Turner Construction Company v. US Framing Inc., 11/6/2015 (Platkin, R.)

Breach of Contract; Unjust Enrichment; Rescission; Repudiation

By Melissa Johnson

Plaintiff, a construction company, and Defendant, a framer, entered into a written sub-contractual agreement (“Subcontract”) dated January 14, 2013. The agreement was initialed by both parties and stated that Defendant would perform framing work as a subcontractor on behalf of Plaintiff contractor. In addition, Article II of the Subcontract stipulated that Defendant waived the right to withdraw, rescind, or cancel the agreement, except if Plaintiff failed to provide a fully executed Subcontract or notify Defendant that it had executed the Subcontract within forty-five days of bid. Under either of these circumstances, Defendant had the right to rescind the Subcontract in writing, thereby releasing itself from any obligation or liability. Otherwise, Defendant was obligated to perform under the Subcontract. Shortly after entering into this agreement, Plaintiff remitted $1,021,908 to Defendant as partial payment of the $2,370,000 subcontract, and Defendant commenced performance.

On June 3, 2013, amid concerns over Defendant’s delayed hardware submittals and correspondence, Plaintiff’s project manager sent an email to Defendant’s vice-president stating that it would solicit pricing from a local framer. Defendant’s counsel notified Plaintiff in a letter dated June 6, 2013, that it considered Plaintiff’s email a wrongful termination of the Subcontract and claimed that Defendant did not receive a fully executed agreement in accordance with Article II of the Subcontract. Consequently, Plaintiff’s lawyer provided proof that it did remit a countersigned Subcontract to Defendant via Federal Express in February 2013, and indicated in a letter dated June 7, 2013, that Plaintiff expected and sought assurance that Defendant would honor the contractual agreement. However, Defendant ceased communication with Plaintiff and provided no assurances that it would fulfill its contractual obligation. On June 21, 2013, Plaintiff issued a notice terminating the Subcontract.

In July 2013, Plaintiff commenced an action against Defendant, asserting a claim for breach of contract on the grounds of unjustified repudiation and failure to perform under the Subcontract. Defendant filed two counterclaims for breach of contract and unjust enrichment. Plaintiff then moved for partial summary judgment seeking judgment on its breach of contract claim and dismissal of Defendant’s counterclaims. Plaintiff maintained that its June 2013 email did not constitute a notice of termination and Defendant could not treat this correspondence as an anticipatory breach. Specifically, Plaintiff pointed out that the email did not include customary provisions of a notice of termination, and was only intended to communicate the importance of Defendant’s timely performance. Further, Plaintiff claimed that its attempts to receive assurances that Defendant would continue to perform under the Subcontract supported its position that it did not intend to terminate the agreement, and demonstrated a timely retraction if in fact it had repudiated the contract. Defendant cross-moved for partial summary judgment on its breach of contract and unjust enrichment claims. Defendant argued that the plausible conclusion was that the June 2013 email was in fact a notice of termination and an unjustified repudiation because Plaintiff sought to enter into a direct contract with its truss supplier. Defendant contended that Plaintiff’s letter seeking assurance of Defendant’s performance could not constitute a timely retraction because it sought to impose new extra-contractual terms. Defendant also claimed that it had a right to rescind the agreement according to Article II of the Subcontract because it did not receive a fully executed agreement.

The Court dismissed Defendant’s counterclaims because it found that Defendant in fact breached the Subcontract, and waived its right to rescission under Article II of the Subcontract. The Court reasoned that Defendant received payments in excess of $1,000,000, and performed under the Subcontract for approximately five months before claiming that it did not receive the fully executed written agreement. Therefore, it was reasonable for Plaintiff to have relied on Defendant’s silence. The Court noted that the parties could not have reasonably contemplated rescission of the contract at any time, regardless of the length of partial performance or monies already paid. The Court agreed that Plaintiff’s email alerting Defendant of its intent to solicit pricing from a local framer did not constitute a notice of termination because it did not evidence an unqualified and clear refusal to perform. Per the Court, “a claim of anticipatory repudiation must be supported by evidence of an unqualified and clear refusal to perform with respect to the entire contract.” Joseph P. Carrara & Sons, Inc. v. A.R. Mack Constr. Co., Inc., 89 AD3d 1190, 1191 [3d Dept 2011]). Specifically, Plaintiff’s June 2013 email did not refer to the termination provisions of the Subcontract, include allegations of default, or provide Defendant with an opportunity to cure. The Court stated that the email could “reasonably be understood as notifying [Defendant] of [Plaintiff’s] dissatisfaction and articulating certain measures that [Plaintiff] intended to take to prepare for a potential default.”

The Court concluded that Plaintiff’s demand of assurances of Defendant’s performance, and confirmation that Plaintiff sent Defendant a fully executed Subcontract within forty-five days of bid, amounted to a timely retraction. In other words, “a bona fide retraction.” The Court noted that Restatement of Second Contracts § 256 [1] states that “a repudiation is nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.” The Court found that Plaintiff’s June 2013 letter to Defendant, manifested Plaintiff’s intent to perform under the Subcontract, and rejected Defendant’s argument that Plaintiff sought to introduce new extra-contractual terms into the agreement on the basis of insufficient evidentiary support.

Turner Construction Company v. US Framing Inc., 11/6/2015 (Platkin, R.).

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