John J. Kassner & Co., Inc. v. City of New York

• Court: New York Court of Appeals Court of Appeals
• Writing for the Court: WACHTLER; COOKE, C. J., and JASEN, GABRIELLI, JONES and FUCHSBERG, JJ., concur with WACHTLER
• Citation: John J. Kassner & Co., Inc. v. City of New York, 415 N.Y.S.2d 785, 46 N.Y.2d 544, 389 N.E.2d 99 (N.Y. 1979)
• Decision Date: 27 March 1979
• Parties: , 389 N.E.2d 99 JOHN J. KASSNER & CO., INC., Respondent, v. CITY OF NEW YORK, Appellant.

Page 785

415 N.Y.S.2d 785

46 N.Y.2d 544, 389 N.E.2d 99

JOHN J. KASSNER & CO., INC., Respondent, v. CITY OF NEW YORK, Appellant.

Court of Appeals of New York.

March 27, 1979.

Allen G. Schwartz, Corp. Counsel (James P. Griffin and Leonard Koerner, New York City, of counsel), for appellant.

Leon Quat, New York City, for respondent.

OPINION OF THE COURT

WACHTLER, Judge.

In an action by an engineering firm to recover money allegedly owed for work done on a municipal contract the city asserted the Statute of Limitations (CPLR 213, subd. 2) as a defense. The Supreme Court granted plaintiff's motion to dismiss the defense and denied the city's cross motion for summary judgment holding that the action was timely because it was brought within the period specified in the contract. The Appellate Division affirmed and granted the city leave to appeal on a certified question. ^*

In 1967 the plaintiff John J. Kassner & Co., a professional engineering corporation, entered into a contract with the City of New York to arrange the relocation of all utility facilities at the site of the proposed new police headquarters in Manhattan. The contract, and a later supplemental agreement, provided for a lump sum payment of approximately $200,000 to be paid to the plaintiff in percentage installments as the work progressed "subject to audit and revision by the Comptroller" of the city. The agreement also provides that "No action shall be * * * maintained against the City upon any claim based upon this contract or arising out of this contract * * * unless such action shall be commenced within six (6) months after the date of filing in the office of the Comptroller of the City of the certificate for the final payment hereunder * * * None of the provisions of Article 2 of the Civil Practice Laws and Rules shall apply to any action against the City arising out of this contract."

On December 13, 1967 plaintiff submitted an itemized statement indicating that it had completed its work and claiming that there was a balance due of $39,523.69. Upon audit, however, the comptroller disallowed $38,423.69 claimed for "technical services" and only authorized a final payment of $1,100. The record does not indicate the date the plaintiff was informed of the comptroller's decision. It is evident though that the plaintiff was aware of the results of the audit by July 1, 1968 when it sent a letter of protest demanding payment of the full amount.

For over six years the plaintiff did nothing further to collect any part of the final payment. Then, on September 19, 1974, the plaintiff submitted a requisition for final payment of the undisputed balance of $1,100. A voucher for this amount was certified by the Department of Public Works, on September 27, 1974, and was forwarded to the comptroller. On November 8, 1974, a check for $1,100 was sent to the plaintiff and, on that same date, a certificate of final payment was filed in the comptroller's office.

Plaintiff commenced this action on April 18, 1975 by service of a summons and complaint seeking $39,523.69 as final payment due on the contract. By stipulation this amount was later reduced to $38,423.69 after plaintiff accepted the city's check for $1,100 representing the undisputed balance. In its answer the city asserted the Statute of Limitations as a second affirmative defense. The plaintiff, relying on the limitations provision in the contract, moved to dismiss the defense and the city cross-moved for summary judgment on the defense.

The city relied upon CPLR article 2 which provides that a suit on a contract must be commenced within six years (CPLR 213, subd. 2) after the cause of action accrued (CPLR 203, subd. (a)). The city urged that the plaintiff's cause of action "accrued no later than July 1, 1968" because the "Plaintiff was fully aware of the amount and nature of its claim as of July 1, 1968, and was enabled to bring its action at any time thereafter." The city also argued that the provision in the contract requiring the plaintiff to commence its action within six months of the filing of the certificate of final payment was inapplicable because it was intended to shorten the statutory period and not to extend it and, in any event, could not have the effect of extending the statutory period since the city has "no power to waive * * * the statute of limitations" (General City Law, § 20, subd. 5).

The plaintiff on the other hand urged that the contract was controlling; that under the agreement the cause of action did not accrue until the certificate of final payment had been filed and that the suit commenced within six months of that date was timely under the contract. The plaintiff also argued that the contractual limitations provision did not violate the General City Law ( § 20, subd. 5) because the city "has not waived the statute (of limitations), but has * * * selected the agreed event or contingency on which the cause of action would accrue and the statute would start to run."

The Supreme Court concluded that the contractual limitations provision was controlling. The court stated: "While it may appear that the plaintiff's cause of action here accrued on July 7, 1968, the parties contracted for the statute to run from the 'date of filing in the office of the Comptroller of the City of the certificate for the final payment hereunder . . .' And the agreement also provided that none of the provisions of Article 2 of the CPLR 'shall apply to any action against the city arising out of this contract.' The City entered into a binding agreement and it may not now use the CPLR as a shield against the provisions of the contract. Under the terms of the contract, the plaintiff has timely commenced the action even if it would otherwise have been barred by the CPLR." Accordingly the court granted the plaintiff's motion to dismiss the second affirmative defense and denied the city's cross motion for summary judgment dismissing the complaint as untimely under the Statute of Limitations. The Appellate Division affirmed without opinion.

Two questions are presented by the appeal: (1) when did the cause of action accrue within the meaning of the Statute of Limitations, and (2) can a contractual limitations clause, which begins to run at a later date than the time of accrual under the statute, effectively extend the Statute of Limitations in an action on the contract.

In contract cases, the cause of action accrues and the Statute of Limitations begins to run from the time of the breach (Edlux Constr. Corp. v. State of New York, 252 App.Div. 373, 300 N.Y.S.2d 509, affd. 277 N.Y. 635, 14 N.E.2d 197; Victorson v. Bock Laundry, 37 N.Y.2d 395, 403, 373 N.Y.S.2d 39, 43, 335 N.E.2d 275, 278; 6 Williston, Contracts (rev. ed.), § 2004, p. 5641). And, as a general rule, when the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled (36 N.Y.Jur., Limitations and Laches, § 61; Nolan v. Whitney, 88 N.Y 649; Simpson, Contracts, § 112). In this case, however, the contract does not state that the plaintiff's right to final payment is conditioned upon the filing of a certificate of final payment. On the contrary, the contract provides that the plaintiff is entitled to final payment when it has completed its work to the satisfaction of the Department of Public Works, subject only to an audit by the comptroller. Thus the plaintiff's right to final payment and the city's obligation to pay were conditioned upon completion of the audit (City of New York v. State of New York, 40 N.Y.2d 659, 668, 389 N.Y.S.2d 332, 339, 357 N.E.2d 988, 994). But once the audit was completed and the plaintiff was informed of the results, the cause of action accrued (City of New York v. State of New York, supra, p. 668, 389 N.Y.S.2d p. 339, 357 N.E.2d p. 994). The breach, if any, occurred at this point because the comptroller the only official responsible and specifically designated in the contract to authorize payment on behalf of the city unequivocally refused to pay the full amount demanded and allegedly due on the contract. Therefore the cause of action for breach of contract accrued, within the...