56 A.D.2d 418 | N.Y. App. Div. | 1977
Upon defendant’s motion "for an order pursuant to CPLR 3211 dismissing the complaint upon the grounds that plaintiffs cause of action is barred by the statute of limitation and release and that the complaint fails to state a cause of action,” the Special Term of the Supreme Court, Kings County, made an order entered April 23, 1976 "that The Travelers Indemnity Company’s motion for an order dismissing the complaint herein on the grounds that the complaint fails to state a cause of action, is hereby granted and the Court treats said motion as one for summary judgment under CPLR 3212 and hereby grants summary judgment dismissing plaintiffs complaint.”
THE ISSUE
May the plaintiff recover on the bond given by the defendant to the New York City Housing Authority (Authority) to guarantee performance by Wilaka Construction Co., Inc. (Wilaka) of the terms of its contract with the Authority?
THE FACTS
Plaintiff entered into a contract with the Authority for the performance of plumbing work in connection with a project known as Independence Houses (Project). Contemporaneously, Wilaka similarly entered into a contract with the Authority for the performance of concrete foundation and general construction work at the Project (the contract).
By virtue of the provisions of the contract Wilaka was obligated to furnish the Authority with two separate bonds, designated respectively as a performance bond and a payment bond, and each was to be in an amount equal to 100% of the bid price. The purpose of the bonds was to keep the Authority adequately secured at all times against Wilaka’s failure to perform faithfully the work and all other obligations imposed
The payment bond contains the following language: "All persons who have performed labor, rendered services or furnished materials and supplies, as aforesaid, shall have a direct right of action against the Principal and his, its or their successors and assigns, and the Surety herein, or against either or both or any of them and their successors and assigns. Such persons may sue in their own name and may prosecute the suit to judgment and execution without the necessity of joining with any other person as party plaintiff.”
Plaintiff’s and Wilaka’s contracts with the Authority provided that each "contractor shall lay out and install his work at such time or times and in such manner as not to delay or interfere with the progress of the work by each of the other contractors” and that "[i]f any other contractor * * * shall suffer loss, damage or delay through the acts or omissions on the part of the contractor herein * * * the contractor herein agrees to reimburse such other contractor * * * for his loss or damage.” This provision, subdivision b of section 10 of the contract, goes on: "If such other contractor * * * shall assert any claim against the Authority on account of any loss, damage, or delay alleged to have been sustained, the Authority shall notify the contractor who shall save the Authority harmless against all claims, losses, costs, expenses, fees and
Contending that Wilaka had failed to perform its work under the contract, the plaintiff sued Wilaka, the Authority and others to recover the damages which it thereby sustained. In that action plaintiff recovered a judgment against Wilaka in the amount of $390,875.75.
Thereafter plaintiff commenced this action against the defendant under both the performance bond and the payment bond to recover for the losses and damages which it sustained under the contract and the default of Wilaka thereunder.
