Western Elec. Co. v. Brenner

• Decision Date: 17 February 1977
• Citation: 392 N.Y.S.2d 409,41 N.Y.2d 291,360 N.E.2d 1091
• Parties: , 360 N.E.2d 1091 WESTERN ELECTRIC COMPANY, Respondent, v. Francis X. BRENNER, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 409

392 N.Y.S.2d 409

41 N.Y.2d 291, 360 N.E.2d 1091

WESTERN ELECTRIC COMPANY, Respondent, v. Francis X. BRENNER, Appellant.

Court of Appeals of New York.

Feb. 17, 1977.

Leo C. Fennelly, New York City, for appellant.

James M. Leonard and Margaret M. O'Neill, New York City, for respondent.

COOKE, Judge.

To be determined on this appeal is the Statute of Limitations appropriate to an action brought by an employer against an employee for money allegedly received by the latter in violation of his duty of loyalty to the former.

The complaint alleges that defendant, a senior contract specialist in the corporate realty department of plaintiff Western Electric Company, had among his duties the initiating and negotiating of contracts and business arrangements. It further alleges that, by virtue of his employment with Western Electric, defendant was instrumental in securing the award of a 1971 contract to the J. L. Williams Company to construct a building at Warrenville, Illinois, for lease by Western Electric. In consideration of his efforts in obtaining that award, it is alleged that defendant demanded payment to him by the J. L. Williams Company of $50,000 which he received in two installments of $25,000 each, one in August and the other in December of 1971. Western Electric asserts that by virtue of defendant's position with the company, it was entitled to place reliance and trust in the integrity, competence, honesty and fidelity of defendant in respect to the duties which he owed Western Electric and that such duties and obligations were breached by reason of defendant's aforedescribed conduct.

The complaint sets forth two causes of action. Paragraph 'SEVENTEENTH' of the first provides 'That by virtue of the breach of Defendant's duties of faithfulness and trust owing to Western Electric his receipt of the aforesaid payment deprived Western Electric of such amount which rightfully belonged to it and Defendant must be deemed to have received said payment in trust on behalf of Western Electric.' Paragraph 'twentieth' of the second talks of restitution: 'That the breach by Defendant of his obligations to Western Electric has occasioned Western Electric damage in the amount of $50,000 and Defendant should be compelled to make restitution in said amount.'

On his motion to dismiss, defendant argued that plaintiff's cause of action is based upon tortious conduct for which the Statute of limitations is three years and that this action, commenced in May of 1975, is time-barred. In denying that motion, Special Term accepted plaintiff's argument that the basis of the complaint was defendant's breach of his contract of employment and of the duties of trust and loyalty which flowed therefrom. Taking this view, plaintiff's action was commenced well within the six-year limit. The Appellate Division affirmed, agreeing that the complaint sounds in contract, not in tort, but certified to this court the following question: 'Was the order of the Supreme Court, as affirmed by this Court, properly made?'

The answer to the question posited is, in a word, yes. Contract, not tort, forms the basis of plaintiff's causes of action.

While both parties agree that it is the gravamen or essence of the cause of action that determines the applicable Statute of Limitations (Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 264, 11 N.E.2d 902, 904; Corash v. Texas Co., 264 App.Div. 292, 295, 35 N.Y.S.2d 334, 338), they differ in their analysis of the nature or essence of the claim. Defendant, citing section 25--b of the General Construction Law, contends that the cause of action is one for wrongful injury to property and thus governed by the three-year limitation of CPLR 214 (subd. 4). Section 25--b of the General Construction Law, however, which provides that "Injury to property' is an actionable act, whereby the estate of another is lessened', specifically excepts from its definition injuries to property brought about by 'the breach of a contract'. In support of a narrow reading of that exception, defendant cites Buyers v. Buffalo Paint & Specialities, 199 Misc. 764, 99 N.Y.S.2d 713. In Buyers, the court sought to determine whether two causes of action, one for breach of warranty and the other for negligence, were barred by the three-year Statute of Limitations. A key factor there was that the plaintiff sought, not 'restitution of the contract price', but consequential damages for the injury to its buildings when the product, 'Ruf-Kote', manufactured by defendant and applied to the buildings by plaintiff, ignited and exploded. The Buyers court accepted the reasoning that 'the term 'breach of contract' * * * must be deemed to refer only to ordinary breaches of contract for which the normal direct damages are sought, and not breaches which involve consequential damages to person or property' and held 'that actions for consequential damages to property are governed by the statute of limitations expressly applicable to such injuries, regardless of the form of the action' (199 Misc., at p. 776, 99 N.Y.S.2d p. 724--725). The holding in Buyers, however, was effectively overruled in Blessington v. McCrory Stores Corp., 305 N.Y. 140, 147, 111 N.E.2d 421, 422 with this court's recognition that an action for breach of an implied warranty of fitness for use may be related to, but is independent of, an...