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GRANITE COMPUTER LEASING CORP. v. TRAVELERS INDEM.

March 21, 1984

GRANITE COMPUTER LEASING CORP., Plaintiff, against THE TRAVELERS INDEMNITY COMPANY, Defendant.


The opinion of the court was delivered by: MOTLEY

MOTLEY, C.J.

MEMORANDUM OPINION

 This case arose because of problems associated with a construction contract at United Stats Air Force bases. Plaintiff Granite Computer Leasing (Granite) has sued defendant The Travelers' Indemnity Company (Travelers) in diversity for costs incurred by Granite's assignor in financing part of the project. This case is before the court upon cross-motions for summary judgment. Both parties have moved in the alternative, Travelers for a stay pending compliance with a previous court order, and Granite for dismissal of affirmative defenses as well as for leave to amend its complaint.

 On September 28, 1983, the court issued an order granting Travelers' motion for summary judgment dismissing the complaint. This opinion sets forth the reasons for the court's decision. Accordingly, the opinion does not address the alternative relief requested by the parties.

 Background

 Despite the attenuated nature of their relationship, the parties seem willing to concede the simplicity of the facts before the court. *fn1" Granite is the second assignee of a general contractor (the contractor or CST) which contracted with the Army Corps of Engineers to build modular housing at seven Air Force bases. In connection with that project the contractor entered into a supply contract with National Modular Systems (NMS or the principal). Specifically, NMS contracted to manufacture prefabricated housing for three of the seven sites. Travelers issued a surety bond to NMS.

 NMS commenced performance of the supply contract in April 1973. Almost from the beginning, the project encountered difficulty. Design modifications requested by the Corps of Engineers repeatedly delayed performance by the subcontractors. By April 1973, the project had falled approximately 270 days behind schedule. *fn2" Moreover, CST's progress payments to NMS were also behind schedule. *fn3" In May 1974, NMS told CST that the increased costs incurred as a result of delays occasioned by modifications would necessitate additionaly financing. Without such financing, NMS warned that it would have to cease performance. On June 21, NMS actually did close its factory. One week later, CST sent NMS notice to cure this non-performance pursuant to the terms of the supply contract which gave NMS 15 days to cure or be defaulted. *fn4" In an attempt to break this impasse, NMS and CST asked Travelers to finance NMS. Travelers refused to do so. *fn5" CST and NMS subsequently entered into a financing agreement whereby CST financed NMS's continued operation and withdrew the notice to cure. The financing agreement was dated July 8. *fn6"

 NMS thereafter completed performance of the supply contract. The project was completed in July 1976, over two years behind schedule. In May 1978, NMS dissolved its corporate existence.

 Granite sued Travelers to recover the costs resulting from CST's financing agreement with NMS. Granite contends that Travelers, as the surety for NMS, was under an obligation to finance NMS should such financing become necessary. Travelers denies that any liability ever attached from the surety bond.

 Discussion

 Summary judgment may be rendered in favor of a party only upon a showing that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see, e.g., Adickes v. S.H. Kress and Company, 398 U.S. 144, 153, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970). The burden of proving the absence of a material issue of fact rests with the movant. See, e.g., Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444 (2d Cir. 1980). However, if the party opposing the motion "fails to substantiate the existence of a genuine dispute, a proper concern for judicial effeciency and the mandate of Rule 56(c) require summary disposition of the issue." Schering Corporation v. Home Insurance Company, 712 F.2d 4, 9 (2d Cir. 1983). In this case, the court finds that Granite has not substantiated the existence of any genuine dispute as to the threshold issue of whether NMS was ever in default.

 It is well settled that a surety's obligations are limited to those it undertakes in its bond. See, e.g., Estate of Camarda, 103 Misc.2d 362, 364, 425 N.Y.S.2d 1012, 1015 (1980); Robbins v. Melbrook Realty Co., 28 Misc.2d 1076, 1079, 213 N.Y.S.2d 403, 407 (1961). Travelers' bond incorporated the supply contract by reference, and provided:

 if the Principal [NMS] shall indemnify the obligee [contractor] against any loss or damage directly arising by reason of the failure of the Principal [NMS] to faithfully perform said contract, then this obligation shall be void; otherwise to remain in full force and effect. *fn7"

 In short, the bond guaranteed only performance by NMS of the supply contract. The language of the bond does not support a finding that Travelers guaranteed both performance and payment for all bills incurred in performance. See Novak & Co., Inc. v. The Travelers Indemnity Company, 85 Misc.2d 957, 959, 381 N.Y.S.2d 646, 649 (1976), aff'd 56 A.D.2d 418, 392 N.Y.S.2d 901 (1977) (distinguishing performance bond from payment bond); 10 W. Jaeger, Williston on Contracts § 1211B (3d ...


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