World Trade Knitting Mills, Inc. v. Lido Knitting Mills, Inc.

154 A.D.2d 99, 551 N.Y.S.2d 930, 1990 N.Y. App. Div. LEXIS 2029

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: February 20, 1990
• Status: Published

Opinions

OPINION OF THE COURT

Balletta, J.

The defendant Lido Knitting Mills, Inc. (hereinafter Lido), of which the defendant Bernard Goldglancz is an officer, operates an apparel manufacturing facility at 694 Metropolitan Avenue in Brooklyn. The defendant Honeywell, Inc. (hereinafter Honeywell) is engaged in the business of installing and servicing burglar and fire alarm systems. Lido and Honeywell executed an "Installation and Service Agreement” on May 30, 1978, whereby Honeywell agreed to install and maintain a "central station fire alarm” at Lido’s manufacturing facility. The alarm was designed to transmit a signal to Honeywell’s monitoring office in the event that Lido’s sprinkler system was activated. However, when, on February 15, 1986, a fire occurred at Lido’s facility, causing extensive damage to the building and its contents, the alarm system failed to function as intended.

The plaintiffs commenced the instant action alleging that they had delivered certain property "consisting of raw materials to be processed into finished goods” to Lido prior to February 15, 1986, and that this property had been damaged as a result of the fire and the activation of the sprinkler system. The complaint set forth four causes of action against Lido and Goldglancz sounding in negligence and gross negligence, and two causes of action against Honeywell sounding in breach of contract. The plaintiffs alleged that they were third-party beneficiaries of the contract between Lido and Honeywell. Lido and Goldglancz cross-claimed against Honeywell for indemnification and contribution.

Honeywell moved for summary judgment dismissing the complaint insofar as it is asserted against it on the grounds that (1) no triable issues of fact exist since it owed no legal duty to plaintiffs, and (2) it was not liable to the plaintiffs or to the codefendants due to the contract’s exculpatory clause, or, alternatively, its liability was limited in any event to $348 according to the limitation of liability provision contained in the contract. In support of the motion, Honeywell claimed that the agreement explicitly negated any intent to confer any contractual rights upon third parties. Hence, Honeywell asserted, the plaintiffs’ cause of action against it should be dismissed as a matter of law since the plaintiffs were merely incidental beneficiaries of the contract. Additionally, Honeywell argued that, even if it owed a legal duty to the plaintiffs, their rights were circumscribed by the contract’s exculpatory clause or, alternatively, by the liability cap provided therein.

The plaintiffs cross-moved for further discovery, and for leave to serve an amended complaint including an allegation of gross negligence by Honeywell. The plaintiffs’ proposed amended complaint would have added a seventh and eighth cause of action against Honeywell alleging, inter alia: "The aforesaid fire and resulting damages to plaintiff [World Trade Knitting Mills, Inc.] were caused solely through the gross negligence of defendant honeywell, in failing to perform its contractual duties and through its recklessness and wilful acts and omissions”. As to their third-party party beneficiary theory, the plaintiffs reiterated their contentions that Honeywell "knew or should have known [they] would rely on [its] representations for fire and sprinkler alarm protection” and claimed that "Honeywell was to perform its services directly for the protection of third party property in the custody of Lido”.

In the order appealed from, Supreme Court, Kings County, denied Honeywell’s motion for summary judgment, without opinion. The court failed to address that branch of the plaintiffs’ cross motion which was for leave to serve an amended complaint.

We would reverse insofar as appealed from, grant Honeywell’s motion for summary judgment, and dismiss the complaint insofar as it asserted against it and dismiss the cross claim as against it. The plaintiffs have not raised any triable issues of fact relative to their purported status as third-party beneficiaries of the Honeywell-Lido agreement, nor have they presented any question as to whether Honeywell committed any affirmative acts of misfeasance to support their proposed tort claims. In any event, it has not been shown that Honeywell’s alleged conduct rose to such a level as to constitute gross negligence; therefore, the plaintiffs’ causes of action against Honeywell and the cross claim against it are barred by the exculpatory clause contained in the contract.

