Kalisch-Jarcho, Inc. v. City of New York

• Decision Date: 01 March 1988
• Docket Number: INC,KALISCH-JARCH
• Citation: 135 A.D.2d 262,525 N.Y.S.2d 190
• Parties: , Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 190

525 N.Y.S.2d 190

135 A.D.2d 262

KALISCH-JARCHO, INC., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.

Supreme Court, Appellate Division First Department.

March 1, 1988.

David E. Montgomery, of counsel (Frederick R. Rohn, with him on the brief, Sacks, Montgomery, Pastore & Levine, P.C., New York City, attorneys), for plaintiff-respondent.

Barry P. Schwartz, of counsel (Fay Leoussis, with him on the brief, Peter L. Zimroth, New York City, attorney), for defendant-appellant.

Before SANDLER, J.P., and ASCH, MILONAS, KASSAL and ROSENBERGER, JJ.

ROSENBERGER, Justice.

In this contract dispute between appellant, the City of New York, and respondent, a private plumbing contractor, we are called upon to determine the continuing vitality of the longstanding rule enunciated in Borough Construction Co. v. City of N.Y., 200 N.Y. 149, 93 N.E. 480 [1910], and to strike a balance between the conflicting interests of the municipality in ensuring timely completion of public projects and of the private contractor in preserving contractual limits on the risks it has assumed. Respondent was ordered to perform certain work which, according to the project specifications, had been delegated to the general construction contractor. Instead of complying with the disputed work order, as required by Article 27 of the contract, respondent sought a judicial determination as to whether the work was clearly beyond the limits of its plumbing contract. The Supreme Court found that it was.

We concur with the Supreme Court's finding. Further, we hold that respondent was not required to comply with Article 27 of the contract before seeking a judicial determination and declaration as to whether the work ordered by the Commissioner was clearly beyond the limits of respondent's plumbing contract and, therefore, under the rule in Borough Construction Co. v. City of N.Y., (supra), work for which respondent could not subsequently recover compensation. ( See also Weil Plumbing Corp. v. State of N.Y., 294 N.Y. 6, 60 N.E.2d 18 [1944]; Seglin Construction Co. v. State of N.Y., 22 N.Y.S.2d 94 [Ct. of Claims 1940], affd., 262 A.D. 782, 28 N.Y.S.2d 159 [3d Dept. 1941].) In Borough Construction Co., the Court of Appeals established the general rule that where a municipal representative requires a contractor to do something which is "clearly beyond the limits of the contract, the contractor may not even under protest do it and subsequently recover damages." (200 N.Y. at 157, 93 N.E. 480.) To permit the contractor to recover compensation for such work as though it were a breach of contract would, the Court feared, create a situation ripe for abuse: "a municipal representative and contractor might by collusion make the theory a ready method of saddling the municipality with extra work and materials which it never authorized and of burdening it with liabilities which it never contemplated." ( Id. at 156, 93 N.E. 480).

It is true that the contract under consideration in Borough Construction Co., did not contain a provision similar to Article 27. However, we do not agree that the parties, by including such a disputed work procedure in their contract, could escape the operation of the Borough Construction Co. rule which imposes a limitation on the power of the contractor and the municipal representative to expand the scope of a municipal contract and the municipality's liability thereunder.

The provisions of Article 27 of the contract herein afford no protection against the abuses foreseen by the Court of Appeals in Borough Construction Co. and, consequently, we can see no reason why this important policy consideration should be subordinated to the contractual agreement of the parties. The dissent would limit the rule in Borough Construction Co. to cases where there is evidence of collusion between the contractor and a municipal representative. However, in such circumstances involving patent criminality, there would be no need for the City to limit its relief from fraud to the invocation of that rule. Thus, the dissent's limitation on the rule in Borough Construction Co. would vitiate the rule's salutary effect and would effectively nullify it. Therefore, we decline to so limit that holding.

