Schuler-Haas Elec. Corp. v. Aetna Cas. & Sur. Co.

• Decision Date: 18 July 1975
• Docket Number: SCHULER-HAAS
• Citation: 49 A.D.2d 60,371 N.Y.S.2d 207
• Court: New York Supreme Court — Appellate Division
• Parties: ELECTRIC CORP., Appellant, v. AETNA CASUALTY & SURETY CO., Respondent (three cases).ELECTRIC CORP., Respondent, v. AETNA CASUALTY & SURETY COMPANY, Appellant.

Page 207

371 N.Y.S.2d 207

49 A.D.2d 60

SCHULER-HAAS ELECTRIC CORP., Appellant, v. AETNA CASUALTY & SURETY CO., Respondent (three cases).

SCHULER-HAAS ELECTRIC CORP., Respondent, v. AETNA CASUALTY & SURETY COMPANY, Appellant.

Supreme Court, Appellate Division, Fourth Department.

July 18, 1975.

James M. White, Rochester, for appellant.

Johnson, Reif & Mullan, P.C., Rochester, for respondents (George A. Schell, Rochester, of counsel).

Before MARSH, P.J., and MOULE, MAHONEY, GOLDMAN and WITMER, JJ.

OPINION

WITMER, Justice.

In an action on a payment bond issued by defendant Aetna Casualty and Surety Co. (Aetna) on behalf of Logic Construction, inc., general contractor on a Third Ward Renewal Project in Rochester owned by I.C. Housing Development Fund Company, Inc. for the construction of a high-rise apartment building and 104 town house units, Special Term made three orders denying two motions by plaintiff and one by defendant for summary judgment and an order denying a motion to resettle the first of such orders. Plaintiff appeals from three of those orders and defendant appeals from the other one.

The general contractor entered into a contract with subcontractor Logic Builders, Inc. to construct the high-rise apartment building and another contract with subcontractor I.C.H. Contractors, Inc. to construct the 104 town house units. Those two subcontractors entered into contracts with plaintiff to perform the electrical work on both jobs. Not only did defendant Aetna issue the Payment bond above mentioned but it also executed a Performance bond in behalf of the general contractor for the benefit of the owner.

In its complaint in this action on the payment bond plaintiff alleges the above contracts and defendant's execution of the payment bond for the benefit of all suppliers and subcontractors on the jobs; that it has performed its work on the projects in accordance with its contracts; and that a sum in excess of $169,000 plus interest is due and owing to it therefor. Defendant Aetna answered, acknowledging plaintiff's status as a subcontractor and alleging that by the terms of the general contract, subcontracts and its performance bond, its principal is not liable to plaintiff until the principal receives payment from the owner, that such payment has not been made, and hence Aetna is not obligated to plaintiff. In the course of this litigation some payments have been made to plaintiff on its claim, and it has been stipulated that plaintiff has satisfactorily performed on its contracts and is now entitled to payment for work which it has completed on the projects in an amount in excess of $88,500. The issue presented on this appeal is whether, under the terms of the several contracts and Aetna's payment and performance bonds, plaintiff is entitled to summary judgment, requiring Aetna to pay to it the above amount admittedly owing to plaintiff under the contracts.

At the top of Aetna's Payment bond there is a statement in parentheses that it is issued simultaneously with a Performance bond which it has executed to secure the owner for the completion of the contract by the general contractor. It is then provided in the payment bond, 'that every claimant * * * who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant's work or labor was done or performed, or materials were furnished by such claimant, may sue on this bond * * * for such sum or sums as may be justly due claimant * * *'.

In its contracts with subcontractors Logic Builders, Inc. and I.C.H. Contractors, Inc. plaintiff agreed that its rights are subject to the terms of the contract between the owner and the general contractor, and that its contractors must pay plaintiff, 'when full payment for this subcontract work is received (by the general contractor) from the Owner'. By the terms of the general contract the general contractor agreed to pay unpaid obligations on the project within 15 days after it receives its final payment from the owner. In Aetna's Performance bond it is provided that Aetna 'shall not be liable Under this Bond to the Obligees (the owner) * * * unless the said Obligees * * * shall make payments to the Principal (general contractor) strictly in accordance with the terms of said Contract as to payments' (emphasis added).

Aetna contends that all of the contracts and both bonds must be read together and that it was the intent of the parties that the general contractor and its immediate subcontractors, and hence Aetna, would have no liability for the claims of suppliers or job workmen (such as plaintiff) unless and until the claims have been submitted and the owner has paid the general contractor therefor. Aetna submitted several affidavits on the motion at Special Term to support its contention, and because thereof Special Term determined that a question of facts exists as to the intention of the parties and meaning of the several contracts and bonds, and so denied summary judgment to either party.

Where contracts are in writing the rights of the parties should be determined by the plain meaning of the language used, if possible. Where the meaning is not clearly expressed, however, "The ascertainment of the substantial intent of the parties is the fundamental rule in the construction" of the documents (Madawick Contr. Co. v Travelers Ins. Co., 307 N.Y. 111, 119, 120 N.E.2d 520, 524). In some cases that intention may be determined by the court as a matter of law on the documents themselves based upon the character of the transaction, and in others it may be necessary to resort to extrinsic evidence (see 4 Willist On Contracts, 3rd Ed., § 616; 10 N.Y.Jur., Contracts, §§ 189--190).

There is no doubt that if the parties clearly expressed an intention that no subcontractor (as the plaintiff) should have a right to be paid or to sue on the payment bond until all questions relating to the contracts have been resolved and the owner has made his final payment due under the contract to the general contractor, such agreement would be binding, and it would constitute a condition precedent to plaintiff's action against the surety. Questions presented to us on these appeals are whether the documents in this case show such intent, or to the contrary, whether it may be held as a matter of law that the parties did not mean to create a condition precedent to payment.

No New York appellate case has been brought to our attention bearing directly on this issue, but a number of courts in other jurisdictions have dealt with this question. These courts have recognized that as a practical matter the suppliers and small contractors on large construction projects need reasonably prompt payment for their work and materials in order for them to remain solvent and...