Specialty Products & Insulation Co. v. St. Paul Fire & Marine InsuranceSpecialty Products & Insulation Co. v. St. Paul Fire & Marine Insurance
OPINION OF THE COURT
Specialty Products & Insulation Company, a supplier to a subcontractor on a public improvement project, made several unreimbursed deliveries of materials under an open account arrangement with the subcontractor. In this appeal, we are asked to determine whеther the supplier provided timely notice of its claim for payment for those deliveries under State Finance Law § 137 (3), so as to be entitled to payment under the labor and materials payment bond posted for the project. The issue boils down to whether, in an open account arrangement, the statutory 120-day notice period is measured from each delivery to the project or from the final delivery of materials for which the claim is made. We agree with the Appellate Division that the latter interpretation is correct.
I.
At issue is рayment for deliveries made to a public improvement project involving additions and alterations to Broome County courts. Northland Associates, Inc., as general contractor, hired Klimchuck & Company, Inc. for a portion of the work. Klimchuck in turn arranged for the supрly of materials by Specialty Products on an open account basis. Under the open account arrangement, Klimchuck placed a separate purchase order for each materials request and the supplier submitted a separate invoice for each corresponding delivery.
At Klimchuck’s request, Specialty Products periodically delivered supplies, including eight separately invoiced deliveries made between October 15 and December 17, 1998, totaling $48,578.34.
Supreme Court granted St. Paul summary judgment and dismissed the complaint. The court interpreted the 120-day notice requirement of State Finance Law § 137 (3) to apply separately to each delivery, ruling that each invoice constituted a separate contract between the subcontractor and thе supplier. The Appellate Division reversed and granted Specialty Products partial summary judgment, dismissing St. Paul’s affirmative defense related to timeliness of the notice. The Court rejected the trial court’s contract-based analysis, looking instead to decisions construing a similar provision in the Federal Miller Act (
II.
Section 137 of the State Finanсe Law protects the rights of persons furnishing labor or materials to contractors or subcontractors on a public improvement project to receive payment by requiring the posting of a payment bond. The statute provides laborers and material suppliеrs with a right to sue directly on the bond for amounts not paid by the contractor or subcontractor, as follows:
“Every person who has furnished labor or material, to the contractor or to a subcontractor of the*463 contractor, in the prosecution of the work provided for in the contract [for a State public improvement] and who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was performed or material was furnished by him for which the claim is made, shall have the right to sue on such payment bond in his own name for the amount, or the balance thereof, unpaid at the time of commencement of the action * * (State Finance Law § 137 [3].)
Laborers and material suppliers who work for a subcontractor — rather than directly fоr the general contractor — are also permitted to assert claims under the payment bond but first must give the general contractor notice of their claim. Section 137 (3) requires that
“a person having a direct contractual relationship with a subcontractor of the contractor furnishing the payment bond but no contractual relationship express or implied with such contractor shall not have a right of action upon the bond unless he shall have given written notice to such contractor within one hundred twenty days from the date on which the lаst of the labor was performed or the last of the material was furnished, for which his claim is made * * * ” (emphasis added).
The statute strongly resembles its model, the Federal Miller Act (
The similarity between the two laws did not always exist. As originally enacted in 1938, the State Finance Law contained more rigorous preconditions for a laborer or material suрplier seeking to recover under a payment bond. The statute required suppliers first to file and enforce mechanics’ liens under the Lien Law, and laborers to file and enforce either mechanics’ liens or claims for unpaid wages under the Labor Law (see L 1938, ch 707).
In 1964, at the recommendation of the Law Revision Commission, the State Finance Law was amended to more closely
The Law Revision Commission encouraged the adoption of the modern section 137 (3) procedures because, in its view, the prior statutory scheme provided only limited assurance of prompt payment to laborers and suppliers. The Commission observed that in New York a payment bond claim served as a “remedy of last resort” after other sources of recovery were exhausted or shown to be futile, and the Lien Law limitations period indirectly barred claims later asserted against a payment bond (see 1963 Report of NY Law Rev Commn, at 101).