It is well established that summary judgment will only be granted if there are no material and triable issues of fact (see, Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404). Once the moving party has made a prima facie showing of being entitled to summary judgment, the burden shifts to the opposing party to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action (see, Alvarez v Prospect Hosp., 68 NY2d 320, 324). Thus, it is imperative that a plaintiff opposing a defendant’s motion for summary judgment "assemble, lay bare and reveal his proofs, in order to show that the matters set up in his [complaint] are real and are capable of being established upon a trial” (Di Sabato v Soffes, 9 AD2d 297, 301). However, "only the existence of a bona fide issue raised by evidentiary facts and not one based on conclusory or irrelevant allegations will suffice to defeat summary judgment” (Rotuba Extruders v Ceppos, 46 NY2d 223, 231), and mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient (see, Zuckerman v City of New York, 49 NY2d 557, 562).

The plaintiffs and Honeywell’s codefendants have failed to come forth with any evidentiary proof in admissible form which would justify the denial of Honeywell’s motion for summary judgment. At most, they have only set forth conclusory allegations, unsubstantiated assertions, and mere expressions of hope.

First, the plaintiffs’ contentions that they were third-party beneficiaries of the contract between Lido and Honeywell must be rejected. This court has adopted the following principles with respect to the law of third-party beneficiaries: "A third party may sue as a beneficiary on a contract made for his benefit (Lawrence v Fox, 20 NY 268). The intent to benefit a third party must be shown (Port Chester Elec. Constr. Corp. v Atlas, 40 NY2d 652; Beveridge v New York El. R. R. Co., 112 NY 1) and the benefit must not be merely incidental but immediate to such a degree as to indicate the assumption of a duty to make reparation if the benefit is lost (Associated Flour Haulers & Warehousemen v Hoffman, 282 NY 173; Moch Co. v Rensselaer Water Co., 247 NY 160). Absent such intent, the third party is merely an incidental beneficiary with no right to enforce the contract (Port Chester Elec. Constr. Corp. v Atlas, supra; Associated Flour Haulers & Warehousemen v Hoffman, supra; Moch Co. v Rensselaer Water Co., supra; Flemington Nat. Bank & Trust Co. [N. A.] v Domler Leasing Corp., 65 AD2d 29). An incidental beneficiary is a third party who may derive benefit from the performance of a contract though he is neither the promisee nor the one to whom performance is to be rendered (2 Williston, Contracts [3d ed], § 402). While it is not necessary that a third-party beneficiary be identified or even identifiable at the time that the contract is made, he has no right to enforce the contract himself until such time as he is identified (Matter of Associated Teachers of Huntington v Board of Educ., 33 NY2d 229). A party, claiming to be a third-party beneficiary, has the burden of demonstrating that he has an enforceable right (Flemington Nat. Bank & Trust Co. [N. A.] v Domler Leasing Corp., supra)” (Airco Alloys Div. v Niagara Mohawk Power Corp., 76 AD2d 68, 79; see, Strauss v Belle Realty Co., 98 AD2d 424, 426-427, affd 65 NY2d 399; see also, Fourth Ocean Putnam Corp. v Interstate Wrecking Co., 66 NY2d 38, 43-45; Key Intl. Mfg. v Morse/ Diesel, Inc., 142 AD2d 448, 455-457).

The courts, based upon the above-established principles, have consistently dismissed assertions of third-party beneficiary status made by nonparties to contracts for alarm systems (see, e.g, Nieves v Holmes Protection, 56 NY2d 914, 916; Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 149 AD2d 652, lv granted 75 NY2d 702; Northbrook Prop. & Cas. Ins. Co. v D.J.L. Warehouse Corp., 146 AD2d 574; Corporate Leasing v AFA Protective Sys., 101 AD2d 768; cf., Appliance Assocs. v Dyce-Lymen Sprinkler Co., 123 AD2d 512, 513). Security system contractors have not been held liable to injured parties that claim to be third-party beneficiaries of such contracts (see, e.g., Bernal v Pinkerton’s, Inc., 41 NY2d 938, affg 52 AD2d 760; Paradiso v Apex Investigators & Sec. Co., 91 AD2d 929).

In the instant case, Honeywell’s motion was supported by affidavits which established that Honeywell had no intention of conferring a benefit on the plaintiffs, and Mr. Goldglancz, in his affidavit, failed to assert that either he or Lido had any such intent. The wholly conclusory assertion made by Richard Brach, the president of the plaintiff World Trade Knitting Mills, Inc., that the contract was intended for the benefit of his corporation, is without evidentiary value. Furthermore, his assertion that he relied upon the Honeywell contract is belied by his testimony at an examination before trial where he stated that he was unaware of any contract for an alarm system until after the fire. Accordingly, Honeywell has established its entitlement to summary judgment dismissing the plaintiffs’ two causes of action against it sounding in breach of contract (see also, Tuthill v City of Rochester, 32 AD2d 873, affd 27 NY2d 558; Tidy House Paper Prods. v Automatic Fire Alarm Co., 281 App Div 1036).

