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Phoenix Corp. v. U. W. Marx

July 9, 2009


The opinion of the court was delivered by: Stein, J.


Calendar Date: March 27, 2009

Before: Mercure, J.P., Spain, Kavanagh, Stein and McCarthy,JJ.

Appeal from an order of the Supreme Court (Doyle, J.), entered April 9, 2008 in Rensselaer County, upon a decision of the court in favor of plaintiff.

Plaintiff was hired as a subcontractor by defendant U.W. Marx, Inc. (hereinafter defendant) to install steel reinforcement on a fast-track construction project pursuant to a written subcontract executed by the parties. It is undisputed that plaintiff's contemplated start date was delayed for a variety of reasons, all unrelated to plaintiff.

Shortly after plaintiff finally began its work with an initial crew of six workers and an anticipated maximum crew of 15, defendant's vice-president asked David J. Murray, plaintiff's owner, to put between 25 and 35 workers on the job with each working six 10-hour days per week. When Murray initially indicated that he would not accede to this request, an oral agreement was reached. According to Murray, in exchange for his agreement to increase the anticipated number of workers by more than two-fold and to pay unanticipated overtime, defendant agreed to float plaintiff's entire weekly payroll and to cover the additional overtime expense. Defendant's vice-president acknowledges that he orally agreed to float plaintiff's weekly payroll (which included overtime costs) if Murray acceded to his request that plaintiff substantially increase the number of workers on the job. However, he denies that this oral modification to the written subcontract included an agreement to pay overtime expenses.

Following this conversation, plaintiff substantially increased the number of workers on the project and defendant began paying plaintiff's weekly payroll. After a dispute arose concerning plaintiff's failure to pay union benefits, defendant stopped floating the payroll. Plaintiff thereafter resumed paying its own weekly payroll and ultimately completed the job, with the exception of a small area at a particular loading dock. As to this unfinished work, plaintiff made three attempts to complete it but the area was not ready through no fault of its own.

Plaintiff, as now relevant, commenced this action to recover $209,650 in overtime expenses pursuant to the alleged oral agreement. Defendant, along with its bonding companies, counterclaimed for back charges pertaining to the unfinished work at the loading dock and for reimbursement of its payment of one half of the union's counsel fees in a federal action commenced by the union to collect moneys due.*fn1 Following a non-jury trial, Supreme Court found that the parties entered into an oral agreement that included a commitment by defendants to cover plaintiff's overtime expenses and that this oral agreement was enforceable despite a clause in the subcontract precluding oral modifications. The court also denied defendants' requests for the back charges and for reimbursement of counsel fees. Defendants now appeal.

Plaintiff has failed to demonstrate an enforceable oral modification to the parties' written subcontract with regard to the payment of overtime expenses. Generally, a written agreement that includes a provision prohibiting oral modification -- as does the subcontract here -- "cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement... is sought" (General Obligations Law § 15-301 [1]; see Rose v Spa Realty Assoc., 42 NY2d 338, 343 [1977]). However, the statutory requirement of a writing may be avoided by proof of either partial performance of an oral agreement to modify a written contract, which must be "unequivocally referable to the oral modification" (Rose v Spa Realty Assoc., 42 NY2d at 343), or equitable estoppel, based upon conduct which is "not otherwise... compatible with the agreement as written" (id. at 344; see Turk v Anello, 280 AD2d 819, 820 [2001]). The Court of Appeals has articulated that it is not sufficient that the conduct of the parties indisputably evidences a mutual departure from the written agreement if such conduct does not satisfy these rules (see Rose v Spa Realty Assoc., 42 NY2d at 344).

Here, the written contract provided for compensation to plaintiff based upon a price per ton of reinforcing steel, which price was to be "all inclusive." The contract further provided that the price per ton "includes the cost of any overtime or work shifts necessary for completion of the work of this subcontract and the project in accordance with the contractor's schedules," and that plaintiff would be responsible for payment of its own payroll. There is no dispute that the written contract contemplated plaintiff's payment of overtime expenses, that in response to defendant's request to accelerate plaintiff's work it was necessary for plaintiff to perform some of its base contract work during overtime hours thereby increasing its labor costs, or that defendant agreed to advance plaintiff's payroll and overtime expenses. Nor is there any dispute that the parties varied from the terms of the written contract simply by virtue of the fact that defendant advanced payments to plaintiff in order to meet its payroll and overtime expenses. Since it is uncontroverted that the parties agreed to orally modify the agreement and did, in fact, do so, we have no disagreement with Supreme Court's finding to that extent. However, the issue is not whether any oral modification was made, but whether the parties' conduct is unequivocally referable to an agreement that defendant would actually assume responsibility for the payment of any of plaintiff's overtime expenses.

Neither plaintiff's hiring of additional laborers (and incurring unanticipated overtime costs) nor defendant's advancement of payments to plaintiff are unequivocally referable to such an agreement. For example, inasmuch as plaintiff concedes that the amounts advanced by defendant to pay plaintiff's payroll were to be offset against amounts otherwise due to plaintiff pursuant to the written agreement, the payment of overtime expenses is consistent with the same intent. Indeed, Murray testified that, notwithstanding defendant's oral agreement to advance payroll expenses, including overtime, the overtime expenses remained plaintiff's responsibility. His only testimony regarding any alleged agreement by defendant to cover any of plaintiff's expenses was his statement that there was no "concrete number placed on it but it was a good faith agreement that there would be compensation at the end of the job." This is clearly insufficient to establish the purported agreement. Likewise, the fact that plaintiff spent more on overtime costs than originally anticipated is not sufficient to demonstrate that the parties agreed to deviate from the written agreement with respect to responsibility for those costs (see Charles T. Driscoll Masonry Restoration Co., Inc. v County of Ulster, 40 AD3d 1289, 1292 [2007]; Isaacs Bus. Ventures v Thompson, 223 AD2d 957, 958 [1996]). Under these circumstances, defendant's agreement to advance payments on plaintiff's behalf is not incompatible with plaintiff's ultimate responsibility therefor, as set forth in the written subcontract. In addition, the record demonstrates that many modifications to the contract involving work and compensation -- including several that concerned authorization for additional work and overtime -- were made with written change orders, demonstrating the parties' adherence to the terms of the written contract (see Charles T. Driscoll Masonry Restoration Co., Inc. v County of Ulster, 40 AD3d at 1292). This prior conduct of the parties is a strong indication that, had the parties agreed to deviate from the written contract in a manner as significant as the modification alleged by plaintiff here, such agreement would have been reflected in a written change order.

Absent a demonstration of partial performance or entitlement to equitable estoppel based upon conduct "unequivocally referable to the purported oral modification" (Turk v Anello, 280 AD2d at 820) -- to wit, to require defendant to compensate plaintiff for overtime costs -- the statutory requirement of a writing was not obviated. Therefore, there was no basis for Supreme Court to delve into determinations of witness credibility regarding the terms of the alleged oral modification. Accordingly, we modify the judgment by reducing it in the amount of $191,870. In view of this determination, defendant's dispute regarding plaintiff's precise calculation of overtime costs, raised for the first time on this appeal, is academic.

Finally, we find no error in Supreme Court's determination that defendants failed to meet their burden with respect to their counterclaims. According to the testimony of defendant's own project manager, plaintiff made efforts to complete the unfinished work on the subject dock but defendant, through its own fault, was not "ready for them." The record further reveals ...

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