Opinion
Argued January 7, 1960
Decided January 21, 1960
Appeal from the Appellate Division of the Supreme Court in the Second Judicial Department, ROBERT DOSCHER, J.
Irwin M. Taylor and Shephard S. Miller for appellant. Harry G. Herman, County Attorney ( Arthur T. Connick of counsel), for respondents.
Plaintiff, a builder and seller of homes in Westchester County, brought this suit against the County Health Department to recover back $10,000 which plaintiff had deposited with the department as a guarantee of performance of plaintiff's December, 1955 agreement with the department to do certain remedial work in connection with surface water drainage and as a guarantee of the septic tank installations on the properties, "against failure of workmanship and construction, for the period of one year of continued normal use". The theory of suit was not that plaintiff's promise had in fact been fully performed but that the doing of the work had been made impossible by the refusal of the purchasers of the houses to let plaintiff enter on their lands. Plaintiff's position is that its covenants, while in form running to the Health Commissioner, were primarily for the benefit of the houseowners and that, since the latter made execution impossible, the collateral fund must be returned to plaintiff. In other words, plaintiff relies on a rule of law that, when a third-party beneficiary refuses to accept the tendered benefits, the promisor is excused from performance (4 Corbin, Contracts, § 811, p. 237). For present purposes we will assume that the rule of Patterson v. Meyerhofer ( 204 N.Y. 96) applies to hindrance by one who is not a party but a third-party beneficiary. The county has successfully defended on the ground that plaintiff was not prevented by the property owners from carrying out its stipulations and that the property owners had never rejected the promised benefits. The Trial Justice sent those questions of fact to the jury and the jury answered them in favor of the defense. We think that the verdict was justified by the proof and that there were no errors at the trial.
The situation which produced the contract in suit came about in late 1955 when defendant Health Commissioner filed, against 76 one-family homes built by plaintiff during the preceding two years, notices of violations consisting of alleged defective drainage and faulty septic tanks. Plaintiff had conveyed some, but not all, of these properties to its customers. There had been many complaints about the working of the surface and sanitary disposal systems. There had been flooding and seepage. It was important to all concerned that these matters be put to rights but, because of winter weather and of the necessity for making plans and surveys, the work could not be done immediately. Plaintiff, however, wished the violations removed so that it could convey good title to the (about a dozen) properties not yet deeded out by it. To protect all interests plaintiff and the Commissioner worked out the agreement sued upon. In substance, the Commissioner agreed to (and did) withdraw the notices of violations, and plaintiff: (1) agreed to have a survey and plan made by a competent engineer as to the surface drainage requirements and to carry out the engineer's recommendations, and (2) guaranteed the septic tank installations "against failure of workmanship and construction" for one year of continued normal use. Plaintiff covenanted to, and did, put up $10,000 as assurance of performance.
Plaintiff hired its engineer and in due course received the latter's report but, despite demands from the Health Department and the owners, never did the corrective work recommended by the engineer. Plaintiff's only excuse for its nonfeasance is that the homeowners refused to allow plaintiff's representatives to come onto their lands for inspection and remedial work. There is nothing in the agreement as to such consents but the necessity thereof must have been apparent to plaintiff. Plainly, it was not the county's obligation to procure those easements. Yet plaintiff — or so the jury could have found — did nothing about it beyond sending out letters to the householders in August or September, 1956, several months after the signing of the agreement. Meanwhile, the residents had become embittered against plaintiff. There was testimony by several homeowners that, after they had many times demanded of plaintiff that their septic tanks be corrected and after plaintiff had made some ineffectual efforts at correction, each owner had the work done at his own expense.
We think the testimony above summarized set up a jury question as to whether plaintiff made reasonable efforts to get the consents and, if so, whether the houseowners by their refusals made performance impossible. The jury's negative answers were justified and we find no errors in the court's charge to the jury. As to the denied request for an instruction that this agreement was for the benefit not of the Commissioner but of the landowners, the court had already clearly described the purpose and meaning of the contract.
