Many times in the construction industry (and others), when payment for work or supplies is not forthcoming, the unpaid party will look to other, third parties, for that payment. Sometimes, what is forthcoming from these third parties is not payment but, rather, a verbal reassurance that payment will eventually be made. Sometimes this is enough to have the unpaid party continue its performance, often to its detriment.
In the recent case of United Concrete Mix of Brooklyn, Inc. v Parkside Construction Builders Corp., a court reminds us as to what, exactly, is necessary for such a promise to be enforceable.
United Concrete Mix of Brooklyn was a supplier on a project owned by One Beekman Owner, LLC, and on which TG Nickel & Associates was the general contractor. United Concrete had entered into a supply contract with Parkside Construction Builders Corp., a subcontractor to TG Nickel. Pursuant to that supply agreement, United Concrete provided over $1.1 million worth of concrete to the project for which it was not paid. One Beekman and TG Nickel provided assurances that United Concrete should have no concerns regarding payment, and that both would pay United Concrete for the materials that it delivered to the project.
United Concrete remained unpaid, and it ultimately sued to collect. In addition to suing Parkside for payment, United Concrete also asserted claims against One Beekman and TG Nickel based on the oral promises to pay. One Beekman and TG Nickel moved to dismiss those claims, arguing that the oral promise to be liable for Parkside’s debts was unenforceable under the Statute of Frauds. In opposition to the motion, United Concrete argued that the oral promises rose to the level of a separate contract to pay it if Parkside did not and, therefore, was enforceable as such.
The court granted the motion to dismiss, finding that even assuming that the promises were made, they were unenforceable under the Statute of Frauds. The Statute of Frauds provides that certain oral agreements, including an oral promise to guarantee the debt of another, are not enforceable if they’re not in writing. Notwithstanding, there is a judicially crafted exception where the promise need not be in writing if the promise is: 1) supported by new consideration beneficial to the promisor sufficient to motivate him to undertake the obligation; and 2) the promisor has demonstrated his intention to be primarily liable on the debt.
Here, there was no writing to make the promise enforceable. Accordingly, United Concrete’s only hope would be the application of the exception to the Statute of Frauds. However, as the promise related to the existing supply contract, and as there was no requirement to provide new materials (or do anything other than to pay for the pre-existing debt of another), the court found that there were no grounds to apply the judicial exception.
When a supplier or a contractor is unpaid, it is easy to find refuge in someone else’s promise to pay. However, United Concrete Mix reminds us that one cannot rely on a mere oral promise alone. If you are inclined to rely upon the payment promise of a third party in order to continue performance of a construction or supply contract, one would be well advised to get that promise in writing (and provide new consideration independent of the original contract). Failing that, be prepared to demonstrate that the promise to pay is supported by new consideration sufficiently beneficial to that third party to motivate him to make the promise, and that the third party intends to become primarily liable for the debt. Essentially, one must demonstrate that the promise to pay for the obligation rises to the level of a new contract. Of course, the more direct way to make a claim against the owner and general contractor under these circumstances would have been the timely assertion and foreclosure of a mechanic’s lien.
Remember, if it ain’t in writing, it didn’t happen!