Facilities Development Corp. v. Miletta

• Decision Date: 14 May 1992
• Citation: 180 A.D.2d 97,584 N.Y.S.2d 491
• Parties: FACILITIES DEVELOPMENT CORPORATION, Respondent, v. Silvio MILETTA, Defendant and Third-Party Plaintiff-Respondent-Appellant, and Detroit Stoker Company, Respondent-Appellant, Mechanical Construction Corporation, Third-Party Defendant-Appellant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 491

584 N.Y.S.2d 491

180 A.D.2d 97

FACILITIES DEVELOPMENT CORPORATION, Respondent, v. Silvio MILETTA, Defendant and Third-Party Plaintiff-Respondent-Appellant and Detroit Stoker Company, Respondent-Appellant Mechanical Construction Corporation, Third-Party Defendant-Appellant-Respondent.

Supreme Court, Appellate Division Third Department.

May 14, 1992.

Bouck, Holloway, Kiernan and Casey (Mary Ann D. Allen, of counsel), Albany, for third-party defendant-appellant-respondent.

Roemer & Featherstonhaugh, P.C. (Matthew J. Kelly, of counsel), Albany, for respondent-appellant.

Donohue, Sabo, Varley and Armstrong, P.C. (Fred J. Hutchison, of counsel), Albany, for defendant and third-party plaintiff-respondent-appellant.

Robert Abrams, Atty. Gen. (Michael S. Buskus, of counsel), Albany, for respondent.

Before MERCURE, J.P., and CREW, MAHONEY, CASEY and HARVEY, JJ.

CASEY, Justice.

Cross appeals from an order of the Supreme Court (Daniel H. Prior Jr., J.), entered April 25, 1991 in Albany County, which, inter alia, denied defendant Silvio Miletta's cross motion for leave to serve an amended third-party complaint, denied defendant Detroit Stoker Company's cross motion for summary judgment dismissing all claims against it, and denied third-party defendant's motion for summary judgment dismissing the third-party complaint.

Plaintiff entered into a contract with Silvio Miletta, an engineer, to design and supervise the rehabilitation of a heating plant at one of plaintiff's facilities. Plaintiff thereafter contracted with Mechanical Construction Corporation (hereinafter Mechanical) to act as general contractor for the rehabilitation project. Mechanical entered into a subcontract with Detroit Stoker Company (hereinafter Detroit) to supply two coal stokers needed for the project. Because of problems with the coal stokers supplied by Detroit, the project was not completed on time and the coal furnaces were not operable when the project was completed.

Plaintiff commenced this action against Miletta, alleging causes of action based upon breach of contract and malpractice arising out of negligence in the design of the project. Each cause of action seeks the same $3 million in damages for additional construction costs necessary to remedy the defective design and the additional fuel and heating costs incurred because plaintiff could not operate the two coal-fired boilers in its heating plant. Miletta answered and commenced a third-party action against Detroit seeking indemnification and/or contribution based upon allegations that the coal stokers supplied by Detroit were defective and that Detroit was liable for the damages caused by those defects on theories of negligence, breach of warranty and strict products liability. Miletta also commenced a third-party action against Mechanical seeking indemnification based upon a clause in the contract between plaintiff and Mechanical. The third-party answers of Detroit and Mechanical each included a cross claim against the other. Plaintiff thereafter commenced an action against Detroit, seeking to recover as a third-party beneficiary for Detroit's breach of its subcontract with Mechanical, which was consolidated with the action against Miletta.

Mechanical moved for summary judgment dismissing Miletta's third-party complaint. Detroit cross-moved for summary judgment dismissing plaintiff's complaint and Miletta's third-party complaint. Miletta cross-moved for permission to amend its third-party complaint against Mechanical to add a cause of action for contribution. Supreme Court's resolution of the various issues raised by these motions resulted in the order now being cross-appealed.

