Subcontractors face significant challenges when they are confronted with a general contractor which fails or refuses to pay for a contract balance or extra work. For any one of innumerable reasons, general contractors can be undercapitalized such that even a victory at trial can produce a hollow result when the execution of a judgment is returned unsatisfied. A Subcontractor’s right to file a mechanic’s lien is the Subcontractor’s primary protection under these circumstances. However, where a mechanic’s lien foreclosure action is not viable, either because there is no lien fund or there is some defect in the lien, a Subcontractor is left with limited recourse against the project owner.
For example, in the recent case of Palma Realty Assoc., LTD v. BLDG Oceanside, LLC, 59 Misc.3d 1206(A) (Sup. Ct. N.Y. Co. 2018), the Supreme Court, New York County, dismissed a subcontractor’s breach of contract and quantum meruit claims against the project owner. The plaintiff, Palma Realty Associates, sued the project owner, BLDG Oceanside, LLC, and the contractor with whom it was in privity, Master Development, Inc., for breach of contract, quantum meruit, account stated and to foreclose a mechanic’s lien. For reasons undisclosed by the Court’s opinion, Palma discontinued its causes of action to foreclose upon its Mechanic’s Lien and for an account stated. The Court granted Palma’s motion to dismiss the remaining causes of action for breach of contract and quantum meruit insofar as asserted against it, and severed and continued the breach of contract and quantum meruit claims as asserted against Master.
The Palma Court dismissed the breach of contract cause of action under the well-settled and well-known rule that a subcontractor generally cannot maintain a breach of contract action against the project owner because there is no privity of contract between them, citing such authorities as Eastern States Electrical Contractors v. William L. Crow Construction Co., 53 A.D.2d 522 (1 st Dept. 1989) and Braun Equip. v. Meli Borelli Assoc., 220 A.D.2d 312 (1 st Dept. 1995). See also Perma Pave Contracting Corp. v. Paerdegat Boat and Racquet Club, Inc., 156 A.D.2d 550 (2d Dept. 1989).