author: Jones, J. Chief Judge Cooke

text:
    Guard-Life Corporation, Respondent, v S. Parker Hardware Manufacturing Corp., Appellant.
    Argued February 11, 1980;
    decided May 1, 1980

      POINTS OF COUNSEL

      Leonard H. Moche, Harry A. Gottlieb and Glenn Backer for appellant.
    I. The courts below erred by not dismissing Guard-Life’s claim for interference with the Kokusan agreement, unenforceable by reason of lack of mutuality, where performance of Parker’s March 10, 1969 agreement took place after Guard-Life’s Order No. 1001 terminated and prior to such termination Parker engaged only in lawful acts of persuasion unaccompanied by fraud, coercion or other unlawful acts. (Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285; Wanger v Zeh, 45 Misc 2d 93, 26 AD2d 729; Israel v Wood Dolson Co., 1 NY2d 116; Lamb v Cheney & Son, 227 NY 418; Jennings v Burlington Inds., 19 AD2d 877; Smith v Helbraun, 38 Misc 2d 136; Benton v Kennedy-Van Saun Mfg. & Eng. Corp., 2 AD2d 27; Cushman & Wakefield v John David, Inc., 23 AD2d 827; Winer v Glaser, 3 AD2d 656; P.P.X. Enterprises v Catala, 17 AD2d 808.) II. The courts below committed reversible error as a matter of law by failing to recognize the Japanese arbitration award as a final binding adjudication based upon comity and CPLR article 53 particularly in view of Guard-Life’s admission that under Japanese law the arbitration award has the same effect as a judgment which is final and conclusive between the parties. (Johnston v Compagnie Generale Transatlantique, 242 NY 381; Dunstan v Higgins, 138 NY 70; Ambatielos v Foundation Co., 203 Misc 470; Gilbert v Burnstine, 255 NY 348; von Engelbrechten v Galvanoni & Nevy Bros., 59 Misc 2d 721, 61 Misc 2d 959, 27 NY2d 816; Cowans v Ticonderoga Pulp & Paper Co., 219 App Div 120, 246 NY 603; Island Territory of Curacao v Solitron Devices, 489 F2d 1313, 416 US 986; Matter of Fotochrome, Inc., 377 F Supp 26, affd sub nom. Fotochrome, Inc. v Copal Co., 517 F2d 512; New Cent. Jute Mills Co. v City Trade & Inds., 65 Misc 2d 653.) III. The courts below committed reversible error as a matter of law by failing to award Parker complete summary judgment by applying collateral estoppel against Guard-Life on the ground that in the Japanese arbitration which Guard-Life initiated and where it had a full opportunity to prove its claims, the arbitrators resolved the issue of Parker’s alleged interference with the exclusive dealing aspects of the Kokusan agreement against Guard-Life by denying Guard-Life’s claim for damages for such alleged breach. (Vavolizza v Krieger, 39 AD2d 446, 33 NY2d 351; Hinchey v Sellers, 7 NY2d 287; The Evergreens v Nunan, 141 F2d 927, cert den sub nom. The Evergreens v Commissioner of Internal Revenue, 323 US 720; American Ins. Co. [Messinger— Aetna Cas. & Sur. Co.], 43 NY2d 184; Schwartz v Public Administrator of County of Bronx, 24 NY2d 65.) IV. The courts below committed reversible error as a matter of law by failing to award Parker partial summary judgment limiting Guard-Life’s recovery to $75,529, the breach of contract damages awarded by the Japanese arbitrators, because in this jurisdiction damages for interference with a contract cannot exceed breach of contract damages. (Amaducci v Metropolitan Opera Assn., 33 AD2d 542; Lurie v New Amsterdam Cas. Co., 270 NY 379; Canales v Stuyvesant Ins. Co., 10 Misc 2d 583; Anthony v George T. Bye, Inc., 243 App Div 390.)