Moreover, there is nothing in the record which would support the causes of action sounding in negligence asserted against Honeywell in the plaintiffs’ proposed amended complaint. It is well settled that "[t]he courts may examine the sufficiency of the pleadings on a motion to amend to determine if a claim is patently deficient and decide the issue as a threshold matter to avoid the possibility of needless litigation (see, Sharapata v Town of Islip, 82 AD2d 350, 362, affd 56 ; General Motors Acceptance Corp. v Shickler, 96 AD2d 926)” (Fiesel v Nanuet Props. Corp., 125 AD2d 292).

Honeywell’s argument with respect to any potential tort cause of action is founded on its assertion that its alleged conduct constituted only "nonfeasance” rather than "misfeasance”. Since, Honeywell contends, its duty of care was imposed by contract, rather than by law, it should be held immune from tort liability to the plaintiffs pursuant to the general rule that "failure to perform [a contract] at all is a nonfeasance which constitutes no more than a breach of contract actionable only by one in privity of contract” (Hamill v Foster-Lipkins Corp., 41 AD2d 361, 362-363; see also, Rozner v Resolute Paper Prods. Corp., 37 AD2d 396, 398, affd 31 NY2d 934; Rosenbaum v Branster Realty Corp., 276 App Div 167; 1A Warren, Negligence, Actionable Negligence, § 3.05 [1]). There is more than ample support for Honeywell’s position in the case law.

The alleged misconduct of Honeywell includes: (1) failure to notify the New York City Fire Department upon receipt of a signal, (2) failure to respond to the premises upon receipt of an alarm signal, (3) failure to inspect the alarm system, and (4) failure to install the alarm system. Similar conduct has been construed as merely nonfeasance as opposed to misfeasance.

In Eaves Brooks Costume Co. v Y.B.H. Realty Corp. (149 AD2d 652, supra), the plaintiff, which was in the business of renting and selling theatrical costumes, allegedly suffered extensive losses when, as a result of a faulty sprinkler system, a large amount of water was released destroying the costumes it had stored in warehouse of the defendant Y.B.H. Realty Corp. An alarm system, which was supposed to issue a warning when the sprinkler was activated, proved defective and failed to work. The defendants New York Automatic Sprinkler Service Co. and Wells Fargo Alarm Services had entered into contracts with Y.B.H. Realty Corp. to inspect the sprinkler and alarm systems. The plaintiff was not a party to these contracts. This court unanimously held that the defendants New York Automatic Sprinkler Service Co. and Wells Fargo Alarm Services were entitled to summary judgment dismissing the complaint insofar as it is asserted against them, stating: "The appellants’ alleged failure to properly and timely inspect the sprinkler and alarm systems were examples of nonfeasance, not of misfeasance. A plaintiff cannot recover in the absence of privity where an affirmative act of negligence has not been committed (see, Melodee Lane Lingerie Co. v American Dist. Tel. Co., 18 NY2d 57)” (Eaves Brooks Costume Co. v Y.B.H. Realty Corp., supra, at 653).

