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Performance and Design Specification Contracts Defined

This breach of contract case concerned the installation of “jet grout bottom seal” at a wastewater treatment plant.  In the course of its discussion, the Fourth Department explained the difference between performance and design specification contracts:

We … conclude that there are issues of fact concerning whether the contract was one of performance or design specification, thus precluding summary judgment with respect to the additional expenses that plaintiff allegedly incurred in remediating the jet grout bottom seal. “A performance specification [contract] requires a contractor to produce a specific result without specifying the particular method or means of achieving that result” (Fruin-Colnon Corp. v Niagara Frontier Transp. Auth., 180 AD2d 222, 229).“In other words, the contractual risk of nonperformance is upon the contractor” (id.). In contrast, a design specification contract is one in which “the owner specifies the design, materials and methods and impliedly warrants their feasibility and sufficiency” (id.).     “In that instance, the contractor’s guarantee . . . is limited to the quality of the materials and workmanship employed in following the owner’s design” (id. at 230). The proper characterization of a construction contract as one of either performance or design specification “depends upon the language of the contract as a whole,” and relevant factors in such an inquiry “include the nature and degree of the contractor’s involvement in the specification process, and the degree to which the contractor is allowed to exercise discretion in carrying out its performance” ​(id.).Here, the unresolved issues of fact with respect to those factors, particularly as to plaintiff’s ability to change the design without Falter’s approval, precludes a determination whether as a matter of law the subject contract is one of either performance or design specification, and thus whether plaintiff may recover expenses incurred in remediating the jet grout bottom seal.  Howard Baker, Inc. v C.O. Falter Construction Corp., et al, 1441, CA 12-00398, 4th Dept. 3-15-13

 

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Pre-Closing Inspection Disallowed Because There Was No Mention of a Pre-Closing Inspection in the Purchase Contract

The Fourth Department determined a purchase contract which contained a merger clause prohibiting oral modifications and which did not have a provision allowing a pre-closing inspection did not provide the buyer with the right to inspect the property.  Under the rules for the interpretation of an unambiguous contract, “ ‘courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include’ . ..”.  Thirty One Development, LLC v Jeffery Cohen, et al, 161 CA 11-02577, 4th Dept. 3-15-13

 

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Buyer Not Entitled to “Loss of Bargain” Damages for Breach of Purchase Contract

The contract for the sale of a parcel of real property included the following: “It is the understanding of the parties that at the present time, seller is not in title to the property.  Seller is a first mortgage holder and the mortgage is in default.  In the event that the title holder does not agree to signing over a deed in lieu of foreclosure, the seller will institute foreclosure proceedings with the courts.  Seller shall be able to provide good and clear title in accordance with this contract.” The defendant-seller, however, was outbid at the foreclosure sale and could not provide the buyer with good and clear title.  In the lawsuit brought by the buyer, the buyer sought so-called “loss of bargain” damages.  In affirming the trial court’s denial of buyer’s request for “loss of bargain” damages, the Fourth Department explained:

It is well settled that “[t]he vendee in a contract for the sale of land is not ordinarily entitled, upon breach, on failure to convey, to recover of the vendor damages measured by the goodness of his bargain or the financial benefit which would result from performance, and it is only when the vendor is for some reason chargeable with bad faith in the matter that recovery beyond nominal damages on that account can be had” … .Thus, “[i]f a vendee knows of the inability of his vendor to convey the title he has undertaken to convey, the vendee’s damages are not measurable by the loss of his bargain” … .  Khanjani v Schreiber, 141, CA 12-00494, 4th Dept. 3-15-13

 

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Duty to Defend

In finding that an insurance company was required to defend, the Fourth Department explained the relevant criteria in the context of a summary judgment motion:

An insurer’s duty to defend is “ ‘exceedingly broad’ and an insurer will be called upon to provide a defense whenever the allegations of the complaint ‘suggest . . . a reasonable possibility of coverage’ ”.. .“If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be” ….Thus, the duty to defend exists “ ‘even though facts outside the four corners of [the] pleadings indicate that the claim may be meritless or not covered’ ” ….

