Caribe/Helmark Steel v. The Port Authority of New York and New Jersey

A-0754-97T3 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: March 2, 1999

CONTRACTORS; PAYMENTS—A public authority can be bound to honor an oral agreement to pay a subcontractor directly if, in reliance on such a promise, the subcontractor returns to the project.

A subcontractor worked on a project for an interstate public authority. According to the subcontractor, it threatened to walk off the job when the prime contractor fell behind in its payments. In response, the authority’s representative on the project orally agreed that if the subcontractor returned to the project, the authority would guarantee its payment. The subcontractor returned, but the authority reneged. The authority had no written contractual relationship with the subcontractor. It was not responsible for any payments other than to the prime contractor. The agreement between the subcontractor and the contractor was oral. In addition, the authority’s representative denied making any promise to pay the subcontractor. Eventually, in response to a written demand by the subcontractor that it be paid, the authority responded that it had no legal duty to subcontractors. Subsequently, the subcontractor wrote to the authority’s representative reiterating the authority’s alleged promise that the subcontractor would be paid out of the monies withheld by the authority from the contractor.

The Appellate Division refused to interfere with the finding of the lower court that the subcontractor’s testimony was credible and that there had, in fact, been an oral agreement to pay the subcontractor if it would return to the job. In addition, the contract between the authority and the contractor contained a provision that expressly authorized the authority to do what the authority’s employee (who was its representative) promised to do, that is, retain monies from the contractor to pay subcontractors. The contract expressly gave the “chief engineer” of the authority the discretion to withhold sums and to pay subcontractors in order to avoid delays in the project. Though the employee in question was not the “chief engineer” and, thus, the authority argued he did not have actual power to make the agreement with the subcontractor, it was undisputed that he was a top level engineer on the job site for the authority. As such, he had apparent authority to agree to withhold monies from the contractor as an enticement to the subcontractor’s return to work.

The Appellate Division recognized that the doctrine of promissory estoppel “is rarely invoked against a governmental entity, particularly when estoppel would ‘interfere with the essential governmental fundamental functions.’” Here, the Court found no interference with governmental functions. All that was involved was an agreement to pay a subcontractor in exchange for returning to the job. In essence, the result simply held the authority to a promise it made through its top engineer on the job site, who had, at the least, apparent authority to make, and upon which the subcontractor reasonably relied in returning to the job and incurring further risk of non-payment from the contractor.