While we agree with the dissent that the disputed work provision of Article 27 in the contract was designed to avoid costly delays on public works projects, and thereby protect an important public interest, we cannot agree that this provision would effectively preserve the right of the contractor to recover the value of work ordered by the Commissioner. Nothing in Article 27 or elsewhere in the contract binds appellant to accept the Commissioner's interpretation. To the contrary, Article 33 thereof expressly states that neither the City nor any of its departments or employees

shall be bound, precluded or estopped by any determination ... made or given under or in connection with this contract by the City, [or] the Commissioner ... from showing the true and correct classification, amount, quality or character of the work actually done, or that such determination ... was untrue, incorrect or improperly made ....

The inequity of requiring the contractor to comply with an erroneous determination and, in so doing, forfeit his right to be paid for the benefits conferred upon the municipality, is obvious.

The dissent maintains that it is unlikely that the city would ever invoke Article 33 in defending against an action by a contractor who has complied with a disputed work order. However, the contractor's right to be paid for work performed should not be made dependent upon the municipality's unfettered discretion to treat Article 33 as mere surplusage or to invoke it. Such an open-ended legal risk cannot be factored into any rational calculus for doing business with the city. Furthermore, it would expose the contractor to unlimited risk if he could be forced to perform work which is "palpably and manifestly beyond the provisions of the contract" as this confers upon the municipality the unilateral power to modify the agreement and to impose on the contractor risks which he did not assume as part of his bargain.

We do not think that the public interest in avoiding construction delays on public projects will be thwarted by permitting a contractor to seek judicial interpretation of his contract and a declaration of his rights thereunder before complying with a disputed work order. The concern expressed by the dissent, that contractors will run to the courts every time a dispute arises, is unfounded. If a contractor who has not followed the disputed work procedure loses the declaratory action he will be liable for the breach of his contract and the losses resulting therefrom. The prospect of incurring such a substantial liability, we believe, is sufficient to deter frivolous and vexatious litigation. Consequently, we reject the contention that respondent was barred from seeking a declaration of its rights under the contract until it had complied with the disputed work provision.

Respondent was awarded the plumbing contract, one of the four prime contracts for the Department of Sanitation's new storage depot and garage in the Bronx. Separate contracts covering the general construction work, electrical work, and the heating, ventilating and air conditioning ("HVAC") work for this project were also awarded by appellant. The work to be done by the respective contractors was identified in their contract drawings and specifications.

The project called for the installation of underground fuel oil tanks, certain of which were to be installed by the plumbing contractor and others to be installed by the HVAC contractor. Paragraph 1.11 of Section 15400 of the plumbing specifications, captioned "Separation of Work Between Contracts", indicates that the general construction contractor was to excavate and install the concrete pads on which the underground tanks were to rest, while the plumbing contractor was required to encase the tanks in concrete after installing them. The HVAC contract specifications similarly delegate to the general construction contractor the task of excavating and installing concrete pads under the fuel tanks which the HVAC contractor was to install. Notwithstanding the exclusion of this work from respondent's contract under the Separation of Work provision in the plumbing specifications, the Commissioner, pursuant to Article 27, ordered respondent to excavate and install the pads under the fuel tanks.

Although the Commissioner is authorized to modify or change the contract to include "extra work," the work respondent was ordered to do could not be considered extra work as defined in Article 25 of the contract. That provision, incorporating Section 6-110 of the Administrative Code, prohibits the Commissioner from ordering extra work which would increase "the price to be paid by more than ten percent of the contract price". Respondent contends that the excavation of the rock underlying the fuel tanks and the installation of the thirteen concrete pads would cost it considerably more than $100,000. The total plumbing contract price was less than $1,000,000. The only other basis for requiring respondent to perform this work was the Commissioner's determination that it was, in fact, contract work.

Appellant maintains that the plumbing contractor was responsible for all work shown on the plumbing drawings, unless otherwise indicated on the drawings. The contract drawing "P-9" shows in detail the work for the component parts of the underground fuel oil tank. Although the details show the fuel tank resting on the concrete supports, there is no notation to indicate who is responsible for this work. Indeed, there is only one place on drawing P-9 where such an indication appears. The detail of the "oil interseptor" (sic) shows an item of work to be done "by general contractor". Appellant contends that this supports its position that,...