Decided July 9, 2009.
Plaintiff was represented by Deborah Bass, Esq., Ledy-Guerren Bass Siff LLP, of counsel to Swartz Law Offices, New York.
Defendants were represented by Stephen J. Gillespie, Esq., Westermann Hamilton Sheehy Aydelott Keenan, LLP, Garden City, New York.
Motion sequence numbers 002 and 003 are consolidated for disposition.
In this breach of contract action, plaintiff EFCO Corp., ("EFCO"), a material supplier, moves (under motion sequence number 002) pursuant to CPLR § 3212 for summary judgment on its claim against defendant Liberty Mutual Insurance Co., ("Liberty Mutual"), the surety under a labor and material payments bond (the "payment bond"), seeking recovery of $560,346.12 plus interest and attorneys' fees. Defendant Liberty Mutual moves (under motion sequence number 003) for partial summary judgment reducing EFCO's claims to $93,593.62.
The Complaint actually seeks $558,021.50 from Liberty, but the motion papers seek the slightly higher amount.
Defendants Graystone Construction Corp. ("Graystone") and Two Star Associates, Inc. ("Two Star") (collectively "the defaulting contractors") failed to answer the complaint and on June 22, 2007, this court (Freedman, J.) granted plaintiff's motion for a default judgment against those two entities. Liberty Mutual does not concede liability for the $93,593.62.
The facts of this case are not in dispute. On or about July 2002, defendant Graystone entered into a public improvement contract with the New York City Housing Authority to act as the general contractor for the construction of a community center at the James Weldon Johnson Houses in Manhattan. At Graystone's request, Liberty Mutual, as surety, issued a $9,037,186.08 payment bond to Graystone, as principal. Under the terms of the bond, if Graystone failed to pay its subcontractors and suppliers, Liberty Mutual would make payment provided certain conditions were met.
State Finance Law Section 137(1) requires a contractor working on a public improvement project for the State of New York to post a bond "guaranteeing prompt payment of moneys due to all persons furnishing labor or materials to the contractor or any subcontractors in the prosecution of the work provided for in such contract."
Graystone retained Two Star as its concrete subcontractor on the project. In 2003 and 2004, EFCO entered into several agreements with Two Star for the rental of steel forms for concrete construction on the project. Sometime in 2004, Two Star defaulted under its obligations at the project and Graystone assumed all of Two Star's obligations, including its obligations pursuant to the rental agreements with EFCO. Thereafter, Graystone entered into approximately seven additional rental agreements with EFCO. Pursuant to the terms of the rental agreements, from June 2003 through July 2005, both Two Star and Graystone received monthly invoices from EFCO. However, despite due demand, Two Star and Graystone paid only a portion of the amount due under their agreements and, according to EFCO, in July, 2005, $560,346.12 remained due and owing.
Graystone and EFCO then met in July, 2005 and executed a Settlement Agreement ("the Agreement") dated July 14, 2005. The Agreement provides as follows:
1.Graystone agrees to pay EFCO $100,000.00 in total for balance for EFCO's rental of all forms for the concrete work at this project.
2.These funds shall be released to EFCO as follows;
a. $25,000.00 at delivery of satisfaction of lien and
b. three installments of $25,000.00 each everymonth thereafter.
3.EFCO agrees to accept these payments with terms as full and final payment from Graystone on this project for all rental from the beginning of the job through July 31, 2005.
4.Graystone agrees to return all equipment it has directly rented from EFCO.
5.EFCO agrees to remove the lien on the project and release bond claim on Graystone in reference to the monies owed by Two-Star to EFCO.
6.Graystone shall pay $3,500.00 per month additional rent from August 1st, 2005 to the time the equipment is returned to EFCO.
Graystone paid the first installment of $25,000 when EFCO delivered satisfaction of the lien and made one additional $25,000 payment, but Graystone failed to pay the remaining $50,000. Moreover, it did not pay the $3,500 monthly equipment rental as required in paragraph 5. In addition, Graystone only returned a portion of the equipment it had rented from EFCO.
EFCO then commenced this action in January, 2007, seeking, inter alia, recovery against Liberty Mutual under the payment bond for the amounts owed by the two defaulting contractors.
In support of its motion for summary judgment and in opposition to defendant Liberty Mutual's motion for partial summary judgment, EFCO argues that Liberty Mutual is liable for approximately $560,000 owed by the defaulting contractors because the Agreement was an executory accord, also known as an accord and satisfaction, and that since Graystone failed to perform its obligations under the Agreement, EFCO is entitled to sue on the original claim. Plaintiff also contends that because of the specific language in the payment bond, it is entitled to payment for unreturned materials; that it complied with State Finance Law Section 137's notice provision and that, pursuant to the clear language of the payment bond, Liberty Mutual is obligated for all contractual costs, including interest from the date of its demand for payment under the bond and attorneys' fees.
Liberty Mutual argues that the parties intended the Settlement Agreement to be a substituted agreement that replaced the earlier rental agreements between EFCO and the defaulting contractors. Alternatively, Liberty Mutual argues that there is at least a question of fact about whether the parties intended the Settlement Agreement to be a substituted agreement. In addition, it claims that the unreturned equipment is not recoverable under the terms of the payment bond and that the interest charges that predate the commencement of this action are not recoverable.
