Paradiso v. Colonial Townhouses, Inc.

Decision Date07 March 1988
Docket Number2,Nos. 1,s. 1
Citation526 N.Y.S.2d 308,138 Misc.2d 1002
PartiesRonald PARADISO, Plaintiff, v. COLONIAL TOWNHOUSES, INC., Defendant. Vincent PARADISO, Plaintiff, v. COLONIAL TOWNHOUSES, INC., Defendant. Robert C. CARLSEN, Plaintiff, v. COLONIAL TOWNHOUSES, INC., Defendant. Action& 3. Civil Court of the City of New York, Queens County, Small Claims Part
CourtNew York City Court

Robert C. Carlsen, Glendale, pro se.

Ronald Paradiso and Vincent Paradiso, pro se.

Franklin F. Regan, P.C. by R. Bruce Claro, Flushing, of counsel, for defendant.

DAVID GOLDSTEIN, Judge.

These actions were submitted at Small Claims Part for disposition upon an agreed statement of facts pursuant to CPLR 3222. Consistent with the informality of the procedure in Small Claims, while the record does not include a written statement of facts, it is conceded that the facts are as recited in the motion to consolidate, the parties orally agreeing to submit the matter for determination on the merits as to the novel legal issue raised herein.

The issue in the actions is one of apparent first impression in connection with the purchase of condominium units to be constructed for residential occupancy, where, subsequent to the initial escrow deposit, a bond or contract of indemnity is posted with the vendee. The question posed involves the construction to be accorded Lien Law § 71-a, insofar as relates to the purchaser's entitlement to interest on the down payment during the period after the bond was posted and until the date the initial advance secured thereby was returned, the contracts having been cancelled and the deposits returned. As far as appears, there are no reported decisions on the issue, interpreting Lien Law § 71-a.

On February 13, 1986, each of the plaintiffs entered into an agreement to purchase a new condominium unit to be constructed by Colonial Townhouses in an area south of the Long Island Expressway, in Douglaston, Queens. Under the purchase agreement, a 10% deposit was required, pursuant to which each plaintiff placed $12,500 in an interest bearing escrow account maintained by defendant's attorney. On March 5, 1986, defendant posted separate bonds to secure each down payment, in accordance with the procedure authorized by Lien Law § 71-a(3)(b) and (c), and pursuant to paragraph 12 of the purchase agreement, the latter providing in part as follows:

The seller will hold all monies received directly or through its agents or employees hereunder in trust until the closing of title to a home or Sponsor may use said funds prior to closing if a bond or letter of credit is posted to insure a return of such payment in the event a Purchaser is entitled to a refund of such monies pursuant to the terms of this purchase agreement or the Offering Plan.

As a result, after the bond was posted, the down payments were released to defendant and used for its general purposes. Subsequently, in the spring of 1987, a section of the retaining wall of the townhouse development collapsed, resulting in substantial damage to the units under construction. While it does not appear whether defendant abandoned the project, it is conceded that the delay in conveying title permitted each plaintiff to exercise an option to cancel the agreement.

Thus, under the terms of the contract, plaintiffs requested, inter alia, a full return of the initial advance and interest thereon. While defendant had no objection to refunding the deposits, plus interest to the date the bond was posted, it contends that the purchasers are not entitled to interest subsequent to issuance and filing of the security bond. According to defendant, the bond filed under Lien Law § 71-a(3)(b) and (c) secures only the down payment, not interest to be earned thereon. Defendant argues that this results from the fact that, while subdivision (3)(a) of § 71-a does require the "initial advance" to be deposited in "an interest bearing escrow account," subdivisions (3)(b) and (c), allowing a bond in lieu of such escrow deposit, does not mention interest and contains no direction that the bond guarantee interest which would have been earned.

In contrast to the strict construction of the statute urged herein by defendant, plaintiffs, in pragmatic fashion, point to the reality of the situation, by which defendant was permitted to use the initial down payment for its own purposes during the period after the bond was filed. While plaintiffs concede that the statute does not expressly address the issue, they argue that they are entitled to interest during the period since defendant had the use of their money.