We first conclude that Supreme Court correctly denied Detroit's cross motion for summary judgment dismissing plaintiff's complaint. Detroit claims that plaintiff is not an intended beneficiary of the subcontract between Mechanical and Detroit. Plaintiff is an intended beneficiary if the circumstances indicate that Mechanical, as the promisee in its contract with Detroit, intended to give plaintiff the benefit of the promised performance (see, Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 66 N.Y.2d 38, 44, 495 N.Y.S.2d 1, 485 N.E.2d 208). "Among the circumstances to be considered is whether manifestation of the intention of the promisor and promisee is 'sufficient, in a contractual setting, to make reliance by the beneficiary both reasonable and probable' " (id. at 44, 495 N.Y.S.2d 1, 485 N.E.2d 208, quoting Restatement [Second] of Contracts § 302, comment d). Applying these principles to the relevant documentary evidence in the record, we are of the view that at the very least a question of fact has been raised as to whether plaintiff is an intended beneficiary of the subcontract between Mechanical and Detroit, wherein Detroit agreed to supply the coal stokers for installation in the heating plant at plaintiff's facility (see, Key Int'l. Mfg. v. Morse/Diesel, Inc., 142 A.D.2d 448, 455-457, 536 N.Y.S.2d 792; see also, City of New York [Dept. of Parks & Recreation-Wollman Rink Restoration] v. Kalisch-Jarcho, Inc., 161 A.D.2d 252, 253, 554 N.Y.S.2d 900; Sanbar Projects v. Gruzen Partnership, 148 A.D.2d 316, 319, 538 N.Y.S.2d 532).

Relying upon a clause in the subcontract, which provides that no representations or guarantees not contained in the contract shall bind Detroit, Detroit contends that plaintiff cannot enforce the subcontract as a third-party beneficiary because it has no enforceable rights under the contract. A subcontractor can insist upon a contractual clause negating enforcement of the contract by a third party (see, City of New York [Dept. of Parks & Recreation-Wollman Rink Restoration] v. Kalisch-Jarcho, Inc., supra, 161 A.D.2d at 253, 554 N.Y.S.2d 900), and such a provision is controlling if it expressly negates third-party enforcement (see, Fitzpatrick Constr. Corp. v. County of Suffolk, 138 A.D.2d 446, 449-450, 525 N.Y.S.2d 863, lv. denied, 73 N.Y.2d 807, 537 N.Y.S.2d 477, 534 N.E.2d 315). The clause at issue neither expressly negates third-party enforcement nor provides that the agreement is not intended to confer on any other person any rights or remedies (cf., Nepco Forged Prods. v. Consolidated Edison Co. of N.Y., 99 A.D.2d 508, 470 N.Y.S.2d 680). Detroit, therefore, is not entitled to summary judgment dismissing plaintiff's complaint against it.

We next conclude that Supreme Court erred in denying Mechanical's motion to dismiss Miletta's third-party claim, which is based upon the indemnification clause contained in Mechanical's contract with plaintiff. The clause provides that Mechanical will indemnify plaintiff, its representatives and certain others "from suits, actions, damages and costs of every nature and description resulting from the work under this [c]ontract". Miletta contends that he is entitled to indemnification from Mechanical under this clause because he is defined as plaintiff's representative in the contract documents and plaintiff's action against Miletta arose out of work under Mechanical's contract with plaintiff. As discussed below in our analysis of Miletta's indemnification claim against Detroit, Miletta's liability to plaintiff is limited to those damages caused by Miletta's tortious conduct in the rendition of professional engineering services (i.e., his malpractice) or Miletta's breach of his contract with plaintiff. It is the general rule that an indemnification agreement between sophisticated business entities will be construed as intending to indemnify either party for its own wrongdoing only when the language in the agreement clearly connotes an intent to provide for such indemnification (Fay's Drug Co. v. British Am. Dev. Corp., 140 A.D.2d 810, 811, 528 N.Y.S.2d 201; Lancaster Stone Prods. Corp. v. Austin Powder Co., 112 A.D.2d 11, 12, 490 N.Y.S.2d 372, appeal dismissed, 67 N.Y.2d 647, 499 N.Y.S.2d 1032, 490 N.E.2d 559). The indemnity clause at issue does not clearly connote an intent to provide for the indemnification of plaintiff's representative for damages caused by the representative's own tortious conduct and/or breach of contract. Having so concluded, we need not reach the question of the applicability of General Obligations Law § 5-324 in a case involving purely economic loss, with no property damage or personal injury.

Miletta also contends that Supreme Court erred in its conclusion that Miletta has no claim for contribution against either Mechanical or Detroit. We disagree. CPLR 1401 provides that "two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them". It is now firmly established "[t]hat purely economic loss resulting from a breach of contract does not constitute 'injury to property' within the meaning of New York's contribution statute" (Board...