EFCO has agreed in its Memorandum in opposition to defendant's motion to withdraw that portion of its claim for pre-judgment interest that predates its demand for payment under the bond.
In this instance, plaintiff EFCO has established its prima facie case by submitting the rental agreements and project summaries that demonstrate that the defaulting contractors failed to pay invoices totaling $560,346.12. It is a well settled rule in this state that the liability of the surety is measured by the liability of the principal. American Bldg. Supply Corp. v. Avalon Props., Inc. , 8 AD3d 515 , 516 (2nd Dept 2004); Venus Mech. v. Insurance Co. Of N. Am., 245 AD2d 559 (2nd Dept 1997); Dimancopoulos v. Consort Dev. Corp., 158 A.D.2nd 658 (2nd Dept 1990) and here, the rental agreements and the payment bond establish that the principal, and thus by extension Liberty Mutual, is liable for rent for the leased equipment, interest, replacement costs of the unreturned equipment and attorneys' fees.
EFCO has also made a prima facie showing that the Settlement Agreement is an executory accord. In Denburg v. Parker Chapin Flattau Klimpl, 82 NY2d 375, 383 (1993) the Court of Appeals discussed the distinction between "the settlement devices of accord and satisfaction' and substituted agreement.'"
An accord is an agreement that a stipulated performance will be accepted, in the future, in lieu of an existing claim (citations omitted). The distinctive feature of an accord and satisfaction is that the obligee does not intend to discharge the existing claim merely upon the making of the accord; what is bargained for is the performance, or satisfaction. If the satisfaction is not tendered, the obligee may sue under the original claim or for breach of the accord (citations omitted).
By contrast, the parties may intend that a new agreement, though executory, will immediately discharge the existing obligation. (citation omitted). That is a substituted agreement.
Whether the parties intended a particular agreement to be an executory accord or a substituted agreement involves a determination which may be aided by certain presumptions. (See, Denburg v. Parker Chapin Flattau Klimpl, supra at 384.) "Generally, it is assumed that one does not surrender an existing obligation for a promise to perform in the future. . . . It is generally more reasonable to suppose that he bound himself to surrender his old rights only when the new contract of accord was performed.'" Albee Truck Inc. V. Halpin Fire Equipment Inc., 206 AD2d 789, 790 (3rd Dept 1994) citing Goldbard v. Empire State Mut. Life Ins., 5 AD2d 230,236 (1st Dept 1958).
There is an additional presumption, or canon of contract construction, that provides that where a contract is made for the satisfaction of a pre-existing contractual duty to pay a liquidated sum of money, only performance of the subsequent contract discharges the pre-existing duty because "a creditor generally will not enter into a bargain for an immediate cancellation of his claim without obtaining satisfaction and not merely a promise of it." Restatement of Contracts, § 419, Comment a.; 6 Williston on Contracts, (rev. ed.) § 1847.
In general, to overcome these presumptions, a court will scrutinize the language of the subsequent agreement to determine whether it contains any of the indicia of a substituted agreement, that is, whether the creditor intended to relinquish his/her claim prior to satisfaction. For example, if the subsequent agreement states that it expressly supersedes and replaces the prior agreements it constitutes a novation. See, Leeward Isles Resorts, Ltd. v. Hickox , 49 AD3d 277 (1st Dept 2008), lv to app. dism'd 11 NY3d 914 (2009), rearg. den. 12 NY3d 803 (2009); Northville Indus. Corp. v. Fort Neck Oil Terms Corp., 100 AD2d 865 (2nd Dep't 1984), aff'd 64 NY2d 930 (1985). Also, if it expressly releases the prior claim, a court may find a substituted agreement. C3 Media Marketing Group, LLC v. Firstgate Internet, Inc., 419 F.Supp. 2d 419 (S.D.NY 2005). However, as the court stated in Wyatt v. NY, O W.R. Co., 45 F.2d 705, 708 (2nd Cir. 1930), "the intention must be clear, and the presumption is otherwise."
In this case, the Settlement Agreement is devoid of any indicia that it should be considered a substituted agreement. It does not state that it supersedes or is a substitute for the prior agreements, nor does it contain a release or any other language that demonstrates that EFCO intended to cede its rights under the rental agreements simply in exchange for Graystone's promise to perform in the future.
[W]here a question of intention is determinable by written agreements, the question is one of law, appropriately decided by an appellate court (citation omitted), or on a motion for summary judgment. Only where the intent must be determined by disputed evidence or inferences outside the written words of the instrument is a question of fact presented (citations omitted).
Mallad Constr. Corp. v County Fed. Sav. Loan Assn., 32 NY2d 285, 291 (1973); see also Northville Indus. Corp. v Fort Neck Oil Terms. Corp., supra.
This Court finds that the parties' intentions can be determined from the writing and that the Settlement Agreement was an executory accord. This Court further finds that because Graystone failed to fully perform under the Agreement, the prior debt was not extinguished.
