The Parties' Course of Dealing Called Into Question the Effect of a Release

On May 19, 2021, the Second Department issued a decision in United Airconditioning Corp. v. Axis Piping, Inc., 2021 NY Slip Op. 03210, holding that the parties' course of dealing called into question the effect of a release, explaining:

The Supreme Court found that the parties' course of dealing suggests that amounts owed on the BioBAT job may be offset against sums due on the Delta project." Based on that finding, the court, sua sponte, vacated the December 14, 2016 order, upon reargument, awarding Axis summary judgment dismissing the complaint, which related to the BioBAT project. The court granted Axis's cross motion for summary judgment on its counterclaim and the third-party complaint under the Delta project to the extent of awarding it $46,000 "net of all claims due on both projects. Axis appeals, and United cross-appeals, from the June 2017 order.

Contrary to Axis's contention, the Supreme Court providently exercised its discretion in deeming United's reply to Axis's counterclaim amended to assert the affirmative defense of release, as United asserted the defense in its motion for summary judgment dismissing Axis's counterclaim and Axis failed to demonstrate that it would be prejudiced by the amendment.

However, upon considering United's affirmative defense of release, the Supreme Court correctly determined that United's submissions in support of its motion failed to demonstrate its prima facie entitlement to judgment as a matter of law on the ground that the final waiver of lien barred Axis's counterclaim. Generally, a valid release that is clear and unambiguous on its face constitutes a complete bar to an action on a claim which is the subject of the release absent fraudulent inducement, fraudulent concealment, misrepresentation, mutual mistake or duress. However, when the evidence in the record including, inter alia, the circumstances surrounding the release, as well as the parties' course of dealings, evinces that the parties' intentions were not reflected in the general terms of the release, the release does not conclusively establish a defense as a matter of law.

Here, the final waiver of lien on the Delta project, executed November 30, 2012, stated that Axis does hereby waive and release any and all lien or claim or right of lien on the above premises and on the monies or other consideration due or to become due from the owner, and on account of labor or materials, or both. As Axis argues, when read in conjunction with the Delta project subcontract, the waiver is ambiguous as to whether it encompasses all claims by Axis against United. Accordingly, United failed to demonstrate, prima facie, that the final waiver of lien barred Axis's counterclaim and the third-party action.

In any event, Axis submitted evidence raising triable issues of fact regarding, among other things, whether the parties' intentions were reflected by the terms of the general release and the waiver. Specifically, Axis's papers in opposition to United's motion demonstrated that United made payments to Axis for the Delta project after the waiver was signed and that, in 2013, United advised Axis it was awaiting owner approval or general contractor approval before it could pay Axis's outstanding change orders or premium time requests, several of which postdated the release. Where a waiver form purports to acknowledge that no further payments are owed, but the parties' conduct indicates otherwise, the instrument will not be construed as a release.

(Internal quotations and citations omitted).

One reason that commercial parties all over the world choose to have their contracts governed by New York law is that the general rule in New York is if the contract is unambiguous, it is enforced as written despite what someone might later argue in a lawsuit. But when a contract is ambiguous, a court can consider other evidence, including evidence of how the parties performed the contract, in interpreting it. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.