In a January 2025 decision, Gibraltar Contr., Inc. v. Tully Constr. Co. Inc., the Appellate Division, First Department rendered a decision that brought light to two separate points that contractors should take note of should they find themselves in similar situations.
The first legal issue had to do with whether the subcontractor timely filed a claim against the contractor pursuant to the terms of the subcontract. The subcontractor included a limitations period stating that claims must be filed within six months of final acceptance, which is a typical length of time within a subcontract, so it should hardly come as a surprise that the Appellate Division found it not to be an “unreasonably short” period. The main point here, however, was when the six-month limitations began to run. The subcontract provision stated the six-month limitations period would start to run upon “final acceptance of the work by Owner.”
The contractor-defendant in this action sought to dismiss the action, claiming that more than six months had run from the date of the Certificate of Final Completion. A close examination of the Certificate of Final Completion, however, found that such document was merely a “recommendation” issued by the contractor for the project owner to accept the work of the subcontractor-plaintiff as completed. Thus, because the Certificate of Final Completion was a recommendation to the owner and not the date of the owner’s actual acceptance, the claim was found to not be time-barred for being more than six months after the date of the Certificate of Final Completion.
While most contractors generally understand what a certificate of final completion is, situations like this one act as a reminder that contractors should review the definitions of the certificate of final completion and similar terms in each contract, as the nuances of the definition may prove vital like it did in this case.
The second issue in this action dealt with the enforceability of the subcontract’s “no oral modifications” clause. Generally, oral modifications are not enforceable considering a no oral modification clause or a merger clause. There are, however, limited exceptions to enforcement of a no oral modification clause. These exceptions arise when there is partial performance that is unequivocally referable to the oral modification or if one party induces the other’s significant and substantial reliance upon an oral modification.
For example, in Gibraltar v. Tully, it was alleged that the contractor-defendant provided oral instruction to the subcontractor-plaintiff to perform added work and accelerate its work for which contractor-defendant would compensate subcontractor-plaintiff. The subcontract, however, had a no oral modification clause and a specific clause stating that any additional work or acceleration costs must be approved in writing before performing such work, otherwise such claims for additional compensation would be deemed waived.
Subcontractor-plaintiff, in reliance on the oral agreement with contractor-defendant, performed the work and submitted a request for its added work, overtime, and costs associated with its union’s fringe benefits. The court found that these costs, although not compliant with the subcontract’s terms, were unequivocally referable to the alleged oral modification.
Based on the facts as alleged, the court found that subcontractor-plaintiff’s claim could survive a motion to dismiss as it could be reasonably inferred that the contractor-defendant induced the subcontractor-defendant’s significant and substantial reliance upon the alleged oral modification and could be held liable for those costs even though they did not comply with the subcontract’s terms. While this decision was merely a denial of the defendant’s motion to dismiss the claim and not a final decision on the merits, such decision gave the subcontractor-plaintiff a continued path towards litigating the claim or negotiating a settlement.
While we urge members against relying on the exception to a no oral modification clause, such an argument may prove useful should a member find itself backed into a similar situation by an owner or prime contractor.
Andrew J. Mundo, Esq.
MURTAGH, COHEN, BYRNE & MURDY
amundo@MCB50Law.com