Hyperlawhypertext legal databasebeta Scales-Douwes Corp. v. Paulaura Realty Corp. 24 N.Y.2d 724

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Scales-Douwes Corp. v. Paulaura Realty Corp.

24 N.Y.2d 724 Court N.Y. Decision date 1969-05-28 English

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p. 724
Scales-Douwes Corporation, Appellant, v. Paulaura Realty Corp. et al., Defendants, and Continental Casualty Company, Defendant and Third-Party Plaintiff-Respondent. Norman Rappaport et al., Third-Party Defendants.
Argued April 9, 1969;
decided May 28, 1969.
p. 725
David W. Silverman and Joseph F. X. Nowicki for appellant.
I. The bonds cover payment to plaintiff-appellant. (Merchants Mut. Cas. Co. v. United States Fid. & Guar. Co., 253 App. Div. 151 ; McClare v. Massachusetts Bonding & Ins. Co., 266 N. Y. 371 .) II. Appellant herein is a beneficiary of the payment provision of the bonds. (Daniel-Morris Co. v. Glens Falls Ind. Co., 283 App. Div. 504 .) III. Plaintiff-appellant is entitled to maintain this action on the bond as it has no enforceable rights pursuant to its mechanic’s lien. (Johnson v. City of Niagara Falls, 230 N. Y. 77 ; Sexauer & Lemke v. Burke & Sons Co., 228 N. Y. 341 ; Kennedy & Co. v. New York World’s Fair, 260 App. Div. 386 , 288 N. Y. 494 .) IV. No conflict arises between the municipality and appellant with respect to continental bonds. (E. J. Eddy, Inc. v. Fidelity & Deposit Co., 265 N. Y. 276 ; Graybar Elec. Co. v. Seaboard Sur. Co., 157 Misc. 275 ; Fosmire v. National Sur. Co., 229 N. Y. 44 .)
Donald B. Knight for third-party plaintiff-respondent.
I. The decision of the Appellate Division that the bonds in suit do not
p. 726
give appellant any right of recovery thereon, is supported by the facts and applicable law and should be upheld. (McGrath v. American Sur. Co., 307 N. Y. 552 ; Merchants Mut. Cas. Co. v. United States Fid. & Guar. Co., 253 App. Div. 151 ; Saucke Bros. Constr. Co. v. Comstock, 139 Misc. 106 , 235 App. Div. 650 , 260 N. Y. 546 McClare v. Massachusetts Bonding & Ins. Co., 266 N. Y. 371 .) II. The separate corporate identities of Paulaura, the principal on the bond sued upon, and (Lamport, with whom appellant contracted to furnish the labor and materials which are the subject of this action, should not be disregarded, and respondent not being surety for G-amport has no obligation to appellant. (Crane v. Genin, 60 N. Y. 127 ; American Radiator v. City of New York, 177 App. Div. 578 ; Berkey v. Third Ave. Ry. Co., 244 N. Y. 84 ; Walkovszky v. Carlton, 18 N Y 2d 414 .)

The Appellate Division held that plaintiff as alienor for materials and labor furnished for the improvement of privately owned real property has- no direct cause of action against the bonding company under a performance bond issued pursuant to a contract with the private owner of the improved land in which a town, to which the land was later transferred, was the obligee.

The bonding company undertook to ,see that the owners paid the costs of certain- improvements and dedicated the land to the town ‘ ‘ free and clear of all liens and encumbrances- ’ ’. There was $33,716.28 left unpaid by the landowner on plaintiff’s work- and a lien was filed which was outstanding at the time the town took title; and has been extended by court orders.

Several decisions in this court hold that a third-party performing services does not have a right of direct action on the bond in this kind of situation. The theory is that this is essentially a performance bond and not a payment bond (Fosmire v. National Sur. Co., 229 N. Y. 44 ; McGrath v. American Sur. Co. of N. Y., 307 N. Y. 552 ).

The rule is different if the “ paramount purpose ” of the bond is payment rather than performance (McClare v. Massachusetts Bonding & Ins. Co., 266 N. Y. 371 ; Daniel-Morris Co. v. Glen Falls Ind. Co., 308 N. Y. 464 ).

The principle has become so- settled that the court adheres to it and, therefore, the decision at the Appellate Division should be affirmed.

p. 727
The equities in favor of some relief to this plaintiff, as far as can be seen on this record, however, seem .strong. Plaintiff apparently performed work in improving the property while title was in private ownership and filed a valid lien which was outstanding when the town, protected by a bond against liens, took title.

If the lienor has no direct action against the bonding company, no reason appears in this record why it cannot enforce the subsisting and valid lien against a town taking title with this lien of record on the land in an action in equity in which the town, if it is so advised, may join the bonding company for a proper adjustment of the equitable rights of all interested parties.

The court does not, of course, pass on these questions definitively or consider defenses that may exist in ¡such a further action, .since those questions are presently not before it. It notes, merely, that the application of the rule of Fosmire is inequitable in this case and that there may be other remedies available to plaintiff.

The order should be affirmed, without costs and without prejudice to such further action by plaintiff as it may be advised to enforce its lien.

Chief Judge Ful» and Judges Burke, Soileppi, Bergan and Jasen concur; Judge Breitel concurs in result only.

Order affirmed, without costs and without prejudice to such further action to enforce its lien as plaintiff may be advised.

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