Surety That Did Not Fully Perform Could Not Succeed to Payment Rights

Mount Vernon City School Dist. v. Nova Cas. Co., 78 A.D.3d 1028, 912 N.Y.S.2d 98 (N.Y. App. Div. Nov. 23, 2010)

In Mount Vernon City School District, the plaintiff school district contracted with the defendant to provide heating, ventilation, and air conditioning work at a middle school.  The defendant secured a performance bond from the defendant surety.  Ultimately, the contractor failed to complete the work, and the surety refused to perform under the bond.  The district sued both the surety and the contractor for breach of contract.  The contractor had requested that payment be sent to the state Department of Labor, to be applied to a claim in another school district, and the surety argued that it should succeed to the contractor’s rights under its contract.

The Appellate Division, Second Department, disagreed, holding that the surety was not a fully paying and performing party, and that therefore it did not succeed to the rights of the payment beneficiaries.  Furthermore, the court held that the district did not breach the payment terms of the performance bond by paying the money over to the Department of Labor on request.  Finally, the court found that the school district was not entitled to attorney’s fees, since nothing in the parties’ agreements provided for such fees.