By: Alexander A. Miuccio Thomas H. Welby Published: February 2008

Court Rules Contractor's Claims are Not Time Barred

Contractors and subcontractors should be mindful of contractual and statutory time limitations imposed on their claims. The most common limitation periods relate to providing notice of the claim and commencing suit. This article focuses on the second requirement, the timely commencement of an action.

On private construction, a six year statute of limitations covers breach of contract actions. This means the action must be brought within six years of the breach, or the claim is lost. The construction contract between the parties, however, may provide for a shorter time period than the six year statutory period.

On public projects, the statute of limitations varies, depending upon the nature of the public works involved. For example, for a breach of contract claim for monies due arising out of a school construction project, the New York Education Law provides for a relatively short statute of limitations of one year from the time of the breach.

In the recent case of Mainline Electric Corp. v. East Quogue Union Free School District, the court addressed the question of whether the contractor’s breach of contract claim was time-barred for failure to commence suit within the statutory one year time limitation.

Background

Mainline Electric Corp. was the prime electrical contractor on a project to renovate the East Quogue Elementary School for the sum of $667,735.00. Final payment, consisting of the entire unpaid balance of the contract, was to be made when the contract was fully performed and a final certificate for payment had been issued by the architect. The contract also provided that final payment was to be made by the School District not more than 30 days after the issuance of the architect’s final certificate for payment, “or as soon thereafter as is practicable.”

Most of the contractor’s work was completed by December 2000. However, punch list items continued through February 2003. The contractor’s efforts to close out the project and receive final payment were the subject of various discussions, meetings, and correspondence between the parties which extended through September 2003. On September 26, 2003 the contractor sent the District a letter entitled “Final Demand”, seeking payment of its final requisition. The District never responded to the final billing requisition and the contractor commenced an action against the District on November 18, 2004. The District moved to dismiss the contractor’s claim as time barred under the one year statute of limitations period. The trial court granted the District’s motion and dismissed the action. The contractor appealed.

Decision

The appellate court overruled the lower court, holding that the contractor’s claim was not time barred. The court first noted that New York Education Law §3813 provides that no action can be maintained against the District more than one year after the cause of action arose. The court also noted that a cause of action to recover damages for breach of contract arises, and the statute of limitations begins to run, from the time of the breach. As to when a breach occurs, the court stated “a breach of contract can be said to occur when the claimant’s bill is expressly rejected, or when the party seeking payment should have viewed his claim as having been constructively rejected.”

The court said the District failed to establish that it either expressly or constructively rejected the contactor’s final billing requisition at any point prior to the commencement of the action in November 2004. The District argued that its refusal to respond to the contractor’s letter for final payment constituted constructive rejection. The court disagreed since the contractor’s letters did not impose a deadline for payment of the contractor’s final billing requisition.

The court also stated that the District’s failure to respond to the plaintiff’s final billing requisition within 30 days could not be deemed a constructive rejection, since the contract did not impose an unequivocal 30 day deadline in which final payment was to be made. Lastly, the court held that the District’s obligation to make payment was not triggered until the issuance of a final certificate of payment by the project’s architect and the District offered no evidence that such a certificate was ever issued.

In the absence of any evidence that the contractor’s final billing requisition was ever actually or constructively rejected, the court held that the contractor’s claim was not time barred.

Comment

The decision did not address whether the contractor provided notice of its claim within 3 months after its claim accrued, as required under the New York Education Law. A contractor may ultimately find itself unable to recover on his claim under the Education Law because of the relatively short 3 month statute of limitations period for filing the notice of claim and the one year limitation period for commencement of the action. The prudent contractor should closely monitor, and become familiar with, each project’s contractual and statutory time limitations. Otherwise, a contractor may find itself unable to recover on a claim because of its failure to comply with the applicable limitations period.

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