July 2002
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
As a general rule, subcontractors cannot recover against the owner when there is a contract between the prime contractor and the subcontractor unless the owner has, in some way, agreed to pay the subcontractor for the work. The subcontractor's recourse is normally against the prime contractor only. In the recent case of All Ways Electric Corp. v. Nigam, however, the trial court ruled that the subcontractor could recover from the owner for the costs of extra work performed by the subcontractor.
Background
The owner entered into a contract with Metco Remodeling Corp. to repair and add space to the owner's house, which had been damaged by fire. Metco entered into a subcontract with All Ways Electric Corp. for the electrical work. All Ways subsequently performed electrical work under the subcontract and also performed extra work on the residence.
On March 21, 2000, All Ways sent an invoice to Metco for the extra work. The invoice indicated "additional work requested by owner" and quoted a price of $5,403. Thereafter upon the recommendation of All Ways, the owner decided that 200-amp service was inadequate and that 300-amp service should be installed. The owner was credited for the 200-amp service and charged for the 300-amp service.
All Ways then sent a summary statement to the owner which reflected two invoices for contract work and extra work, the 200-amp credit amount and the 300-amp charge, and payments by the owner, leaving a balance due of $10,889 due on completion of the work.
When the bills for the electrical work had not been paid by Metco or the owner, an All Ways official met with the owner and reduced the amount of the original invoice to reflect that 75 percent of the work called for in the proposal had, in fact, been performed. A copy of the bill was faxed and delivered to the owner. All Ways subsequently started a lawsuit directly against the owner when he failed to pay for the electrical work performed at his residence.
Decision
After a trial, the court ruled in favor of the subcontractor. It found that the owner made an independent enforceable promise to the subcontractor to pay for the extra work.
The court initially pointed out that there was no privity of contract between the owner and the subcontractor. It made clear that All Ways made its agreement to perform the electrical work with the general contractor - not with the homeowner. The court also held that the subcontractor's mere giving of a statement of account to the owner did not create an independent basis on which to impose liability on the owner. The fact that a summary statement was given to the owner did not establish liability on the owner where none previously existed.
The court, however, held the owner accountable to the subcontractor for the extra work performed by All Ways. It referred to a letter dated April 24, 2000 prepared by the owner and signed by Metco, the general contractor. The letter gave permission for the owner to pay All Ways for electrical work for which "Metco is responsible to pay," that is, basic contract work agreed to in the subcontract between Metco and All Ways. The letter also stated that any additional work would be the responsibility of the owner.
The court relied on this letter to establish a direct obligation of the owner to pay the subcontractor for the extra work. It refused, however, to impose liability against the owner for the balance due the subcontractor for contract work, which was the responsibility of the general contractor under its subcontract with All Ways.
Conclusion
This case falls within the exception to the general rule that subcontractors cannot recover against the owner when a contract exists between the owner and the general contractor. The crucial issue is whether the subcontractor performed the work at the direction of the general contractor or the owner. In this case, the subcontractor performed the extra work upon the request of the owner and with the expectation of payment by the owner, not by the general contractor. The request by the owner directly to the subcontract and the acknowledgment between the owner and prime contractor that additional work would be the responsibility of the owner provided the basis for the owner's direct liability to the subcontractor.
About the author: Mr. Miuccio is a partner in the New York City-based law firm Altieri, Kushner, & Miuccio P.C. and legal counsel to the Construction Industry Council of Westchester and the Hudson Valley Inc.