Novak & Co., Inc. v. Travelers Indem. Co.

• Decision Date: 28 March 1977
• Citation: 56 A.D.2d 418,392 N.Y.S.2d 901
• Parties: NOVAK & CO., INC., Appellant, v. The TRAVELERS INDEMNITY COMPANY, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 901

392 N.Y.S.2d 901

56 A.D.2d 418

NOVAK & CO., INC., Appellant, v. The TRAVELERS INDEMNITY COMPANY, Respondent.

Supreme Court, Appellate Division, Second Department.

March 28, 1977.

Kuh, Shapiro, Goldman, Cooperman & Levitt, P.C., New York City (Edward S. Wactlar and Robert N. Cooperman, New York City, of counsel), for appellant.

Tunstead & Schechter, New York City (Michael S. Torre, New York City, of counsel), for respondent.

Before RABIN, Acting P.J., and SHAPIRO, TITONE and O'CONNOR, JJ.

SHAPIRO, Justice.

Upon defendant's motion 'for an order pursuant to CPLR 3211 dismissing the complaint upon the grounds that plaintiff's 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 plaintiff's complaint.' ¹ We affirm.

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 Independed 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 upon it by the contract, including its obligation to indemnify the Authority and others against loss and claims arising out of the performance of the work. In accordance therewith, the defendant issued the necessary bonds to assure the good and faithful performance by Wilaka of its contract with the Authority. Each of the bonds was in the sum of $6,187,000. The performance bond contains the following language:

'This undertaking is for the benefit of all Subcontractors, Materialmen, and workingmen having just claims and 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, as well as for the benefit of the Owner itself, but the rights and equities of all other beneficiaries or obligees hereunder shall be subject and subordinate to those of the Owner. Should any beneficiary or obligee hereunder, other than the Owner, file or make claims against the Principal or Surety, the said Principal and Surety shall promptly thereafter, or in any event at least fifteen (15) days prior to the payment of such claims, notify the Owner by registered mail of such claims.' (Emphasis supplied.)

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, section 10 (subd. b) 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 all other liabilities of whatsoever kind'. Similarly, section 10 (subd. a) of the contract, which deals with loss caused by other contractors, declares that if the contractor should 'sustain any loss, damage, or delay through any act or omission of any other contractor having a contract with the Authority for the performance of work * * * upon the site * * * which may be necessary to be performed in aid of the Work hereunder * * * the Contractor shall have no claim against the Authority for such loss, damage or delay, but shall have recourse solely to such other contractor'. Thus, both paragraphs a and b of section 10 of the contracts between the Authority and the plaintiff and the Authority and Wilaka make it clear that those provisions of the contract were intended to limit each contractor's right of recourse for damage resulting from delay caused by another contractor to the contractor causing the delay and to absolve the Authority from liability.

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. ²

THE APPLICABLE LAW.

The cases cited in the briefs are in agreement that the test of whether a contractor's bond, be it a performance bond or a payment bond, or both, is intended to grant a third party the right to sue upon it depends upon whether it manifests a clear intent to grant that right to the third party. Thus, in the leading case of Fosmire v. National Sur. Co., 229 N.Y. 44, 127 N.E. 472, Judge CARDOZO, speaking for the court, and holding that the plaintiff, a laborer employed by the principal who had contracted to build part of a State highway, and who sought to recover wages owed him by his employer, the contractor, from the issuer of his employer's performance bond, could not recover on the bond, said (pp. 47--48, 127 N.E. p. 473):

'In so holding, we put our decision upon the single ground that the bond, read in its entirety, is inconsistent with an intention that the plaintiff and others in like position should have the right to sue upon it. If that intention is absent, the right to sue will be denied (Simson v. Brown, 68 N.Y. 355).'

In McClare v. Massachusetts Bonding & Ins. Co., 266 N.Y. 371, 195 N.E. 15, 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, 195 N.E. p. 16):

'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 advantage, a lucky find or windfall, the accidental consequence of a promise conceived for the good of some one else.'

The majority also held (p. 377, 195 N.E. p. 16):

'To cull from the bond its true meaning and intention it must be read in its entirety, and the purpose and effect of the bond as a whole must be considered. No other purpose appearing than to benefit the two classes of creditors named, they are to be considered beneficiaries if the bond is to be given any effect whatsoever.'

In Merchants Mut. Cas. Co. v. United States Fid. & Guar. Co., 253 App.Div. 151, 2 N.Y.S.2d 370, the plaintiff, which was suing for $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...