Flemington Nat. Bank & Trust Co. v. Domler Leasing Corp.

Citation65 A.D.2d 29,410 N.Y.S.2d 75
CourtNew York Supreme Court Appellate Division
Decision Date14 November 1978
PartiesFLEMINGTON NATIONAL BANK & TRUST COMPANY (N. A.), Plaintiff-Respondent, v. DOMLER LEASING CORPORATION, Defendant-Appellant, and Leon Sergold, Chrysler Machinery Ltd., Alexander Klein, Betty Klein and Twintex, Inc., Defendants.

Arthur Karger, New York City, of counsel (David Abramowitz, New York City, atty.), for defendant-appellant.

Milton Shermet, New York City, of counsel (Richard S. Feldman, New York City, with him on brief; Winick & Shermet, P. C., New York City, attys.), for plaintiff-respondent.

Before MURPHY, P. J., and LUPIANO, MARKEWICH, SANDLER and SULLIVAN, JJ.

LUPIANO, Justice:

Defendant Domler Leasing Corporation by written lease dated October 18, 1972 (effective November 14, 1972), leased four knitting machines for a term of four years to Roselle Knitting Mills, Inc. and Twintex, Incorporated as co-lessees. Domler had purchased the machines from Chrysler Machinery, Ltd. for $100,000. The lease required the co-lessees to make forty-seven monthly rental payments of $2,800.35 each, aggregating $131,616.45. On December 19, 1972, in consideration of the sum of $97,199.65 paid to it, Domler assigned to Yegen Leasing Corporation the aforementioned lease. This assignment did not contain any guarantee by Domler or any provision for recourse by Yegen against Domler in the event of default by the co-lessees under the lease. However, Domler did execute a security agreement which granted to Yegen a security interest in the four knitting machines. One day later, to wit, December 20, 1972, Yegen assigned all of its right, title and interest in the lease to plaintiff Flemington National Bank & Trust Company (N.A.).

On February 28, 1973, Yegen and Domler entered into two agreements. One agreement (hereinafter referred to as the "Repurchase Agreement") provided in pertinent part, as follows: Domler proposes to offer to Yegen "from time to time for purchase, certain leases or security agreements . . . . (Yegen) may purchase such agreements offered to (it) hereunder, as (Yegen) shall determine in (its) sole discretion . . . . In order to induce (Yegen) to purchase such agreements and to establish the terms and conditions upon which such purchases shall be made, (Domler) hereby covenant(s) and agree(s) as follows . . . . 4. Repurchase. We agree to repurchase From you . . . any agreement which is delinquent for a period of 15 consecutive days for the unpaid balance thereunder; provided, however, that we shall have 30 days after notice of such delinquency in which to cure same . . . . 6. Assignment. We acknowledge notice that You may further assign the Agreements which you acquire hereunder and agree that this agreement and all covenants, warranties and undertakings herein shall inure to the benefit of your successors and assigns as well as of yourselves . . . . 9. Retrospective Effect. This Agreement will apply not only prospectively but also to any Agreements heretofore acquired by you from us" (Emphasis supplied).

The other agreement, entitled "Continuing Floor Plan Security Agreement" in pertinent part stated: "1. By this Agreement, (Domler) grants to (Yegen) a continuing security interest in the specified Collateral described in all leases of Collateral from time to time Acquired hereafter by (Yegen) from (Domler) . . . ." (Emphasis supplied). In its opening paragraph this agreement recited that it was intended to provide Yegen "with a security interest" in the leased equipment "as security for (Domler's) separate guarantee of payment of each lease of Collateral Hereafter acquired by (Yegen)." (Emphasis supplied).

It is well recognized that agreements executed at substantially the same time and related to the same subject matter are regarded as contemporaneous writings and must be read together as one (Nau v. Vulcan Rail & Construction Co., 286 N.Y. 188, 197, 36 N.E.2d 106, 110 (1941)).

