Attorney's Column
Appellate Court: ‘Paperwork Breach’ Dooms Claim
By THOMAS H. WELBY, P.E., ESQ. and GREGORY J. SPAUN, ESQ.
While most contractors strive for excellence in their construction—after all, it’s the product of their ingenuity and know how that will potentially be around for years to come—not everyone holds the same belief regarding the paperwork that’s required on a construction project. In fact, the paperwork is often treated as just the nuisance that is required as an incidence of the construction, and not a part and parcel of the construction itself. The mindset is that a well-constructed product speaks for itself (and is the best way to avoid litigation). However, in the recent case of Hudson Meridian Construction Group, LLC v Bayport Construction Corp. and Senator Construction Group Inc., an appellate court reminds us that the paperwork on a project is just as important to getting paid as the quality of the construction itself.
Background – Hudson Meridian Construction Group was the general contractor for the construction of a 33-story building at 1059 Third Ave. in Manhattan. In September of 2017, Hudson Meridian subcontracted with Senator Construction Group for Senator to provide hoists, overhead protection, sidewalk sheds and other equipment for the project. Nine months later, Senator assigned its subcontract to Bayport Construction Group. Two months after that, Hudson Meridian terminated the Senator/Bayport subcontract, claiming that the project suffered delays from the outset because Senator and Bayport could not pay their own sub-subcontractors and consultants, and that Hudson Meridian was forced to pay these sub-subcontractors and consultants directly in order to keep the project moving forward. After the termination, and pursuant to the subcontract, Hudson Meridian proceeded to utilize the Senator/Bayport equipment.
In October 2018, Hudson Meridian sued Senator and Bayport to recover the costs associated with the delays. When Senator and Bayport answered, they included counterclaims alleging that the termination was pretextual and done in order to go around Senator and Bayport and obtain direct pricing from their subcontractors and suppliers, at a discount, by cutting out the proverbial middleman. The counterclaims sought to recover the cost of the equipment provided, and also had claims for conversion and to recover the equipment itself.
After discovery, Hudson Meridian moved for partial summary judgment dismissing Senator’s and Bayport’s breach of contract counterclaims, arguing (to the extent relevant here) that a large part of these claims was based upon unsigned change orders and unexecuted payment requisitions. Senator and Bayport opposed, arguing that the equipment was actually provided by Senator and Bayport, and used by Hudson Meridian, and such paperwork issues were not fatal in light of that fact.
Decision – The motion court granted Hudson Meridian’s motion to the extent of dismissing so much of Senator’s and Bayport’s claims as were based on unsigned change orders and unexecuted payment requisitions, and the appellate court affirmed. In doing so, the court cited well-settled law that contractual conditions precedent must be strictly complied with, and found that the submission of signed and notarized payment requisitions was a condition precedent to payment. The court also found that the change orders were similarly non-compliant in that they were not “written instrument[s] prepared and signed by [Hudson Meridian] and signed by [Senator/Bayport]”. Without these contractual conditions precedent to payment having been met, Hudson Meridian’s liability to make those payments never arose.
Comment – Hudson Meridian v Bayport provides a warning to contractors that providing solid paperwork is often just as crucial as performing solid work. If the provision of certain paperwork is specifically set forth in a contract (here, signed and notarized payment requisitions, and change orders signed and executed on a certain form), it can be characterized as a condition precedent to payment. As was demonstrated in Hudson Meridian, upon Senator’s and Bayport’s failure to meet the conditions precedent in the contract, Hudson Meridian’s obligation to make payment never arose—despite that the equipment was actually provided to, and used by Hudson Meridian.
Should a contractor have any questions about what documents will be strictly required, and what documents may be ancillary, a consultation with experienced construction counsel can help sort things out and ensure that you’re not inadvertently waiving any right to payment for services actually provided.
About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc., and the Building Contractors Association, and is the Founder of and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP. Gregory J. Spaun is General Counsel to the Queens and Bronx Building Association and an attorney and a partner with the firm, co-authors this series with Mr. Welby.