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

• Citation: 381 N.Y.S.2d 646,85 Misc.2d 957
• Court: New York Supreme Court
• Decision Date: 10 March 1976
• Parties: NOVAK & CO., INC. v. The TRAVELERS INDEMNITY COMPANY.

Page 646

381 N.Y.S.2d 646

85 Misc.2d 957

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

Supreme Court, Special Term, Kings County, Part I.

March 10, 1976.

Kuh, Goldman, Cooperman & Levitt, New York City, for plaintiff.

Tunstead & Schechter, New York City, for defendant.

FRANK COMPOSTO, Justice.

In this action upon performance and payment bonds, defendant moves to dismiss the complaint on the grounds (1) the complaint fails to state a cause of action; (2) the plaintiff's cause of action is barred by the statute of limitations, and (3) release.

The New York City Housing Authority contracted with plaintiff for the plumbing work in the construction of one of its housing projects and also contracted with Wilaka Construction Co., Inc. ('Wilaka') for the foundation and general construction work. Wilaka's contract required it to furnish performance and payment bonds, which were obtained from defendant.

In July, 1967, plaintiff instituted an action against Wilaka and others, including the Housing Authority, to recover damages sustained by reason of delays and defaults in the performance of the construction contract. An inquest was held on July 15, 1975, and plaintiff entered judgment against Wilaka for $390,875.75 on July 24, 1975. This action to recover that sum was commenced on August 1, 1975.

Defendant contends the complaint fails to state a cause of action because the plaintiff is not a beneficiary under the bonds which are solely for the benefit of the Housing Authority. The intention of the parties to a contractor's bond determines whether third parties have any rights thereunder (Fosmire v. National Surety Company, 229 N.Y. 44, 127 N.E. 472). '* * * 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. * * *' (Fosmire, supra, p. 47, 127 N.E. p. 473). These bonds were not for the benefit of the Housing Authority alone to the exclusion of all others, but clearly express an intention to benefit third parties and that clear expression of intent distinguishes this case from such cases such as Fosmire (supra), where no such intent was found. Various enactments, such as State Finance Law, § 137, express the public policy and interest of the state in the welfare of providers of labor and materials on public improvements.

These bonds, written on forms provided by the Housing Authority, do more than express an intention to confer a right to sue upon designated third parties. They specifically provide a direct right of action by any beneficiary in its own name against either Wilaka or the defendant or both. Therefore, any beneficiary may proceed against the defendant in its own name (McClare v. Massachusetts Bonding and Insurance Company, 266 N.Y. 371, 195 N.E. 15; Seaver v. Ranson, 224 N.Y. 233, 120 N.E. 639; Lawrence v. Fox, 20 N.Y. 268; New York Plumbers Specialities Company, Inc. v. Columbia Casualty Company, 13 A.D.2d 449, 211 N.Y.S.2d 824; Merchants Mutual Casualty Company v. United States Fidelity and Guaranty Company, 253 App.Div. 151, 2 N.Y.S.2d 370). Thus, the question presented here is not whether any third party has a right of action on these bonds but whether this plaintiff and others similarly situated are among those third parties who do have a right of action thereon. The court notes that the bond of a compensated surety is to be construed liberally in the interest of the promisee and beneficiaries rather than Strictissimi juris (United States for the use of Hill v. American Surety Company of New York, 200 U.S. 197, 26 S.Ct. 168, 50 L.Ed. 437; McClare v. Massachusetts Bonding and Insurance Company, supra; Corbin, Third Parties as Beneficiaries of Contractors' Surety Bonds, 38 Yale L.J. 1), and that ambiguities are to be resolved in favor of the beneficiaries thereof (American Surety Company of New York v. Wells Water District, 253 App.Div. 19, 1 N.Y.S.2d 614, affd. 280 N.Y. 528, 19 N.E.2d 926).

Plaintiff contends, in essence, that since it has a claim against Wilaka for damages for Wilaka's improper performance under its contract, it is a beneficiary under the performan bond which is '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.' Plaintiff also contends that, under the payment bond, it is one of those 'persons who have performed labor, rendered services or furnished materials and supplies' and 'shall have a direct right of action' against Wilaka or the defendant.

Plaintiff misapprehends the nature of the bonds in question. The primary purpose of the performance bond is to indemnify the Housing Authority against breach by Wilaka and that of the payment bond is to assure payment to specified third parties (...