Stewart v. Newbury

Court of Appeals of New York
115 N.E. 984 (1917)

ELI5:

Rule of Law:

When a contract for the performance of work is silent as to the timing of compensation, the work must be substantially performed before payment can be demanded.

Facts:

On July 18, 1911, Alexander Stewart, a contractor, sent a written proposal to Newbury Manufacturing Company to perform concrete work for a new foundry building.
On July 22, 1911, Newbury Manufacturing Company sent a letter accepting Stewart's bid.
The written correspondence between the parties did not specify a time or manner of payment.
Stewart claimed a subsequent telephone conversation occurred where Newbury agreed to make payments in the 'usual manner,' which Stewart asserted meant monthly installments; Newbury denied this conversation took place.
Stewart commenced work in July and continued until September 29, 1911.
On September 29, Stewart submitted a bill for $896.35 for the work he had completed up to that date.
Newbury Manufacturing Company refused to pay the bill.
Following the refusal of payment, Stewart stopped working on the project.

Procedural Posture:

Alexander Stewart (plaintiff) sued Newbury Manufacturing Co. (defendants) in a New York trial court to recover payment for work performed and damages for breach of contract.
At trial, the judge instructed the jury that if the contract was silent on payment terms, the defendants had an obligation to make payments at reasonable times.
The jury returned a verdict for Stewart for the amount of his bill, and a judgment was entered thereon.
Newbury Manufacturing Co. (appellant) appealed the judgment to the Appellate Division.
The Appellate Division affirmed the trial court's judgment.
Newbury Manufacturing Co. (appellant) then appealed to the Court of Appeals of New York, the state's highest court.

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Issue:

Does a contract to perform work for a single project, which is silent as to the timing of payment, obligate the client to make progress payments at reasonable intervals before the work is substantially completed?

Opinions:

Majority - Crane, J.

No. A contract to perform work for a single project, which is silent as to the timing of payment, does not obligate the client to make progress payments before the work is substantially completed; rather, payment is not due until performance is substantially complete. The court reasoned that this was an 'entire contract,' meaning the agreement was for the completion of a whole project, not divisible into parts. The well-settled common law rule for such entire contracts is that performance is a condition precedent to payment. Therefore, where the parties fail to specify payment terms, the law will not imply a duty to make payments at reasonable intervals. The trial court's instruction to the jury that Stewart was entitled to payments at 'reasonable times' was a legal error, as Stewart was not entitled to demand any payment until the work was substantially finished.

Analysis:

This decision reinforces a fundamental default rule in contract law for 'entire' contracts. It places the burden of financial risk on the performing party (the contractor) unless they explicitly negotiate for progress payments. The ruling underscores the principle of freedom of contract, showing that courts are reluctant to imply terms that the parties themselves did not include, especially on a critical element like payment schedule. For future cases, this precedent serves as a clear warning to contractors to ensure that contracts for long-term projects contain explicit clauses detailing the timing and amount of payments to avoid having to finance the entire project until completion.

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