THE APPLICABLE LAW
The cases cited in the briefs are in agreement that the test
In McClare v Massachusetts Bonding & Ins. Co. (266 NY 371), the defendant bonded the Collar City Athletic Club of Troy, N.Y., which had been granted a license to conduct boxing and wrestling matches. The club was required by the State Athletic Commission to obtain a surety bond for faithful performance of the act providing for professional boxing bouts. The club also provided a second bond, in the sum of $5,000, from defendant as a substitute for the posting of cash deposits with the State Athletic Commission to cover any forfeit or other indebtedness or liability by the club due and owing to any person or corporation by reason of any matter arising out of any sparring match conducted by the club during its license period, Plaintiff knew of and relied on the bond in furnishing the club printing services while the bond was in force. A majority of the Court of Appeals, in reversing a judgment in favor of the defendant on the pleadings, held (p 376): "In the case at bar we have a bond showing a clear intention on the part of this defendant to benefit two classes of creditors, namely those who were creditors because of debts arising on account of cash forfeits, and those who were creditors because they had furnished work, labor and services in connection with the staging of boxing bouts. To the latter of these plaintiff belongs. Also it cannot be denied that the bond was exacted by the State Athletic Commission for the very purpose of assuring to the plaintiff and others similarly situated the benefit of this security. * * * Something more is here than a mere incidental benefit, or a mere indirect or collateral advan
In Merchants Mut. Cas. Co. v United States Fid. & Guar. Co. (253 App Div 151), the plaintiff, claiming $8,503.33 for insurance premiums owed it by the defaulting general contractor in the construction of a public improvement, sued the surety on the contractor’s performance bond to the City of Buffalo. The condition of the bond was that the contractor would "completely perform the said contract in accordance with the terms and stipulations therein, contained, and shall in every respect strictly comply with and be bound by said contract * * * and shall well and truly pay all lawful claims of sub-contractors, materialmen or other third persons arising out of or in connection with said contract on the work performed thereunder” (p 153). The surety also agreed therein "that any sub-contractor, materialmen, laborers and third persons having just claims arising out of or in connection with the execution of the contract may maintain an action to recover for the same against the obligors in this bond as though such persons were named therein” (p 153). In reversing a judgment dismissing the complaint and directing judgment for the plaintiff, the Appellate Division, Fourth Department, said (pp 154-155):
"A bond such as the one we are now considering, which is conditioned to be void on fulfillment by the principal contractor of its obligations under the contract, is in legal effect a promise by the surety either that all contract obligations will be performed, or that the promisees will be indemnified within the limit of the penalty in case of nonperformance. Such being the surety’s agreement we believe it may be fairly said that, given a contract such as the one before us, which specifically requires of a contractor that he furnish compensation and liability insurance incidental to the work involved, an unpaid creditor which has furnished that insurance may enforce payment therefor against the surety. (McFarland v. Rogers, 134 Me. 228; 184 A. 391.)
"The extent of an undertaking is determined by the surety’s
More recently, the Court of Appeals dealt with the problem of the right of action by a third-party beneficiary against a surety in Scales-Douwes Corp. v Paulaura Realty Corp. (24 NY2d 724). The plaintiff was a lienor for the materials and labor furnished for the improvement of privately owned real property. It sued the bonding company under a performance bond issued pursuant to a contract with the private owner of the improved land in which a town to which the land was later transferred was the obligee. The surety was to see that the owners paid the cost of improvement and dedicated this land to the town "free and clear of all liens and encumbrances”. Plaintiff, which was owed over $33,000 by the owner for its work, filed a lien against the property. The Court of Appeals, in afiirming the Appellate Division’s holding that the plaintiff had no cause of action against the bonding company under its performance bond, said (p 726): "Several decisions in this court hold that a third-party performing services does not have a right of direct action on the bond in this kind of situation. The theory is that this is essentially a performance bond and not a payment bond (Fosmire v. National Sur. Co., 229 N.Y. 44; McGrath v. American Sur. Co. of N.Y., 307 N.Y. 552).
"The rule is different if the 'paramount purpose’ of the bond is payment rather than performance (McClare v. Massachusetts Bonding & Ins. Co., 266 N.Y. 371; Daniel-Morris Co. v. Glens Falls Ind. Co., 308 N.Y. 464).
"The principle has become so settled that the court adheres to it and, therefore, the decision at the Appellate Division should be affirmed.” (Emphasis supplied.)
