The following papers read on this motion:Notice of Motion XXXXXAffirmation in Support XXXXXReply Affirmation XXAffirmation in Opposition XXMemorandum of Law XXXX Motion (seq. #3) by defendant Endurance American Insurance Company for summary dismissing the complaint is denied. Motion (seq. #4) by defendant Hackensack Steel Corporation for summary judgment dismissing the complaint is denied. Cross-motion (Seq. #5) by plaintiff A3 Construction, LLC to dismiss defendant Endurance American Insurance’s third affirmative defense is granted. Cross-motion (seq. #6) by plaintiff A3 Construction to dismiss defendant Hackensack Steel’s affirmative defense is granted. Motion (seq. #7) by defendant Endurance for leave to serve an amended answer is denied. This is an action for breach of a construction contract. On April 30, 2013, plaintiff A3 Construction, LLC entered into a contract with WR Communities-A LLC to construct a five-story building containing residential and retail space in Wyandanch (Doc 72). The declared construction cost was $15,522,600 (Doc 70). The contractor was to achieve substantial completion within 14 months from the date of commencement of the work. Sec. 15.1.2 of the General Conditions of the contract between the owner and A3 provide that claims by the owner or contractor must be initiated by written notice to the other party, with a copy to the architect, within 21 days after occurrence of the event giving rise to the claim (Doc 91). Sec. 15.1.5 provides that if the contractor wishes to make a claim for “an increase in the contract time,” the claim shall include “an estimate of cost and of probable effect of delay…in detail.” Sec. 15.2.6.1 of the General Conditions provides that either party may, within 30 days from the date of the initial decision by the architect, demand in writing that the other party file for mediation within 60 days.On September 9, 2013, defendant Hackensack Steel Corporation entered into a subcontract with A3 to provide hoisting, rigging, and scaffolding for the project (Doc 69). The price for the subcontract work was $4,050,000. Sec. 3.3 of the subcontract provides that he subcontractor was to achieve substantial compliance within 90 days after the date of commencement. Sec. 20.1(b) provides that the contractor may terminate the subcontract if, among other grounds, the subcontractor fails to carry out its work within 7 days after receipt of written notice from the contractor to correct such failure. Sec. 20.2[c] provides that the contractor may then finish the subcontractor’s work by “whatever reasonable method contractor may deem expedient.”On October 23, 2013, defendant Endurance American Insurance Company issued a performance bond covering Hackensack’s work on the project (Doc 74). Paragraph 6.3 of the performance bond provides that subject to commitment by A3 of the balance of the contract price, the surety is obligated for “actual damages caused by delayed performance,” as well as other damages flowing from non-performance of the contract. Paragraph 3.1 of the bond provides that the surety’s obligation shall arise after, “[A3] has notified the contractor and the surety…that [A3] is considering declaring a contractor default and has requested…a conference with the contractor and the surety…to be held not later than 15 days after receipt of such notice…” Paragraph 3.2 provides that [A3] must have declared a contractor default and formally terminated the contractor’s right to complete the contract. Paragraph 3.3 provides that [A3] must have agreed to pay the balance of the contract price to the surety. Paragraph 5 provides that if the surety has not arranged with the contractor to complete the contract, or denied liability, the surety shall be deemed to be in default on the bond fifteen days after receipt of an additional written notice from [A3] demanding that the surety perform its obligations under the bond.On July 1, 2014, the architect issued a payment certificate stating that the “total completed,” including change orders, was $3,985,500 (Doc 79). According to defendants, the project was over 95 percent complete as of that date. Nevertheless, A3 alleges that Hackensack failed to adhere to the project schedule and caused delays to the project. On July 30, 2014, A3 sent Hackensack notice of termination of the subcontract (Doc 78). The grounds for termination were failure to provide design engineering, shop drawings, and site mobilization, and failure to make prompt payment for labor. On August 5, 2014, A3 gave notice of intention to declare a default, and requested a conference with Hackensack and the surety. On August 12, 2014, A3 sent a letter to Endurance repeating its request for a conference (Doc 76). On August 19, 2014, Endurance replied noting that Hackensack was continuing to work on the project (Doc 77). A3 concedes that a conference was held on August 20, 2014, and A3 had not terminated Hackensack’s subcontract as of that date (Doc 169 at 11). Defendants allege that for several months thereafter Hackensack continued to work on the project (Doc 71 at21). A certificate of occupancy was issued on February 17, 2015 (Doc 70).This action was commenced on April 13, 2015. Plaintiff asserts claims for breach of the subcontract and on the performance bond. In its answer, defendant Endurance asserts various affirmative defenses, including its third affirmative defense that plaintiff failed to comply with conditions precedent to bringing the action.By notice of motion dated November 30, 2017, defendant Endurance moves for summary judgment dismissing the complaint. Endurance argues that plaintiff failed to fulfill conditions precedent to an action on the surety bond because A3 did not terminate the subcontract and it did not agree to pay the balance of the subcontract price.In opposition, plaintiff argues that Endurance failed to plead with