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Clearwater Associates Inc. v. Bridge

Decided: October 1, 1976.


Bischoff, Morgan and Collester.

Per Curiam

Plaintiffs Borough of Butler (borough) and Clearwater Associates (Clearwater) appeal from a judgment of involuntary dismissal entered at the conclusion of plaintiffs' case. The underlying suit was brought to enforce the obligation of the defendant surety, Republic Insurance Company, on a performance bond.

Clearwater's predecessor in title, F. H. Bridge & Son, sought to develop residential property within the borough and secured the necessary subdivision approvals for the contemplated work. In compliance with the conditions to the approval, Bridge executed, on October 26, 1966, a performance bond, with defendant as surety and the borough as obligee, in the penal sum of $20,000, conditioned for the construction by Bridge of a number of improvements to the site (such as curbs, streets, sidewalks, water mains and the like), all of which were to be completed within one year of the date of the bond. Because of financial difficulties, Bridge was unable to complete the development or the improvements covered by the bond, and abandoned the project, leaving two partially completed houses, partially completed sewers and curbs and rough graded streets. Neither Bridge, the principal, nor the surety ever completed the improvements despite written requests from the borough to do so.

Thereafter an estimate of the cost of completing the improvements, prepared by the borough's engineer, disclosed that the cost of the improvements had risen to an estimated $55,000, thus requiring the expenditure of $35,000 of municipal funds over the full amount of the bond. Because of the prospective high cost to the borough, any thought of completion of the improvements was rejected.

Nothing was done with respect to the incomplete development until May 16, 1972 when the borough entered into an agreement with Clearwater which had previously acquired the

property in question. In this agreement Clearwater agreed to complete the improvements in return for issuance of certificates of occupancy and building permits. Paragraph 13 of this agreement provided:

Both parties hereto agree to cooperate in efforts to obtain from the Republic Insurance Company, surety on the original performance bond posted by the original developer, full or partial satisfaction of its obligations by reason of the default of the original Developer, it being understood that the Borough's participation may be limited by such applicable law as investigation shall reveal.

Clearwater thereafter completed the improvements and sold 11 of the houses in the development at a profit. Plaintiffs have stipulated that the borough made no payment toward the improvements and that improvements were made and paid for by Clearwater.

At the close of plaintiffs' proofs and on defendant's motions, the trial court, sitting without a jury, entered a judgment of involuntary dismissal on the grounds that the borough's cause of action against the surety on the performance bond was not assignable and hence Clearwater, the purported assignee, acquired no rights under the bond by the agreement of May 16, 1972; Clearwater was not in privity with the surety and hence could assert no claim against it; since the borough made no payments on account of the improvements covered by the bond, it suffered no damage from the bonding company's default, and therefore can recover nothing on the bond.

At trial all parties implicitly conceded the import of the above-quoted provision of the May 16, 1972 agreement as effecting an assignment of the borough's rights under the bond to Clearwater. During oral argument the fact of assignment was expressly conceded by all parties. Hence, despite our doubts as to whether this agreement did constitute an assignment of those rights and because resolution of the issue is not material to the issue posed, we confront the problem posed as if the agreement had its stipulated effect.

Defendant surety contends here, as it did before the trial court, that neither the bond itself nor the statutes prescribing the consequences of a default in the guaranteed performance make provision for the assignability of a municipality's claim on such a bond, and hence the purported assignee thereof lacks standing to enforce the surety's obligation thereon. The performance bond in question was issued in accordance with the Municipal Planning Act. N.J.S.A. 40:55-1.1.*fn1 Before final approval of a subdivision, a governing body may require the installation of certain improvements which it may deem to be necessary or ...

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