The 1964 bill received wide support. The Department of Audit and Control noted that the amendments would lessen the hardships for laborers аnd material suppliers caused by the delays often occurring under the old procedures (Letter from State Dept of Audit and Control, Apr. 20, 1964, Bill Jacket, L 1964, ch 700). The Department of Public Works also supported the bill on the ground that the simplified procedures would benefit laborers and material suppliers working on State construction projects (Letter from State Dept of Pub Works, Mar. 18, 1964, Bill Jacket, L 1964, ch 700). The Association of Casualty and Surety Companies, writing in support of the bill, described the prior procedures as “substantially unique to New
III.
Against this statutory background we turn to the issue at hand: Is the statutory notice period in an open account arrangement triggered by each separate invoice or by final delivery? We note that cogent arguments can be mustered for— and against — both interpretations of the statute, as reflected in the division between the courts below as well as among state and federal courts throughout the nation. What is most important is that there be clarity and certainty as to what the statute requires. In our view, the better interpretation is that the statutory notice period is triggered by the final delivery for which the claim is made.
That interpretation seems a better fit with the words of the statute, which provides that notice must be given within 120 days from the “date on which the last of the labor was performed or the last of the material was furnished, for which [a laborer or material supplier’s] claim is made.”
While St. Paul argues that our rule will result in the revival of otherwise stale claims each time a new order is placed, we expect that few suppliers — whatever their contractual arrangement — will continue to provide materials for extended periods of time without payment. Moreover, prudent suppliers will take measures to keep their claims from lapsing by periodically notifying contractors about outstanding invoices when it is uncertain whether future orders will be placed.
We note that this is also the conclusion reached by most federal courts considering this same issue under the Miller Act.
Finally, St. Paul argues that Haun Welding Supply v National Union Fire Ins. Co. of Pittsburgh, Pa. (
Accordingly, the judgment appealed from and the order of the Appellate Division brought up for review should be affirmed, with costs.
Judgment appealed from and order of the Appellate Division brought up for review affirmed, with costs.
Notes
. The eight deliveries relate to the following invoices: October 15, 1998— $4,716.06; October 15, 1998 — $7,899.94; October 29, 1998 — $17,731.61;
. The Law Revision Commission originally proposed amending the State Finance Law in 1962 (see 1962 Report of NY Law Rev Commn, at 185-187), and recommended a modified bill in 1963 (see 1963 Report of NY Law Rev Commn, at 105-108). The 1964 version of the bill addressed certain concerns raised by the Gоvernor (see 1964 Report of NY Law Rev Commn, at 39).
. As recognized by the Law Revision Commission, moreover, the proposed notice requirements benefit contractors as well as laborers and material suppliers. A contractor who does not have a direct contrаctual relationship with a laborer or material supplier may not be aware of the existence of unpaid claims. Under the original statutory procedures, a contractor was alerted to such claims upon the filing of a mechanics’ lien or statutory wage claim. The 90-day notice provision serves a similar function, in giving the contractor an opportunity to protect itself by withholding payments to the subcontractor who is primarily liable upon the claim (1963 Report of NY Law Rev Commn, at 104).
. In direct contrast to the section 137 (3) procеdures, which are not contract-based, the statute of limitations for commencing an action on a payment bond is tied to a period of “one year from the date on which final payment under the claimant’s subcontract became due” (see State Finance Law § 137 [4] [b] [emphasis аdded]; see also Windsor Metal Fabrications v General Acc. Ins. Co. of Am.,
. We also note that a contractor’s ability to investigate and reconcile labor and material claims is protected at least in part by other statutes such as article 3-A of the Lien Law, which imposes record-keeping and trustee obligations on contractors and subcontractors that receive money under a public improvement project.
. See United States for Use & Benefit of Water Works Supply Corp. v George Hyman Constr. Co. (