability for such counterclaims. On appeal, the Appellate Division reversed the trial court’s order to the extent it granted the general contractor’s and owner’s motions for summary judgment.

The underlying dispute arose out of Richter & Ratner Contracting Corp. (“R&R”)’s direction to Absolute Electrical Contractors, Inc. to work overtime during the last three weeks of the project. R&R instructed Absolute not to bother with tickets that were usually used as the basis for change order requests, but “just to get the work done” and it would be paid. R&R argued in its summary judgment motion that it did not have to pay for the overtime because there were no written tickets or change orders covering the three week period.

On appeal, the Appellate Division assumed that the no-oral-modification clause of the prime contract between R&R and Uniqlo USA Inc., the owner, was incorporated into Absolute’s subcontract, and that the subcontract itself contained an effective no-oral-modification clause. There was deposition testimony by R&R’s representatives that R&R directed Absolute to work overtime with a promise to pay, and an instructed Absolute not to complete tickets for the extra work. Absolute argued that these directions waived the no-oral-modification clause. The court held that under New York law, oral directions to perform extra work, or the general course of conduct between the parties, may modify or eliminate contract provisions requiring written authorizations or notice of claims. The court also found that R&R could not rely on a “no damages for delay” clause as Absolute was not seeking to recover damages caused by delay, but rather to be paid for overtime that R&R directed and for which it had agreed to pay.

The court found that there was an issue of fact as to whether R&R had fully paid Absolute for Absolute’s overtime work during the three week period. The court found that even though R&R presented executed partial lien waivers, the waivers were treated as mere receipts of the amounts stated in the waivers, and not as complete waivers of all claims to that point.

The court also held that the trial court had improperly shifted the burden of proof on the owner’s motion for summary judgment by finding that the claim against the owner should be dismissed because Absolute failed to demonstrate that the owner still owed money to R&R at the time that Absolute filed its lien against the project. The Appellate Court held that it is the proponent who bears the initial burden of coming forward with evidence showing prima facie entitlement to judgment as a matter of law, and, unless that burden is met, the opponent need not come forward with any evidence at all. The Appellate court held that the owner had not demonstrated that full payment to R&R had been made by the owner prior to the filing of the lien, or ever. Thus, the owner had failed to meet its burden and an issue of fact existed, preventing the grant of summary judgment to the owner.

The Appellate Court modified the trial court’s order and denied the general contractor’s and owner’s motions for summary judgment, and affirmed the remaining parts of the order.

Click here to view full text of decision courtesy of LexisNexis.

This entry was posted in Uncategorized and tagged , . Bookmark the permalink.