By: Alexander A. Miuccio Thomas H. Welby Published: December 2007

Contractor Allowed Recovery for Substantial Performance


The doctrine of substantial performance is a fair-minded remedy designed to allow an innocent party to recover for its work even though it has not fully complied with strict performance of the contract. The fact that a contractor in good faith has failed in some respect to complete the work or its work was defective should not be a basis for denying recovery where it has substantially performed the work. The question of whether a contractor has substantially performed is one of degree to be determined under the facts and circumstances of each case.

In the recent case of Endres Plumbing Corp. v. Chapin Home for the Aging, a subcontractor was terminated for defective work, according to the contractor. The question before the trial court was whether the terminated subcontractor was entitled to compensation based on its claim of substantial performance.

Background

Prim-Con Construction Corp., a subcontractor, contracted with Humphreys & Harding, Inc., a general contractor, to perform certain concrete work in connection with additions and alterations at the Chapin Home for the Aging for the agreed price of $935,000.00. The subcontract work began on September 26, 1991.

On a number of occasions, the subcontractor’s work was claimed as unacceptable by the owner, the general contractor and/or the U.S. Department of Housing & Urban Development. According to the general contractor, the primary flaw in the performance of the subcontractor’s work was the failure to achieve the specified degree of flatness and levelness in the floor slabs. Additional objections to the subcontractor’s work were also memorialized in writing and related to the irregular, spalled and blistered condition of concrete slabs and the need for remediation. On May 7, 1993, the general contractor gave three days notice to the subcontractor to cure or the subcontractor would be terminated for default. The notice to cure alleged three specified deficiencies: 1) out of level of slabs causing the door bucks to sit off the slabs; 2) unacceptable finish site work; and 3) unacceptable concrete curb work in the parking area. The subcontract was thereafter terminated and both the subcontractor and general contractor claimed amounts due from each other.

At trial, the general contractor argued that it properly terminated the subcontract in May of 1993 because the subcontractor failed to fulfill its performance obligations under the subcontract. The general contractor further argued that based on both the notice to cure and the termination of the subcontract, it was entitled to contract out the completion and correction of the subcontractor’s work and charge the costs incurred against any moneys unpaid to the subcontractor.

The subcontractor argued that its termination was improper because it did not breach the subcontract; rather, the general contractor breached the subcontract by failing to pay the subcontractor the moneys owed on the project. Moreover, the subcontractor argued that at the time the general contractor terminated the contract, the general contractor had already certified to the owner in a payment application that the subcontract work was 97.9% complete. Since the general contractor certified 97.9% completion, the subcontractor argued that the work was substantially complete, thereby entitling the subcontractor to its contract balance.

Decision

A trial was held and the court found in favor of the subcontractor on its breach of contract claim, awarding the contract balance of $122,651.00. The court first noted that under New York Law, a party who defaults under a construction contract may not recover any damages (on the contract or otherwise), unless it has substantially performed under the contract. The court further noted that to constitute substantial performance, a party must establish that any defects in performance were insubstantial, and that any failure to complete work was unintentional and inadvertent.

In determining that the subcontractor’s work was substantially performed, the court relied heavily on the application for payment certified by the general contractor. In the payment application the general contractor certified to the owner that the work of the subcontractor was 97.9% complete. The court found such a high percentage of completion to warrant a substantial compliance determination. Given substantial performance, the subcontractor was entitled to breach of contract damages, its contract balance.

Comment

In this case, the general contractor had a difficult time reconciling its position that the subcontractor’s performance warranted termination where the general contractor’s own certification on its payment application stated 97.9% subcontract completion. Certainly, the general contractor’s argument was contrary to the percentage of completion expressed in its own payment application to the owner.

While the court relied on the 97.9% completion in finding that the subcontract had been substantially completed, the question of substantial performance remains one of degree. It is the facts of each case, as determined by the court, which will control whether a party ultimately recovers on its claim of substantial performance.

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