There is before us no question as to what ultimate use or disposition is to be made of this fund. That will have to await future developments. Since there were questions of fact on this record as to how much it will cost to do the work, plaintiff was not entitled to the return of any amount.
The judgment should be affirmed, with costs.
I am impelled to disagree with the views and conclusions expressed in the majority opinion. It is true that the notices of violations of the Westchester Sanitary Code had been filed with respect to drainage and septic tank failures on properties developed by plaintiff, but such notices by no means constituted conclusive proof of fault. The Director of Sanitation for the county admitted in his testimony that some of such failures were probably due to improper overloading on the part of the homeowners themselves. It seems rather clear that plaintiff entered into the agreement in question rather than litigate the issue of fault as to the septic tank failures, and also to release the notices of violations for the purpose of selling other properties. It is equally clear that the county, represented by its Director of Sanitation, was willing to adopt the same course.
The agreement executed by the parties provided for certain specific action on the part of plaintiff: (1) to engage a qualified engineer to make an examination of the drainage swale problem and to follow his recommendations in connection therewith; (2) to guarantee septic tank installations for one year of normal use, and, in connection therewith, to follow the findings of the engineer subject to the concurrence of the Director of Sanitation; and (3) to deposit about $10,000 in escrow as a guarantee of performance. Upon the execution of the agreement, the notices of violations were released.
It is conceded that plaintiff engaged a competent engineer to make an examination of the problems involved and suggest corrective procedures. There is proof, and indeed the defendant so admits, that the engineer retained submitted four plans, one of which, "Plan D", was satisfactory to both parties to the agreement. Implicit must have been the understanding of the parties, although not expressed in the agreement, that no corrective action could be undertaken unless the property owners consented, for the obvious reason that any plan would involve a trespass on their properties. While there is some haggling over the matter, the overwhelming weight of the proof is to the effect that plaintiff sent a letter to each property owner outlining the proposed corrective plan and asking for individual consents. Before these letters were sent out the form thereof was submitted to the Director of Sanitation, and he not only approved of the form but suggested a cutoff date. Consents from the property owners were never received and in some instances they were refused.
Plaintiff thereafter sought, by this action, to recover back its deposit of $10,000 on the ground that, since the property owners, as third-party beneficiaries, refused their consent to the proposed corrective plan, it was relieved from its obligations under the agreement because performance was impossible. This is a commonly accepted principle of contractual law as exemplified by citations in the majority opinion, but the trial court refused to charge it clearly and specifically, and hedged it about with the restriction that before applying the rule the jury had to find that the agreement was made solely for the benefit of the property owners. This, in my opinion, was erroneous. It was sufficient for the application of the rule if the jury found that the property owners, as primary beneficiaries, refused consent. I can find no authority which holds that where a third-party beneficiary frustrates the performance of an agreement that the promisee is not bound thereby and the promisor released.
Plaintiff is denied the return of its deposit on the ground that it was a jury question whether it made reasonable efforts to get the consent of the property owners, and, if so, whether the houseowners, by their refusals, made performance impossible. It would seem, of necessity, that the answer to the last issue must be in the affirmative. No one has suggested how the work could be done without the consents of the property owners. As to reasonable effort to get the consents, it is difficult to see what more the plaintiff should or could have done. It submitted "Plan D" approved by the defendant and, having done so, it was not obliged under any direct or implied obligation of the agreement to cajole or persuade the owners to accept it.
The use of letters, with the approval of the Director of Sanitation, for the purpose of obtaining consents was not only proper but eminently desirable since the nature of the corrective work proposed had to be stated with some precision.
As the situation now stands, plaintiff has lost its deposit and has no guarantee whatever that actions may not be taken against it by the property owners, for the county could not bar their rights, if any, by the agreement in question. And, by the same token, plaintiff may be faced with a renewal of charges of sanitary violations, for the power of the defendant to barter off such charges for the sum of $10,000 is dubious indeed.
The order should be reversed and a new trial granted.
Judges DYE, FULD and BURKE concur with Chief Judge DESMOND; Judge FOSTER dissents in an opinion in which Judges FROESSEL and VAN VOORHIS concur.
Judgment affirmed.