Just a few months prior to deciding the Eaves Brooks Costume Co. case (supra) this court made a similar decision in a case involving a burglar alarm system. In Northbrook Prop. & Cas. Ins. Co. v D.J.L. Warehouse Corp. (146 AD2d 574, supra), the defendant Holmes Protection, Inc., contracted with the defendant D.J.L. Warehouse Corp. to install and maintain a burglar alarm system. The plaintiff AP Enterprises stored electronic equipment in the warehouse of D.J.L. Warehouse Corp. which was subsequently burglarized. This court affirmed an order granting the motion of Holmes Protection, Inc., for summary judgment dismissing the complaint on the grounds that: "nothing in the contract suggests that the parties intended to confer a direct benefit on the purported third-party beneficiary * * *. Furthermore, there was no duty owing from Holmes to AP. Holmes’s purported dereliction was in the nature of nonfeasance, i.e., the failure to repair the alarm system rather than misfeasance, i.e., negligent performance. Hence, it incurred no liability toward AP, an unintended and incidental beneficiary of the contract” (Northbrook Prop. & Cas. Ins. Co. v D.J.L. Warehouse Corp., supra, at 574-575; see also, Haigler v City of New York, 135 AD2d 362, 363 ["Defendant MAG (the security company) owed no duty to plaintiff (a nonparty to the contract) which would support a claim of tort liability, since its alleged dereliction was in the nature of nonfeasance, i.e., the failure to prevent the injury pursuant to its agreement, rather than misfeasance or negligent performance”]; Appliance Assocs. v Dyce-Lymen Sprinkler Co., 123 AD2d 512, supra [failure of alarm company to receive or to properly respond to the alarm which should have resulted from the activation of the sprinkler system constituted nonfeasance rather than misfeasance]; Corporate Leasing v AFA Protective Sys., 101 AD2d 768, supra [same]; Tidy House Paper Prods. v Automatic Fire Alarm Co., 281 App Div 1036, supra [same]).

The instant case falls squarely within the principles set forth by the above line of cases. Here, Honeywell’s alleged acts of negligent conduct — whether they be a failure to inspect the alarm system, a failure of the alarm to sound when the sprinkler system activated, a failure to respond to the fire alarm, or even an alleged failure to install an alarm system— all constitute nonfeasance rather than misfeasance. Accordingly, Honeywell was not liable to the plaintiffs herein (see also, Steiner Corp. v American Dist. Tel., 106 Idaho 787, 683 P2d 435).

Moreover, any reliance upon the Restatement (Second) of Torts §§ 323 and 324 A, is misplaced. The principle underlying the Restatement position is that when a promisor undertakes to perform a duty assumed in the contract, liability may arise to one not a party to the contract who is injured by the promisor’s failure to perform that duty with reasonable care (see, Rozner v Resolute Paper Prods. Corp., supra). However, in the absence of at least an attempt to perform the contract, there can be no violation of the legal duty (see, Rosenbaum v Branster Realty Corp., supra). The failure to perform constitutes nonfeasance which is no more than a breach of contract actionable only by one in privity of contract (see, Hamill v Foster-Lipkins Corp., supra). In other words, if the promisor does nothing, he cannot be held liable in tort to a third party (see, 1A Warren, Negligence, Actionable Negligence, § 3.05 [1]).

This conclusion was reached in Steiner Corp. v American Dist. Tel. (supra), which held that a complaint asserting that an alarm company had failed to properly perform its duty to inspect and maintain a fire alarm system clearly alleged mere nonfeasance, and the court rejected the argument that the Restatement controlled. It ruled that the complaint failed to state a cause of sounding in the negligent performance of an undertaking to render services because it spoke in terms of a failure to perform the undertaking rather than the negligent performance of the undertaking.

In any case, the contract between Lido and Honeywell contained exculpatory and limitation of liability clauses as well as an indemnification provision. The clauses provided, in part:

"It is understood and agreed by the parties hereto that Contractor is not an insurer * * * [and] that the Contractor is not assuming responsibility for any losses which may occur even if due to Contractor’s negligent performance or failure to perform any obligation under this Agreement * * *

"if, notwithstanding the above provisions, there should arise any liability on the part of the Contractor, such liability shall be limited to an amount equal to one half the annual service charge [$348]

"Subscriber agrees to and shall indemnify and save harmless the Contractor, its employees and agents, for and against all third party claims, lawsuits and losses alleged to be caused by the improper operation of the system, whether due to defects in the system or acts or omissions of the Contractor in receiving and responding, to alarm signals”.

Such clauses in other alarm system contracts have been upheld by the courts. In Antical Chems. v Westinghouse Sec. Sys. (86 AD2d 768), where the court was confronted with a situation very similar to the one before this court, it held that General Obligations Law § 5-323 does not apply to a fire alarm contract since "contracts for installing and maintaining alarm systems are not contracts 'affecting real property’ or for 'services rendered in connection with the construction, maintenance and repair of real property’ ” (Antical Chems. v Westinghouse Sec. Sys., supra, at 769).