We are faced here, however, with an issue which is unlike any raised in the line of cases cited and discussed above and in the briefs on appeal and in the decision at the Special Term. In all of those cases the plaintiffs seeking to enforce rights as third-party beneficiaries of a surety bond, whether it was a performance bond, a payment bond or a combined performance bond, were either suppliers of services or material as subcontractors or employees of the principal who had given the surety bonds. Here the plaintiff is neither a subcontractor nor a supplier of labor or material to the surety’s principal (Wilaka). Rather, it is a third party which has no contractual relationship with the surety’s principal. It is a contractor with the owner which is having the building project constructed, the Authority, and it seeks to recover from the surety for damages suffered by it as a result of the surety’s principal’s failure to keep to the time schedule for its portion of the construction set forth in the contract between the principal and the obligee of the bond, the Authority. That this breach of the principal’s contract with the Authority exposed it to liability to the plaintiff under the provisions of the plaintiff’s contract with the Authority, and of the principal’s contract with the Authority, is beyond cavil. But the question here is whether the language in the surety’s performance bond declaring that the surety’s undertaking is not only "for the benefit of all Subcontractors, Materialmen, and workingmen having just claims”, but also "for the benefit of all other third persons having just claims arising out of or in connection with the said Contract and Work performed thereunder”, is intended to include a claim such as is here being made.
First, there is the question of whether plaintiff’s claim for damages to it resulting from Wilaka’s delay in doing its work
Second, there is the question of whether the general language of the performance bond, with respect to the bond being for the benefit of all other third persons having claims arising out of or in connection with the said contract and work performed thereunder, is in any way limited by the specific language making the rights and equities of all other beneficiaries of the bond "subject and subordinate to those of the Owner”, and requiring the principal (Wilaka) and the surety to notify the owner of any claims made against either of them by any beneficiary other than the owner at least 15 days prior
Third, there is the question whether the language in the performance bond relied on by plaintiff gives it the right to sue defendant. The performance bond contains no such specific authorization. In stark contrast is the language in the payment bond, which grants "a direct right of action against the Principal * * * and the Surety herein, or against either or both or any of them” to "[a]ll persons who have performed labor, rendered services or furnished materials and supplies”. Plaintiff is not among the classes listed as having a direct right of action against the surety under the payment bond. Hence its claim to have a right of action, if one exists (as it concedes, see n 2), can flow only from the performance bond and can find no basis in the language of the payment bond.
But the inclusion of a specific authorization for a direct right of action in the payment bond, as contrasted with the omission of such a provision in the performance bond, is most relevant on the issue whether the performance bond was ever intended to create a direct right of action in the plaintiff against the defendant surety when its judgment against Wilaka proved uncollectible. The very fact that the payment bond specifically authorized certain claimants to bring action against the surety while the performance bond contained no such authorization is an indication that the parties to both bonds, Wilaka, the Authority and the defendant, had no intention of extending the benefits of the performance bond to a claimant such as the plaintiff. The maxim inclusio unius est exclusio alterius supports this conclusion. Accordingly, the order appealed from should be affirmed.
Rabin, Acting P. J., Titone and O’Connor, JJ., concur.
. Although the action of Special Term in granting summary judgment where the defendant had moved only for dismissal pursuant to CPLR 3211 (subd [a]) would ordinarily require a reversal of the order appealed from under the recent decision of the Court of Appeals in Rovello v Orofino Realty Co. (40 NY2d 633), the appellant, on oral argument, waived this procedural error and expressly asked that we reach and determine the decisive substantive issue of whether it may recover as a third-party beneficiary under the performance and payment bonds issued by the defendant.
. We do not here discuss any possible claim of the plaintiff to recover on the payment bond as distinguished from the performance bond because in its prime brief plaintiff makes it clear that its only claim is that it "should be entitled to enforce payment therefor against the surety under the Performance Bond”, and in its reply brief it admits that: "The Payment Bond specifically limts the claims to be made thereunder to those for wages and compensation for labor performed and services rendered by persons 'engaged in the prosecution of the Work under said Contract’ and materials and supplies furnished, used or consumed by the principal or any subcontractor 'in the prosecution of the Work under said Contract.’ ” (Emphasis in brief.)
Clearly it does not bring itself within the class of persons so designated. However it then proceeds to say in its reply brief: "In contrast, the Performance Bond broadly confers any third person having a claim 'arising out of or in connection with or because of the performance of Work at the site of the project’ with a direct right of action thereunder. Accordingly, it is apparent that the performance of Wilaka’s work under the Contract by appellant is neither explicitly nor implicitly required for the maintenance of this action.”