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March 08, 2008

Time Period for Notice on Payment Bond By Open Account Supplier on Private Project Held to Run From Final Delivery

Triboro Hardware & Supply Corp. v. Federal Insurance Co., 841 N.Y.S.2d 600 (2d Dep't 2007)

Facts:

Triboro supplied materials to a subcontractor on a private apartment building on an "open account" basis. Over the period of the project Triboro made 78 deliveries of material, with a separate purchase order and invoice for each delivery. When Triboro made a claim on the payment bond, the surety argued that notice was required within 90 days of each delivery, and the early deliveries were not covered due to late notice.

In response to motions by both parties for summary judgment, the trial court held there was a question of fact as to whether there was one contract, which would require only one notice after Triboro's last delivery, or multiple contracts which would require a notice for each delivery. The trial court indicated that if these were multiple contracts, each delivery would require a notice within 90 days. The trial court based its decision on cases in First and Fourth Department which required a series of notices.

Discussion:

Triboro argued however that the more recent Court of Appeals case of Specialty Products v. St. Paul, 758 N.Y.2d 255 should govern this private project, even though Specialty Products decided the question of notice on a public project.

In this case the Second Department followed Specialty Products which did not follow a contract-based analysis, but rather statutory interpretation as found in federal Miller Act cases.

Based on that interpretation of the logic and purpose of the statute, the court held that notice was required within 90 days of the final delivery rather than each delivery.

In support of its decision the court stated that:

To require Triboro to provide 78 notices would be an "extraordinarily onerous burden"; payment bonds were adhesion contracts to be "strictly construed" against the surety; and to require a notice for each delivery could result in a flood of notices.

Thus the court held that the notice provided by Triboro within 90 days of its last delivery was timely without regard to whether the parties had a master contract or were working under an open account.

Comment:

This case is important for second-tier subs and suppliers on private projects, because prior to this case the law from the First and Fourth Departments required notice against a payment for each and every delivery. Based on Triboro, the notice period is based only on the last delivery which is greatly favorable to second-tier subs and suppliers.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area.

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