The insured has the initial burden of establishing coverage under an insurance policy while the insurer bears the burden of proving that an exclusion in the policy applies to defeat coverage … .“[E]xclusions are subject to strict construction and must be read narrowly” … .In order to establish that an exclusion defeats coverage, the insurer has the “heavy burden” of establishing that the exclusion is expressed in clear and unmistakable language, is subject to no other reasonable interpretation, and is applicable to the facts ….An insurer “will be required to ‘provide a defense unless it can “demonstrate that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions, and, further, that the allegations, [in toto], are subject to no other interpretation” ’ ” … .  Georgetown Capital Group, Inc. v Everest National Insurance Company, 82, CA 12-01337, 4th Dept. 3-15-13

 

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Interpretation of Unambiguous Language; Doctrine of Expressio Unius est Exclusio Alterious; Criteria for Declaratory Judgment 

In a contract action, the Second Department laid out the black letter law on the interpretation of unambiguous language, the doctrine of “exclusio unius est exclusio alterious,” and the criteria for a declaratory judgment.  The controversy concerned the amount of a bonus which was determined, according to the terms of the contract, by whether the plaintiff resigned or was fired, a disputed issue:

The defendant acknowledges that if the language of a written contract is free of ambiguity, the court must determine its meaning as a matter of law based upon the writing alone, without resort to extrinsic evidence …. Contrary to the defendant’s contention, the language of paragraph 4.2 clearly limits bonus compensation to a share of distributions based upon either the sale of all of RDL’s assets, or some of RDL’s assets. Pursuant to the doctrine of “exclusio unius est exclusio alterious,” which means that the expression of one thing is the exclusion of the other …, the references to the sale of assets implies that bonus compensation does not apply to distributions based upon something other than the sale of assets. If the parties had intended for bonus compensation to be based upon all distributions, these references to the sale of assets would have been unnecessary.  * * * The courts may issue declaratory judgments declaring the rights of the parties only where there is a justiciable controversy …. There is no justiciable controversy warranting declaratory relief if the controversy is over a future event “beyond the control of the parties and may never occur” … . However, in the instant case, the future event is in the control of RDL …, and is likely to occur … . Therefore, the question of whether the defendant was discharged without cause or resigned constitutes a justiciable controversy, which must be resolved by the Supreme Court after a trial.  Realtime Data, LLC v Melone, 2013 NY Slip Op 01540, 2011-11936, Index No 50021/10, 2nd Dept. 3-13-13

 

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Record-Keeping Was a Condition Precedent to Insurance Coverage

The record-keeping requirement in an insurance policy was a condition precedent. “Here, the defendant established its prima facie entitlement to judgment as a matter of law by submitting evidence that the plaintiff failed to comply with the record-keeping requirement set forth in the subject insurance policy, which was a clear condition precedent to coverage … “ Stars Jewelry…v Hanover Insurance Group, Inc., 2011-09098, Index No 5221/10, 2nd Dept. 3-6-13

 

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Tortious Interference with Contract.

In this case, the Third Department included a clear description of the proof requirements for tortious interference with contract.  Schmidt & Schmidt vs. Town of Charlton, 515053 Third Dept. 2-21-13

 

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Fee Agreement Unenforceable as Vague.

A written agreement concerning a “success fee” and real estate broker’s commissions was deemed unenforceable as vague, “since the agreement fails to set the price or compensation to be received…”.  Magnum Real Estate Services, Ind. Vs 133-134-135 Associates, LLC, 8058, 107850/06 First Dept. 2-14-13

 

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Standard for Upward Child Support Modification, Agreement Incorporated But Not Merged.

This case, which was not affected by the 2010 amendment to Family Court Act section 451(2)(a), includes a clear discussion of the criteria for an upward modification of a child support obligation where a party is seeking to modify “a child support provision derived from an agreement or stipulation incorporated but not merged into a divorce decree…”.  The party seeking modification “has the burden of proving that the agreement was unfair or inequitable when entered into or that an unanticipated and unreasonable change of circumstances has occurred resulting in a concomitant increased need or that the needs of the child are not being adequately met…”.  Matter of Overbaugh vs Schettini, 515079 Third Dept. 2-14-13

 

Mutual Mistake.

“Mutual mistake may furnish the basis for the reformation of a written agreement where the signed writing does not express the actual agreement of the parties…. Parol evidence is admissible to establish the actual agreement.  There is a heavy presumption that the executed agreement reflects the true intention of the parties, and a correspondingly high order of evidence is required to overturn the presumption …”  The First Department found that a question of fact had been raised concerning whether the doctrine of mutual mistake should be applied to reform the contract in this case.  West Vernon Petroleum Corp. vs. Singer Holding Corp., 2010-10522, Second Dept. 2-6-13

 

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