particularity the condition precedents with which A3 failed to comply. Alternatively, plaintiff argues that it complied with all procedural conditions precedent to suit and the conditions do not apply to delay damages. Additionally, plaintiff argues that, because it was required to pay laborers and vendors, there was no balance due on the subcontract.By notice of motion dated December 29, 2017, defendant Endurance moves for leave to amend its answer to plead with particularity A3′s non-compliance with the conditions contained in paragraphs 3.1, 3.2, 3.3, and 5 of the performance bond.On a motion for summary judgment, it is the proponent’s burden to make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (JMD Holding Corp. v. Congress Financial Corp., 4 NY3d 373, 384 [2005]). Failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of the opposing papers(Id). However, if this showing is made, the burden shifts to the party opposing the summary judgment motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial (Alvarez v. Prospect Hospital, 68 NY2d 320, 324 [1986]).A performance bond is a bond which guarantees against a breach of contract (Cataract Disposal v. Town Bd, 53 NY2d 266, 271 [1981]). Where its principal is properly terminated for default, or is otherwise in default, a surety has the option of either completing the project (through a contractor retained by the surety) or paying the owner its damages (WBP Central Assoc v. DeCola, 91 AD3d 861, 862 [2d Dept 2012]). The measure of damages is the portion of the owner’s completion cost which exceeds the balance due under the original contract, or the cost of conforming the principal’s defective work to the terms of the contract (Id at 862-63). The rule of strict construction is not applied to a performance bond issued by a compensated surety, and any ambiguities in the bond are to be resolved in favor of the obligee (Timberline Electric Supply v. INA, 72 AD2d 905 [4th Dept 1979]).Where there are conditions precedent to a right to sue on a contractor’s bond, such conditions must be satisfied before an action can be brought (11 NY Jur2d Bonds §108). CPLR 3015(a) provides that a denial of performance or occurrence of a condition precedent in a contract shall be made “specifically and with particularity” (1199 Housing Corp v. Intn’I Fidelity Ins, 14 AD3d 383, 384 [2005]). The failure of defendant to specifically deny compliance with a condition precedent in the contract may constitute a waiver of the defense by the surety (Roel Partnership v. Amwest Surety Ins., 258 AD2d 780 [3d Dept. 1999]). Moreover, notice provisions in a performance bond apply only to defects in performance and not to delay damages (1199 Housing Corp v. Intn’l Fidelity Ins, supra, 14 AD3d at 384). Defendant Endurance’s motion for summary judgment dismissing the complaint is denied.Leave to amend a pleading shall be freely given upon such terms as may be just (CPLR 3025[b]). However, leave to amend may be denied where the proposed amendment is palpably improper or insufficient as a matter of law, or prejudice or surprise will directly result from the delay in seeking amendment (Koenig v. Action Target, 76 AD3d 997 [2d Dept 2010]).In defendant Endurance’s answers to interrogatories served on November 12, 2015, Endurance stated that A3 had failed to comply with the conditions in the performance bond requiring A3 to request a conference, declare a default, and agree to pay the surety the balance of the contract price. Thus, there has been no surprise or prejudice in connection with the proposed amendment. However, because notice provisions in the performance bond have no application to delay damages, the proposed amendment is palpably without merit. Accordingly, defendant Endurance’s motion for leave to amend the answer is denied. Plaintiff’s cross-motion to dismiss defendant Endurance’s third affirmative defense is granted.By notice of motion dated November 30, 2017, defendant Hackensack moves for summary judgment dismissing the complaint. Defendant Hackensack argues that plaintiff failed to strictly comply with conditions precedent to bringing suit under both the contract and the General Conditions to the prime contract. Hackensack argues that plaintiff failed to serve Hackensack with 7-days notice to cure, plaintiff failed to serve notices of claim within 21 days of the architect’s decision, and failed to proceed to mediation after the decision of the architect.“Where a construction contract contains a condition precedent-type notice provision setting forth the consequences of failure to strictly comply, strict compliance will be required” (Schindler Elevator v. Tully Construction, 139 AD3d 930, 931 [2d Dept 2016]). The owner’s actual notice of the delay does not excuse the contractor’s failure to serve a proper notice of claim, where the contract requires the basis of the claim to be stated in detail (Id at 932).Where it is clear that strict compliance with a notice provision is a condition precedent to suit under a construction contract, a subcontractor who asserts a claim for delay damages after substantial completion of the project will be barred from suit if it has not complied with the notice of claim provision (Kingley Arms v. Sano Rubin Construction, 16 AD3d 813 [3d Dept 2005]).In the present case, the General Conditions of the contract require the owner and the contractor to serve a notice of claim for delay damages but only require a detailed notice of claim on the part of the contractor. In view of the conferences which were admittedly held, Hackensack had actual knowledge of A3′s delay damages claim. Defendant Hackensack’s motion for summary judgment dismissing the complaint is denied. Plaintiff A3′s cross-motion to dismiss defendant Hackensack’s affirmative defense of failure to comply with a condition precedent is granted.So ordered.Date: 16 April 2018
