The opinion of the court was delivered by: PARKER
1. In 1986, Mount Florence, a New York joint venture, purchased 115.34 acres of land in Peekskill, New York to construct a residential development project called Chapel Hill Estates ("Chapel Hill"). In August 1986, the City Common Council ("Common Council") granted to Mount Florence a Special Use Permit for a Planned Residential Development.
2. On August 11, 1987, the City Planning Commission ("Planning Commission") conditionally granted Mount Florence Final Site Plan Approval for the phase known as Townhouse II, consisting of the development rights to 215 residential townhouse units, as evidenced by a letter from the Planning Commission dated August 31, 1987.
3. One of the conditions of the Site Plan Approval was that Mount Florence obtain a subdivision performance bond, naming the City as obligee, in order to guarantee its obligations to construct public improvements, including recreational facilities. The minimum amount of the bond was set at $ 1,121,000. On May 16, 1989, Continental issued the required subdivision bond in the amount of $ 1,121,000, securing the construction of public improvements at Townhouse II.
4. On June 29, 1989, the City issued a Building Permit to Mount Florence with respect to Townhouse II. The Building Permit expired on June 29, 1990, Mount Florence having failed to construct any improvements at Townhouse II.
5. On February 21, 1990, the Planning Commission granted to Homestead Enterprises, Inc. ("Homestead"), the successor to Mount Florence, an Amended Final Site Plan Approval for Townhouse II, subject to the conditions set forth in letters from the Planning Commission dated February 22, 1990.
6. On May 7, 1990, Mount Florence sold the first section of Townhouse II (II-1), and the related development rights to M.M.E. Power Enterprises, Inc. ("MME"), a subsidiary of Homestead. Both MME and Homestead were controlled by Max Pesach.
7. MME began development of Townhouse II-1 and sold approximately 25 of the 40 units it constructed. MME stopped all activities in March 1993, and in December 1993 filed a petition for protection under Chapter 11 of the Bankruptcy Code.
8. In July 1992, Mount Florence transferred title to the portion of Townhouse II that it still owned to R.I. Waterman Properties, Inc. ("R.I. Waterman"). The deed was recorded on March 4, 1993. R.I. Waterman subsequently transferred the property on April 22, 1994 to Chapel Hill Development Corp. ("Chapel Hill Development"), an entity controlled by Max Pesach.
9. On January 23, 1995, the Common Council adopted a resolution granting Chapel Hill Development an Amended Special Use Permit for a Planned Residential Development of Chapel Hill, which superseded the previous Special Use Permit granted to Mount Florence in August 1986. The Special Use Permit granted to Chapel Hill Development required the developer to construct public improvements for the project, including recreational facilities, and to post Letters of Credit in the amount of $ 320,000 to secure the performance of such obligations.
10. The Letters of Credit posted by Chapel Hill Development were required by the City to remain in full force and effect until the Townhouse II public improvements, as required by the City, were completed.