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Posted: April 1, 2020

Substantial Completion of Contractual Duties Can Bar Termination for Breach

On March 17, 2020, Justice Cohen of the New York County Commercial Division issued a decision in McCormack Contr., Inc. v. Triton Constr. Co. LLC, 2020 NY Slip Op. 30815(U), holding that substantial completion of contractual duties can bar termination for breach, explaining:

Under the doctrine of substantial performance, a party who has failed to comply fully with the terms of a contract but has nevertheless substantially performed the contract, is immune from termination, and is entitled to recovery of the contract price, less specified contract damages. However, in order to recover under this doctrine, the claimant must demonstrate that any alleged failure to comply fully with the terms of the agreement was inadvertent or unintentional, or that the defects in performance were insubstantial, slight, trivial or minor.

Further, there must be substantial performance of all material contractual obligations – not just “substantial completion” of the physical work.

However, there is no simple test for determining whether substantial performance has been rendered, and several factors must be considered, including the ratio of the performance already rendered to that unperformed, the quantitative character of the default, the degree to which the purpose behind the contract has been frustrated, the willfulness of the default, and the extent to which the aggrieved party has already received the substantial benefit of the promised performance. The question of whether there has been substantial performance is to be determined, whenever there is any doubt, by the trier of fact.

Here, McCormack contends that Triton’s termination was wrongful because it had substantially completed 95% of its construction work. However, McCormack fails to address the other elements of a substantial completion claim – i.e., that its failure to complete the work was unintentional and that its defects in performance were trivial. Indeed, in all of the cases cited by McCormack in support of its argument that 95% substantial completion of a contract is, by itself, sufficient to bar termination, the court found that that either the failure to fully perform was unintentional or that the deficits were trivial. In opposition to the motion, Triton contends that the evidence shows that McCormack had not substantially performed all material aspects of the Trade Contract prior to its termination, including Substantial Completion of the physical Trade Work, or timely performance, and has not demonstrated that its failure to perform was inadvertent.

Where, as here, in Trade Contract Terms, the contract specifies “time is of the essence,” the parties are obligated to comply strictly with its terms. Performance by the specified date is a material element of the contract, and the failure to perform by that date constitutes a material breach of the contract.

With respect to timely performance, Triton contends that it terminated McCormack because it de-manned the Project, and thus abandoned it prior to completion. If true, McCormack’s abandonment would be material, and it would not be entitled to recover under the doctrine of substantial performance. Triton also contends that the abandonment was intentional, because Enda McCormack testified that he had to de-man the Project due to lack of financing. These contentions, as well as McCormack’s testimony, are sufficient to raise factual issues as to whether McCormack abandoned the Project prior to completion.

With respect to Substantial Completion of the physical work, Triton contends that the 95.19% reflected in the requisition does not reflect the level of acceptable Trade Work, but rather, only the total interim payments made to McCormack out of the Trade Contract Amount. In support of this argument, Triton submits evidence that, after McCormack’s termination, the architect for the Project, Beyer Blinder & Belle (BBB), issued punch lists that identified 3,455 deficiencies in the Trade Work, including 51 of the 367 hotel rooms. Petersen contends that 1,392 items on BBB’s post termination punch lists were not mere housekeeping or clean-up items, but rather items of the Trade Work that remained to be repaired, replaced, adjusted, patched, corrected, fixed or installed. Triton argues that, as such, at least 10% of McCormack’s work remained at termination.

Triton also submits the affidavit of Carlos J. Cardoso, an architect employed BBB, who provides his professional opinion that a contractor who has billed 95% in interim payments against its trade contract value and who also has significant punch list work to accomplish with respect to that 95% of the billed work, has not substantially completed its scope of the work.

These submissions are sufficient to raise issues of fact as to whether McCormack substantially performed the Trade Contract, i.e., whether McCormack’s failure to fully complete the contract was intentional, or whether its deficient performance was material, requiring denial of the motion.

Accordingly, McCormack’s motion for summary judgment on its first cause of action for breach of contract, and to dismiss Triton’s counterclaims, is denied.

(Internal quotations and citations omitted).

Under New York law, you may not be able to sue for breach of contract if you have failed (in a material way) to perform your own duties under the contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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Posted in Commercial, Contracts
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