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Breach of Contract and Collateral Documents

Breach of Contract and Collateral Documents

The Appellate Division of the Supreme Court of New York, Fourth Department recently heard an appeal in the case of Environmental Testing and Consulting v. City of Buffalo. This rather succinct and clear case serves as a great teaching tool to those interested in contract law.

Background of the Case

The City of Buffalo, as part of the Buffalo Urban Renewal Agency’s “Rehab Program,” created a system under which qualifying homeowners could get government funding to make their homes safer and better in a variety of ways.

The City solicited bids from companies that wanted to provide the actual services, which had to do with testing for lead paint and other forms of risk assessment. The plaintiff won the bid, and the plaintiff and defendant subsequently entered into a contract where the defendant would pay a fee for the services the plaintiff rendered.

There were three types of service contemplated: lead paint tests, clearance tests, and risk assessments. The contract specified a different fee for each of these items.

However plaintiff quickly became unhappy with the amount of actual work it received under the contract. Plaintiff sued, because it alleged that it was entitled to receive a certain minimum amount of work in each of the three categories and that the work actually received on behalf of the defendant fell far short.

Plaintiff said that defendant guaranteed about 220 to 260 lead paint assessments, and about the same number of clearance tests and risk assessments under the contract, yet that it had only received 44 lead paint tests and zero clearance tests and risk assessments from defendant. Pretty clearly this was a significantly lower amount of work than what plaintiff expected, and it is also clear why plaintiff is unhappy enough to sue.

Plaintiff had two major pieces of evidence. The first was a portion of the contract known as a “Fee Schedule.” The second was a document, not part of the contract, known as the “Scope of Services” document.

Extrinsic Documents to a Contract

Documents associated with, but not explicitly a part of, a written contract pose some major headaches for a court. Remember that a court views its job as enforcing the true intent of both parties at the time they entered into the contract. What then, is to be done with a document, not part of the contract, and not signed by either party, as in this case? In New York, courts follow the general rule of not considering this form of extrinsic evidence unless there is some mistake, ambiguity, defect, or other problem such as lack of integration. The thinking goes that the parties reduced their agreement down to one particular writing. The only reason to ‘add to it’ is if the written document is not a true expression of the parties’ intent.

Of course, this is confusingly similar to a separate concept known as incorporation by reference. This concept is the idea that it is perfectly acceptable to view outside documents as part of a contract, if the contract expressly incorporates (or refers to) them. The Extrinsic document issue, is thus, one party asking for the incorporation of a document with no reference.

Analysis

Here, the court’s analysis was quite easy. First, they weighed the Fee Schedule, which was part of the agreement. They interpreted the Fee Schedule, along with the rest of the contract, as a straightforward Fee-for-Services deal. The Fee Schedule set in writing how much the plaintiff would be paid, but it did not state a certain minimum amount of work.

The court then was able to elegantly duck the extrinsic document issue. They stated that even for the sake of argument if the “Scope of Services” was part of the contract, it did NOT guarantee a minimum amount of work. Instead, it was akin to a projection or estimate of how many houses the plaintiff might be called upon to work on. And, ultimately it was up to the homeowner, not the defendant, to decide if they wanted the work performed on their homes.

If you have any questions regarding extrinsic evidence in a contract matter please don’t hesitate to contact our office for a consultation.

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