Soviero Bros. Contracting Corp. v. City of New York

• Decision Date: 28 June 1955
• Citation: 286 A.D. 435,142 N.Y.S.2d 508
• Parties: SOVIERO BROS. CONTRACTING CORP., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 508

142 N.Y.S.2d 508

286 A.D. 435

SOVIERO BROS. CONTRACTING CORP., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.

Supreme Court, Appellate Division, First Department.

June 28, 1955.

Anthony Curreri, New York City, of counsel (Seymour B. Quel, New York City, on the brief; Peter Campbell Brown, Corp. Counsel, New York City), for appellant.

Nelson Rosenbaum, New York City, for respondent.

Before CALLAHAN, J. P., and BREITEL, BASTOW, BOTEIN, and RABIN, JJ.

BREITEL, Justice.

Plaintiff is a contractor who undertook in written agreements with the City of New York to construct two sewers at separate locations and to make the necessary excavations. It sues for damages based on misrepresentations in the City's specifications as to the site of one of the sewer excavations and the physical condition of the sub-surface area of the other. The City sets up as an affirmative defense the time limitation contained in the contracts for the bringing of suits. That provision requires that actions be commenced within one year after the filing in the office of the Comptroller of the final certificate. Concededly, the one-year period has long expired. It is also conceded that the true physical facts were discovered by the contractor more than a year (indeed, more than three years) prior to the beginning of this action.

The issue is whether the City may interpose and rest upon the time limitation as a defense in an action charging it with 'fraudulent' misrepresentation as to material facts, in reliance upon which the contractor entered into its engagements, and which engagements the contractor has never elected to rescind.

The question arises on a motion for summary judgment made by the defendant under Rule 113 of the Rules of Civil Practice. The City Court Special Term granted the motion, but the order was reversed by a divided court in the Appellate Term.

The complaint is framed in law and demands damages in almost the classical form for actual fraud. The affidavits submitted on the motion, on the other hand, reveal that reliance is not had upon the traditional five elements of fraud. On the contrary, the gravamen is misrepresentation, innocently or recklessly made by the City, with respect to material facts, at a time when, somewhere in the files of the City, there were documents and maps clearly revealing the true facts, which facts were never disclosed in advance to the contractor. Since, however, the action is based on damages at law for fraudulent inducement, it is in affirmance of the contracts. This being so, the City may avail itself of the short period of limitation contained in the written agreements with the contractor. Such a contractual period of limitation is not contrary to public policy. Consequently, the order of the Appellate Term should be reversed and the order of Special Term granting judgment in favor of the City should be reinstated.

The complaint contains two causes of action: One is for damages of $3,529.44 based upon the additional expense incurred by the contractor in making one excavation at a site other than the one indicated in the specifications; and the other is for damages in the sum of $1,191.20 for additional expense incurred in removing trolley tracks and railroad ties found at the site of the other excavation, and of which the contractor was not advised at the time of the making of the agreement. The contracts, according to the final certificates, yielded a total payment to the contractor from the City of $29,699, exclusive of these claimed extras.

January 26, 1949, and October 11, 1949, were the dates for the opening of bids on the respective projects. For the first project, a final certificate was filed on November 25, 1949, and payment of the amount certified was made by the City to the contractor on December 28, 1949. On the latter date, the contractor filed a claim with the Comptroller for the excess expenses, in the sum of $3,529.44, sustained at the relocated site. Various proceedings were had under this claim, including an examination of the contractor, and, on November 25, 1952, the City rejected the claim. In the second project, similar proceedings in part were had with respect to the contractor's claim, in the sum of $1,191.20, for additional expenses incurred in removing trolley tracks and railroad ties.

This action was thereafter begun on January 23, 1953, more than three years after the issuance of the final certificate for the first contract and the payment made thereunder.