Liberty Mutual also argues that the fact there is no language in the Settlement Agreement by which EFCO reserved it right to sue on the original claim if the payments were made is damaging to EFCO's position. However, Liberty Mutual has cited no case law which supports this argument. Rather, as stated infra, the presumption is that the subsequent agreement is an executory accord unless it contains language specifically indicating otherwise.
Moreover, the statement by Rajinder Gujiral, the Controller of Graystone, in his Affidavit dated October 22, 2008 that "the intent of the Settlement Agreement was . . . to compromise the prior balance. . . ." does not indicate a substituted agreement. "There is no magic to the words settlement' or compromise' in deciding whether a disputed claim has been discharged with such finality that no action may be brought upon it, but only upon the later agreement." Goldbard v. Empire State Mutual Life Insurance Co., supra at 233.
Liberty Mutual's next argument that plaintiff cannot recover for the unreturned equipment under State Finance Law Section 137 bond is without merit. Liberty Mutual relies on Harsco Corp. Patent Constr. Sys. Div. v. Gripon Constr. Corp., 301 AD2d 90, 97 (2nd Dept 2002), which holds that "absent express language to the contrary, the surety on a State Finance Law § 137 bond is obligated to pay only for the unreturned rental equipment which the parties reasonably anticipated would be consumed in the work." (underlining supplied). In that case, the payment bond only guaranteed payment for material "used or reasonably required for use in the performance of the Contract." ( Harsco Corp. v. Gripon Constr. Corp., supra at 91).
However, in this case, the language in Liberty Mutual's bond is much broader and contemplates recovery for equipment that was not consumed in the work. Indeed, the bond guarantees payment for "[m]aterials and supplies ( whether incorporated in the permanent structure or not), as well as equipment, fuels, oils, implements or machinery furnished, used or consumed by said principal. . . ." (emphasis supplied). By expressly providing for recovery of materials "whether incorporated in the permanent structure or not", the Liberty Mutual bond provides for recovery for the unreturned rental equipment, including the concrete forms. See, Conseco Indus. v. St. Paul Fire Mar. Ins. Co., 210 AD2d 596 (3rd Dept 1994); R.J. Russo Trucking Excavating v. Pennsylvania Resource Sys., 169 AD2d 239 (3rd Dept 1991).
Turning to EFCO's claim for prejudgment interest, State Finance Law § 137(4)(c) provides, "[i]n any action on a payment bond furnished pursuant to this section, any judgment in favor of a . . . material supplier may include provision for the payment of interest upon the amount recovered from the date when demand for payment was made pursuant to the labor and material payment bond. . . ." Here, the evidence reveals that on December 17, 2004, EFCO wrote to Liberty Mutual asking what information would be required since it wanted to "proceed with filing on the Performance Bond for monies due EFCO . . . for supplying steel forms for concrete construction on the . . . project to Two Star. . . ." However, EFCO has not presented any evidence that before it commenced this action, it actually filed a demand against the payment bond with Liberty Mutual concerning Two Star's debt. Since plaintiff is required to lay bare its proof on a motion for summary judgment, this Court finds that plaintiff is entitled to pre-judgment interest on the amounts owed by Two State only from January 17, 2007, the date the action was instituted.
Plaintiff has already conceded that it is only entitled to interest on the Graystone debt from the date the action was commenced, i.e., January 17, 2007.
Finally, EFCO has submitted evidence that, to the extent State Finance Law § 137(3) may have required it to provide notice to Graystone of its claim against Two Star, by letter dated October 13, 2004, it did, in fact, provide such notice.
State Finance Law, Section 137(3) provides, in pertinent part:
Every person who has furnished labor or material to the contractor or to a subcontractor of the contractor, in the prosecution of the work provided for in the contract and who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last . . . material was furnished by him for which the claim is made, shall have the right to sue on such payment bond in his own name for the amount, . . . unpaid at the time of commencement of the action; provided, . . . that a person having a direct contractual relationship with a subcontractor of the contractor furnishing the payment bond but no contractual relationship express or implied with such contractor shall not have a right of action upon the bond unless he shall have given written notice to such contractor within one hundred twenty days. . . .
The issue of the amount of reasonable attorneys' fees is referred to a Special Referee to hear and determine.
Upon service of a copy of this Court's order with notice of entry, the Special Referee Clerk shall place this matter on the Part 50R calendar for reference to a Special Referee.
It is well settled that it is the responsibility of the courts to interpret written instruments. ( R/S Associates v. New York Job Dev. Auth., 98 NY2d 29, 32; Matter of Wallace v. 600 Partners Co., 86 NY2d 543, 548; Mallad Construction Corp. v. Federal Savings and Loan Assoc., 32 NY2d 285, 291) The court will analyze the instrument to determine "what is the intention of the parties as derived from the language employed." ( Mallard Construc. Corp. v. Federal Savings and Loan, 32 NY2d at 291) Where the question of intention is determinable by written agreements, the question is one of law, for the courts to decide. However, a question of fact is presented where intent must be determined by disputed evidence or inferences outside the written words of the instrument. ( Mallad Construction Corp. v. Federal Savings and Loan Assoc., 32 NY2d at 291).