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Longo Electrical-Mechanical, Inc. v. The Howden Fan Company

A-1128-03T5 (N.J. Super. App. Div. 2005) (Unpublished)

CONTRACTORS; AGREEMENTS; SUSPENSION CLAUSES—Absent ambiguity, suspension provisions in agreements between subcontractors and sub-subcontractors are fully enforceable.

A transit authority entered into two agreements with two general contractors to repair and rehabilitate the exhaust fans in its subway system. Both general contractors entered into separate agreements with a subcontractor to refurbish the fans and provide new fans for the project. The subcontractor then entered into two separate purchase orders with a sub-subcontractor, which were governed by certain term and conditions set forth on the back of the purchase orders. The sub-subcontractor successfully negotiated the deletion of five of the provisions on the back of the purchase orders. However, the sub-subcontractor failed to object to the suspension clause or the termination clause. The suspension clause provided that in the event the transit authority suspended or cancelled the project, the subcontractor had the right to cancel and suspend its agreement with the sub-subcontractor. The termination clause further provided that the subcontractor had the right to terminate the sub-contractor’s performance of the work under the contract at any time by providing prior written notice. After the work began on both of the projects, the transit authority suspended the projects. During the suspension periods, the sub-subcontractor requested reimbursement for storage fees for the fans for both projects. The subcontractor assured the sub-subcontractor that it would include the storage fees in the request for fees that it was submitting to the general contractors. The projects were later cancelled by the transit authority and the sub-subcontractor requested cancellation fees from the subcontractor. Once again, the subcontractor assured the sub-subcontractor that the cancellation fees would be included in its request for fees from the general contractors. At no time did the subcontractor guarantee to the sub-subcontractor that it would be fully reimbursed for its fees. The sub-subcontractor was not reimbursed for all of its fees and it filed actions against both general contractors and the subcontractor. One of the general contractors was dismissed from the action because it filed for bankruptcy. The other general contractor filed a motion for summary judgment for lack of personal jurisdiction, which was granted by the lower court. The subcontractor then filed a motion for summary judgment on the issue of liability, which was also granted. The sub-subcontractor appealed the lower court’s ruling. On appeal, the sub-contractor asserted that the subcontractor breached its written agreements with the sub-subcontractor by refusing to pay for the work it performed. It further asserted that the subcontractor breached the agreement by interfering with its ability to obtain payment directly from the general contractors.

The Appellate Division affirmed the lower court’s ruling. It held that the suspension clause was the controlling provision in both contracts. This provision gave the subcontractor the right to suspend and cancel its agreement with the sub-subcontractor in the event the transit authority suspended or cancelled its agreement with the general contractors for the projects. The Court found that this provision was clear and unambiguous on its face, and therefore enforceable. It further held that the subcontractor never guaranteed to the sub-subcontractor payment for the storage or cancellation fees. Accordingly, the Court concluded that the subcontractor did not breach its agreements with the sub-subcontractor.

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