It is not disputed that the first contract and its specifications called for excavation in an existing dirt area to accommodate a 12-inch sewer. To make such an excavation it was necessary for the work to extend for a width of 14 feet. When the contractor was ready to proceed with the work under this contract, the site for the laying of the sewer had to be changed twice because, on each occasion, it was discovered that the proposed excavation would invade the properties of abutting owners. The site finally chosen for the excavation, free from the objections of abutting owners, lay under a contrete walk. This, of course, entailed additional expense for the contractor. At the location specified in the other contract, when the work pentrated to the sub-surface, there were discovered abandoned trolley tracks and railroad ties, which again increased the expense for the contractor. The contractor protested because of the changed requirements and the additional expense, but proceeded with the work. The additional expenses were the basis for the claims filed with the Comptroller in December, 1949 and May, 1950, respectively. At no time, then or since, did the contractor elect, as it might have, to rescind the contracts, nor did it bring an action to recover damages within the time limitation contained in the written agreements.

The provision contained in each agreement which imposes the time limitation reads as follows:

'LIV. No action shall lie or be maintained by the Contractor, or anyone claimant under the Contractor, against The City upon any claim arising out of or based upon this contract or by reason of any act or omission or requirement of The City or is agents, unless such action shall be commenced within one year after date of filing in the office of the Comptroller of the City of New York the final certificate * * *.'

It is a standard provision in City contracts, and is evidently designed to discourage stale and fraudulent claims for 'extras' against the City.

The contractor knew of the falsity of the representations before the work on one of the excavations was commenced. It had to, because at the beginning it was faced with the change of site and the need to break through concrete. With respect to the trolley tracks and railroad ties at the second excavation, it learned of the failure to warn of that condition during the progress of the work in 1949. The contractor did not rescind, but proceeded with the contracts under protest. That was its right, namely, to proceed with performance of the contracts, in affirmance thereof, and claim later the damages which resulted from the misrepresentations. Even after the work was completed, the contractor might have tried to rescind, although it had fully executed its part. At this time, however, it would be doubtful whether its opportunity to rescind was still available, since the remedy of rescission must be invoked within a reasonable time after discovery of the misrepresentation. Barnard v. Campbell, 58 N.Y. 73, 75; 5 Williston on Contracts (Rev.Ed. 1937), § 1526.

In any event, the contractor did not attempt to rescind and disaffirm the contracts, but filed its claims for damages with the Comptroller. For over two years while these claims were pending, the contractor still made no effort to rescind. Presumably, the contractor wished to retain the profits of these contracts, and to look only to damages for the misrepresentations, rather than to rescind, risk his profits, and be limited to damages measured by benefits conferred.

In 1953, when this action was begun, the gravamen was clearly laid in damages at law, in affirmance of the contracts, and was not based, as claimed by the contractor in its brief, upon an 'executed' rescission. The complaint, as stated earlier, follows the traditional form of an action at law for damages. No rescission is asked for or claimed and no benefits received are tendered. The reason for this, of course, is rather evident. The opportunity to rescind had long been lost. Indeed, it may have been lost in the instant when the contractor elected to proceed with the contract discovery that it was then required to break through concrete pavement at a different site instead of excavating into dirt at the specified site. 5 Williston on Contracts (Rev.Ed. 1937), § 1527; Restatement, Contracts, § 484. Again, the contractor for good and sufficient reason may have preferred to go forward with the contracts for which it had been the successful bidder. With respect to the other contract, the discovery of the true physical facts, of course, occurred later. That would probably give the contractor a much greater latitude in determining when and whether to rescind.

Nevertheless, despite the fact that it does not even now seek rescission, the contractor would have the court treat its claims as based on an 'executed' rescission, or, in the alternative, it asserts that the contracts having been induced by 'fraudulent' misrepresentations, the time limitation provision is avoided as an instrument of or shield for the 'fraud'. Recognizing that there is no actual fraud, it urges that there is present 'constructive fraud.'

The contractor relies upon a well-settled line of cases which hold that one who is guilty of fraud in the making of a written agreement may not invoke a provision of that agreement which purports, directly or indirectly, to immunize himself from liability for his own fraud....