In A&L Construction Corp. v. East Harlem Developers, the Supreme Court was faced with a situation where a contractor sought payment for monies allegedly due under the contract.  The contractor moved for summary judgment on an account stated theory arguing that the invoices were submitted to the owner and the owner retained them without objection within a reasonable period of time.  The owner opposed the summary judgment motion arguing that there is defective work and moved to amend its answer to submit a counterclaim for damages arising out of the defective work.

While the Court permitted the amendment to add the counterclaim for defective work, the Court also granted the contractor’s motion for summary judgment on the account stated claim.  In doing so, the Court noted that while the owner submitted some evidence of defective work, there was no evidence that the owner ever objected to the invoices on those or any other grounds.  As such, judgment was entered in favor of the contractor and the owner was permitted to pursue its counterclaim for defective work.

The natural problem for the owner here is that with an entered judgment against it, it will be required to pay a large sum of money to the contractor while the claim against the contractor for defective work continues to be litigated.  Two potential issues with this are: 1) that the owner will effectively be funding the contractor’s defense of the owner’s claims; and 2) the contractor may very well go out of business before the owner is successful (if it is successful) on its counterclaim and the money could be forever lost.

The lesson is simple:  owners should be sure to object to invoices and do so in a timely fashion or risk waiving the defense.  This is in line with the New York Prompt Payment Act which requires owners to object to a contractor’s invoice within 10 days and itemize the reasons for refusing to pay the invoice.