In April, 1974, the co-lessees defaulted on the lease, leaving a balance due and unpaid of $89,611.20 and plaintiff Flemington brought this action to recover judgment for the balance. The sole issue raised on appeal is whether defendant Domler is liable to plaintiff Flemington for this balance, plaintiff relying on paragraphs 4 and 9 of the February 28, 1973 Repurchase Agreement between Yegen and Domler set forth above. For purposes of resolution of this issue, the validity of the Repurchase Agreement is assumed and defendant Domler's contention that said agreement is unenforceable because of lack of consideration is not passed upon. The critical fact is that at the time Yegen and Domler entered into the February 28, 1973 agreements, Yegen had already parted with all of its right, title and interest in and to the Roselle-Twintex lease. Plaintiff is entitled to the benefit of the February 28, 1973 Repurchase Agreement only if it is a party to the agreement or a third-party beneficiary thereunder. Patently, plaintiff is not a party to the Repurchase Agreement. Regarding plaintiff's claimed status as a third-party beneficiary, "(i)t is old law that a third party may sue as a beneficiary on a contract Made for his benefit. (Lawrence v. Fox, 20 N.Y. 268; 17 A C.J.S. Contracts § 519(3); 10 N.Y.Jur., Contracts, § 237.) However, an intent to benefit the third party must be shown (Beveridge v. New York El. R.R. Co., 112 N.Y. 1, 26, 19 N.E. 489; Cerullo v. Aetna Cas. & Sur. Co.,41 A.D.2d 1, 341 N.Y.S.2d 767), and, absent such intent, the third party is merely an incidental beneficiary with no right to enforce the particular contracts. (Associated Flour Haulers & Warehousemen v. Hoffman, 282 N.Y. 173, 180, 26 N.E.2d 7; Moch Co. v. Rensselaer Water Co., 247 N.Y. 160, 159 N.E. 896; Simpson, Contracts, § 117.)" (Port Chester Elec. v. Atlas, 40 N.Y.2d 652, 655, 389 N.Y.S.2d 327, 330, 357 N.E.2d 983, 985 (1976)) (Emphasis supplied).

Study of the February 28, 1973 agreements between Domler and Yegen discloses an unambiguous and explicit intent on the part of Domler to protect Yegen, should Yegen choose to act in reliance upon Domler's representations by purchasing, In futuro, leases or security agreements offered to Yegen by Domler. This protection in part was to take the form of an obligation on Domler's part to repurchase from Yegen any lease or agreement purchased by Yegen which becomes delinquent. Explicitly recognizing that Yegen may wish to Further assign the agreements which it might acquire in reliance on the February 28, 1973 agreements or the agreements theretofore acquired by Yegen from Domler, the latter further agreed that such protection would inure to the benefit of Yegen's successor and assign as well. No such protection was mentioned with respect to successors and assigns of any agreement which Yegen had Theretofore assigned, i. e., prior to the February 28, 1973 agreement taking effect. The protection to be afforded Yegen by Domler in undertaking to repurchase delinquent agreements was in the nature of a contract of guaranty. "The rule of Strictissimi juris is applicable to contracts of guarantee and a guarantor should not be bound beyond the express terms of its agreement (Wesselman v. Engel Co., 309 N.Y. 27, 127 N.E.2d 736)" (Delaware Funds, Inc. v. Zuckerman-Honickman, Inc., 43 A.D.2d 889, 351 N.Y.S.2d 769 (4th Dept. 1974)). Applying the rule of strict construction and utilizing common sense, it must be concluded that there is nothing in the February 28, 1973 agreements to indicate any intention to provide protection for a third-party assignee in a case such as this in which Yegen had previously parted with all of its right, title and interest in the lease in question. Accordingly, the plaintiff under the circumstances herein is not a third-party beneficiary entitled to enforce the February 28, 1973 agreements.

Plaintiff's contention that defendant Domler Leasing Corporation waived its right to assert a "defense" that plaintiff cannot enforce the February 28, 1973 agreements as a third-party beneficiary because defendant Domler failed to raise this as a defense in its answer, in prior proceedings or at trial, is without merit and misdirected. "A person seeking to enforce a contract as a third-party beneficiary has the burden of demonstrating that he has enforceable rights thereunder" (10 N.Y.Jur., Contracts § 237; see, In re Conay's Estate, 29 Misc.2d 1090, 121 N.Y.S.2d 481, adhered to on reargument 125 N.Y.S.2d 62, Aff'd 284 App.Div. 950, 135 N.Y.S.2d 626 (1st Dept. 1974)). Patently, it is plaintiff's initial burden to prove, not defendant's to disprove, that plaintiff can enforce the February 28, 1973 agreements as a third-party beneficiary thereunder. Giving every fair intendment to paragraphs "12", "13" and "14" of the complaint for purposes of sustaining plaintiff's statement of its cause of action as third-party beneficiary, the issue of whether plaintiff is entitled to enforce the agreements as third-party beneficiary is properly before this Court on appeal from the judgment in plaintiff's favor after the non-jury trial.

Logic dictates that before the issue of enforceability of the February 28, 1973 agreements is reached, plaintiff must demonstrate that it is entitled to raise such issue, that is, that it is a third-party beneficiary under those agreements. If plaintiff is not such a beneficiary, it matters not whether the agreements are enforceable for purposes of resolution of this appeal.

Scrutiny of the record discloses that on summation at the close of trial, the parties addressed the issue of whether plaintiff is a third-party beneficiary under the February 28, 1973 agreements entitled to enforce same. The trial court, the litigants and this Court are in accord that the February 28, 1973 agreements are not ambiguous. Accordingly, their construction is one of law for the court to determine.

"Within the principles of adjudged cases . . . where the plaintiff seeks to base his right to...

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