Commercial Division Blog

Posted: March 15, 2015 / Categories Commercial, Contracts

Owner May Be Liable Under General Contractor's Contract With Subcontractor

On March 11, 2015, the Second Department issued a decision in Vertical Progression, Inc. v. Canyon Johnson Urban Funds, 2015 NY Slip Op. 01939, discussing the circumstances under which a property owner may be liable to a subcontractor.

In Vertical Progression, the plaintiff brought an action relating to construction work it had performed as a subcontractor against, among others, the property owner. The trial court dismissed the plaintiff's claims against the owner because the plaintiff's agreement was with the general contractor, not the owner. The Second Department reversed, explaining:

{T]he Supreme Court directed the dismissal of the causes of action alleging breach of contract, based on quantum meruit, and to recover on an account stated against [the owner], among others, concluding that [the plaintiff] lacked contractual privity with [the owner], and that the subject matter in dispute was governed by [the plaintiff's] contract with [the general contractor]. Generally, a subcontractor may not assert a cause of action to recover damages for breach of contract against a party with whom it is not in privity. Nevertheless, a subcontractor can sometimes state a cause of action alleging breach of contract or unjust enrichment against the owner where direct dealing between the owner and the subcontractor justify imposing an obligation upon the owner despite the initial lack of privity between them.

[The plaintiff] alleged that [the general contractor] executed the subject contract as agent for [the owner]. Additionally, [the plaintiff] submitted documentary proof that [the owner] directly paid [the plaintiff], thus providing proof that [the owner] was the true principal and the real party in interest.

(Internal quotations and citations omitted) (emphasis added). This decision shows the importance, from an owner's perspective, of not getting involved in the relationships between the general contractor and the subcontractors.