As noted, Lien Law § 71-a (3)(a) directs that the initial advance under a contract for the construction of residential condominium units be deposited "in an interest bearing escrow account" and that "[s]uch deposit, together with the interest accumulated thereon, shall remain the property of the vendee * * * " The critical provisions at issue in these cases are subdivisions (3)(b) and (c) of section 71-a, which provide as follows:

(b) In lieu of making the deposit of such moneys in an escrow account as provided in paragraph (a) of this subdivision, the recipient may post with the vendee a bond or contract of indemnity, issued by a surety company licensed to execute such an instrument in this state, guaranteeing the return of the moneys which otherwise would be required to be deposited in such escrow account, in which case the recipient shall not be required to deposit such money in an escrow account. Said bond or contract of indemnity shall be delivered to the vendee within ten business days after receipt of the initial advance.

(c) At any time after making the deposit of such moneys in the escrow account, the recipient may post with the vendee a bond or contract of indemnity issued by a surety company licensed to execute such an instrument in this state guaranteeing the return of such monies, in which case the recipient shall not be required to maintain the deposit of such monies in such account. (emphasis added)

Notwithstanding the parties' apparent agreement that the statute, strictly construed, does not specifically deal with interest during the period after the bond was filed, in this court's view, the matter of entitlement to interest has been addressed by the Legislature, albeit the legislative enactment is hardly a model of clarity. Close examination of the statute reflects the use, in the alternative, in subdivisions (3)(b) and (c), of the terms "money" and "moneys", which, in my view, must refer and relate to the preceding direction in subdivision (3)(a), in terms of the "initial advance" and "[s]uch deposit, together with the interest accumulated thereon." Plainly in the absence of any indication that this was a legislative oversight, the drafters must have intended that the singular and plural terms in subdivisions (3)(b) and (c) relate to two different and distinct matters.

This interpretation gives full effect to each of the terms and phrases in the statute, consistent with usual rules of statutory construction (McKinney's Consol. Laws of N.Y., Book 1, Statutes, § 231), under which, an interpretation is favored which harmonizes the various legislative provisions with each other, ascribes to words and phrases their plain meaning and gives effect to all statutory provisions and language ( People v. Dethloff, 283 N.Y. 309, 315, 28 N.E.2d 850; Matter of Social I.E. Assn. v. Taylor, 268 N.Y. 233, 237, 197 N.E. 262; Matter of Anderson v. Board of Educ., 46 A.D.2d 360, 364-365, 362 N.Y.S.2d 536, affd. 38 N.Y.2d 897, 382 N.Y.S.2d 750, 346 N.E.2d 551; People ex rel. Powott Corp. v. Woodworth, 260 App.Div. 168, 172, 21 N.Y.S.2d 785). Similarly, Statutes § 232 directs that words be construed in accordance with their ordinary and usual meaning, conceptually akin to the prevailing principle which generally governs the construction of contracts (see, Slatt v. Slatt, 64 N.Y.2d 966, 488 N.Y.S.2d 645, 477 N.E.2d 1099, affirming 102 A.D.2d 475, 476-477, 477 N.Y.S.2d 178; Sutton v. East River Sav. Bank, 55 N.Y.2d 550, 555, 450 N.Y.S.2d 460, 435 N.E.2d 1075; Mandel v. 201 West 16 Assoc., 121 A.D.2d 910, 911, 504 N.Y.S.2d 429).

Applying these general principles of construction, in my view, the only rational interpretation of the legislation, and one which gives full effect to all of the language used, requires that the bond posted secure not only the initial advance but also interest to be earned thereon, a reasonable result bearing in mind that the seller retains the full use and enjoyment of the vendee's down payment during the period prior to closing. Thus, at the recipient's option, in lieu of the escrow deposit, a bond or contract of indemnity may be posted, "guaranteeing the return of the moneys * * * " [i.e., the initial advance and accumulated interest thereon, as provided in subd. (3)(a) ], "in which case the recipient shall not be required to deposit such money in an escrow account" [i.e., the initial advance referred to in subd. (3)(a) ]. (Lien Law § 71-a[3][b], emphasis added.) Likewise, subd. (3)(c) permits the posting of such a bond at any subsequent time, "guaranteeing the return of such moneys, in which case the recipient shall not be required to maintain the deposit of such moneys in such account." Plainly, this refers to the initial advance and accumulated interest, the plural reference in the preceding subdivision (3)(a).

This construction accords full effect to the underlying purpose of interest, which is designed "to compensate for the loss of use of money" (Siegel, New York Practice, § 411, p. 544). CPLR 5001 directs an award of interest for "a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property * * * " It has been generally held that interest on a...

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