1. Whether the one-year statute of limitations for suing a surety on a construction bond begins to run from the time the subcontractor requests final payment from the contractor, and ninety days have passed since the subcontractor ceased working on the project.

2. Whether contractual provisions in a subcontract toll the statute of limitations period.

1. Yes. Based on the legislative history of State Finance Law § 137 and case precedent, the statute of limitations for suing a surety on a construction bond commences at the time the subcontractor requests final payment from the general contractor, and ninety days have passed since the subcontractor ceased working on the project.

2. No. The one year statute of limitations period may not be extended or overridden by any provisions of the subcontract.

Plaintiff, a subcontractor, entered a public improvement contract with the general contractor for construction of a health care facility. Defendant, the surety for the general contractor, provided the statutory payment bond for the contract. After the State terminated the prime contract with the general contractor, Plaintiff sought payment for its work first from the general contractor and then from Defendant.

Unable to obtain payment from either the general contractor or Defendant, Plaintiff filed a Notice of Mechanics Lien, which was discharged when the general contractor and Defendant posted bond, separate from the initial statutory payment bond. Plaintiff sought and received an arbitration award against the general contractor, yet was unable to collect that award because the general contractor had become insolvent. Plaintiff then turned to Defendant for recovery, but Defendant denied its demand for payment. Consequently, Plaintiff filed suit against Defendant seeking the judgment awarded against the contractor. The Supreme Court granted summary judgment in Defendant's favor, based upon it's affirmative defense that the statute of limitations under State Finance Law § 137(4)(b) had run.

On appeal, the Appellate Division reversed, reasoning that none of the final payment provisions in Plaintiff's subcontract raised a time bar. It also granted that part of Plaintiff's motion seeking summary judgment on its first cause of action pursuant to the payment bond. Defendant appealed to the Court of Appeals. The Court, reversing the Appellate Division, cited State Finance Law § 137 and reasoned that a contractual provision cannot alter the date on which the statute of limitations begins to run. As such it reinstated the Supreme Court's ruling and dismissed Respondent's complaint.

The Court first cited section 137(4)(b), which indicates that a subcontractor cannot commence an action for payment on a bond after one year from the date on which a final payment under the subcontract becomes due. The Court also referred to a related provision, section 137(3), which states that a subcontractor has the right to sue on a surety payment bond if a contractor has not made payment within ninety days after the day on which the subcontractor last performed labor.

Plaintiff, however, contended that the statute of limitations commenced on the date it received the arbitration award. The Court rejected this interpretation, referring both to the statute's legislative history and case precedent. With respect to State Finance Law's legislative history, the Court indicated that the Law Revision Commission recommended a bill in 1963 similar to the federal Miller Act. The 1963 bill provided that if a claimant is a subcontractor, the one-year statute of limitations commences on the date on which final payment on the subcontract becomes due. In 1980, the bill underwent modification, applying the one-year statute of limitations to all claimants.

Concerning case precedent, the Court cited A.C. Legnetto Construction, Inc. v. Hartford Fire Ins. Co., 92 N.Y.2d 275, in which the Court relied on the statutory determination of the statute of limitations. The Court, with respect to the present case, noted that Plaintiff's interpretation could not prevail, as Defendant referred to the statute on the face of the bond.

The Court recognized that State Finance Law in this case worked against Plaintiff, a party generally protected by the provision. However, the Court was wary of the public policy implications of allowing a subcontractor recourse in this instance, as it would undermine the statute's two-pronged objective; the statute's goal is to provide a reasonable time frame within which a party may seek recourse, and concurrently to foreclose a party from such recourse should it not act within the one-year statute of limitations.