Similarly, in Appliance Assocs. v Dyce-Lymen Sprinkler Co. (supra), involving the failure of an alarm to detect a break in a sprinkler system, the court determined that the limitation of liability clause in the alarm system contract was not barred by the analogous provisions of General Obligations Law § 5-322.1 since "such contracts bear no relation to the construction, alteration, repair or maintenance of a building” (Appliance Assocs. v Dyce-Lymen Sprinkler Co., supra, at 513; see also, Failla v A.F.A. Protective Sys., 139 AD2d 693, wherein this court rejected an argument that General Obligations Law § 5-323 prohibited an indemnification clause in a sprinkler and alarm system contract).

The exculpatory clause in Honeywell’s contract with Lido is not violative of General Obligations Law § 5-323, and is binding upon and bars recovery against Honeywell by the plaintiffs and the codefendants (see, 22 NY Jur 2d, Contracts, § 281; Northbrook Prop. & Cas. Ins. Co. v D.J.L. Warehouse Corp., 146 AD2d 574, supra) in the absence of any evidence of gross negligence on the part of Honeywell.

Further, neither the plaintiffs nor the codefendants have come forth with sufficient evidentiary proof to raise a bona fide triable issue of fact as to gross negligence which would defeat Honeywell’s motion for summary judgment. Indeed, after comparing the allegations concerning Honeywell’s failures in this case to allegations in prior similar cases, it is clear that only ordinary negligence and not gross negligence is asserted in this case.

In Advance Burglar Alarm Sys. v D’Auria (110 AD2d 860, 861), the landowner alleged that the alarm company " 'was negligent in failing to provide appropriate repairmen and installation personnel * * * said equipment was negligently installed and maintained and functioning improperly * * * [and the alarm company] was negligent in failing to provide appropriate and timely guard response to the * * * premises’ This court held that these allegations amounted to "only ordinary negligence, thus negating the argument that there is an issue of fact as to whether [the] alleged breaches fall within the ambit of the exculpatory clause” (Advance Burglary Alarm Sys. v D’Auria, supra, at 862-863). It should be noted that the allegations concerning Honeywell herein are very similar.

In Sue & Sam Mfg. Co. v United Protective Alarm Sys. (119 AD2d 664), the failure of the alarm company to install two motion detectors as required by the contract did not constitute gross negligence, and the exculpatory clause was therefore controlling. The failure of a guard responding to an alarm to find anything amiss was deemed to be only ordinary negligence in Feldman Furs v Jewelers Protection Servs. (134 AD2d 171), and in Dubousky & Sons v Honeywell, Inc. (89 AD2d 993). Allegations that an alarm company failed either to receive or to properly respond to an alarm constituted only ordinary negligence in Corporate Leasing v AFA Protective Sys. (supra). Similarly, in Sanif, Inc. v Iannotti (119 AD2d 654), the alleged negligent failure to monitor and report a signal indicating an illegal entry was deemed to be ordinary negligence and the exculpatory clause was enforced (see also, Fireman’s Fund Ins. Co. v Morse Signal Devices, 151 Cal App 3d 681, 198 Cal Rptr 756 [wherein a California appellate court, in an insurer’s action against various alarm companies claiming subrogation to fire and burglary losses sustained by its insureds, determined that the insurer’s allegations that the alarms either failed to send a signal or that the alarm company failed to respond to an alarm were insufficient to state a cause of action sounding in gross negligence which would allow recovery above that provided for in the liquidated damages provision of the alarm contracts]).

The recent case of Gentile v Garden City Alarm Co. (147 AD2d 124), decided by this court, is readily distinguishable since, in opposing the alarm company’s motion for summary judgment, the plaintiffs submitted the affidavits of a security expert who specifically pointed out and explained in technical detail the allegedly grossly negligent manner in which the alarm company had set up the alarm system. Here, the plaintiffs and the codefendants did not present any evidence, other than their own conclusory assertions, that Honeywell was negligent. They have " 'totally failed to present any evidence in admissible form which raises an issue of fact as to whether the defendant’s conduct constituted gross negligence * * * [They] cannot rely on conclusory assertions of gross negligence, contained in the pleadings, to defeat a motion for summary judgment’ ” (Nuri Farhardi, Inc. v Albany Ins. Co., 137 AD2d 429, 431).

Accordingly, in light of all the foregoing, the order appealed from should be reversed insofar as appealed from, the motion for summary judgment dismissing the complaint insofar as it is asserted against Honeywell and the cross claim against Honeywell should be granted, and the action against the remaining defendants should be severed.