      Milton W. Levy and Arnold Bennett Glenn for respondent.
    I. Plaintiff’s answering papers present triable issues of fact which preclude the grant of summary judgment. (Campbell v Gates, 236 NY 457; Lamb v Cheney & Son, 227 NY 418; Hornstein v Podwitz, 254 NY 443; Gonzales v Kentucky Derby Co., 197 App Div 277, affd sub nom. Gonzales v Reichenthaler, 233 NY 607; Gold Medal Farms v Rutland County Co-op. Creamery, 9 AD2d 473; State Enterprises v Southridge Coop. Section 1, 18 AD2d 226; Black v Marcus Loew Booking

      Agency, 265 App Div 930; Concert House v Brandt, 36 AD2d 172; Hillsley v State Bank of Albany, 17 AD2d 686; Simon v Noma Elec. Corp., 293 NY 171.) II. The courts below did not err with respect to the recognition of the Japanese arbitration award as a final and binding adjudication between plaintiff and Kokusan, the parties thereto. III. Plaintiff should not be estopped from litigating the issue of defendant’s interference with plaintiff’s agreement with Kokusan. (Rembrandt Inds. v Hodges Int., 38 NY2d 502; Schwartz v Public Administrator of County of Bronx, 24 NY2d 65.)
   OPINION OF THE COURT

Jones, J.

As a general rule, if no improper means have been employed, a competitor may not be held liable for intentional interference with a contract that is unenforceable for lack of mutuality.

In January, 1968 plaintiff Guard-Life Corporation entered into a contract with Kokusan, a Japanese manufacturer of locks, which provided that Guard-Life would be Kokusan’s exclusive distributor in the United States and Canada with respect to locks described in a schedule attached to the contract, production samples of which were to be subject to prior approval by Guard-Life. The contract had a stated term of five years and was thereafter "automatically [to] continue in force indefinitely” subject to the right of either party to terminate on one year’s prior written notice. Guard-Life immediately placed an order (No. 1001) with Kokusan for 12 monthly shipments of Segal and National Type Locks, with shipment to begin on Guard-Life’s approval of production samples. That approval was given on June 27, 1968, thus fixing the term of Order No. 1001 to expire on June 27, 1969. Order No. 1001 proved to be the only order ever to be placed by Guard-Life under its 1968 contract with Kokusan.

In the fall of 1968 defendant S. Parker Hardware Manufacturing Corp., a competitor of Guard-Life in the importation and wholesale distribution of various kinds of locks, initiated conversations with Katsura Company, Inc., of Japan, to establish a business relationship. (Solely for the purpose of the motion that is the subject of the present appeal, Parker accepts Guard-Life’s contention that Parker’s transactions with Katsura were the equivalent of doing business with Kokusan.) Parker was informed that Guard-Life’s contract with Kokusan would continue in effect until June, 1969 but that Kokusan did not intend to continue it thereafter and that it would cease supplying locks under that contract "to prove our faith to you”. Parker’s negotiations with Katsura resulted in the execution of a formal agreement between them, dated March 10, 1969, providing that Katsura would supply front door locks to Parker exclusively in accordance with conditions to be specified in Parker’s orders. Two orders had already been placed by Parker on January 7, 1969, which included locks of the type included in Guard-Life’s Order No. 1001, each requesting the prior submission of production samples to Parker for approval before manufacture. Parker’s approval was not given until July, 1969 and delivery was not made to Parker until September, 1969.

Deliveries to Guard-Life by Kokusan under Order No. 1001 ceased in April, 1969. In September, 1969 Guard-Life instituted an arbitration proceeding against Kokusan in Japan which ultimately culminated in an award dated November 30, 1976. The arbitrators awarded Guard-Life damages of $75,529 plus interest, representing lost profits, for nondelivery by Kokusan of locks under Order No. 1001. No relief was granted, however, on Guard-Life’s claim for alleged breach of the exclusive distributorship provisions of the 1968 contract, and the arbitrators further determined that the 1968 contract was not binding beyond Order No. 1001 because the parties had "an option of mutual cancellations” after the expiration of the term of that order on June 27, 1969. The motion papers do not disclose what part, if any, of the award has been collected by Guard-Life.

Guard-Life served the amended complaint in the present action against Parker in 1977, for willful interference by Parker with the 1968 contract between Guard-Life and Kokusan. After answer, Parker moved by order to show cause for a stay of trial and for complete and partial summary judgment. Supreme Court denied Parker’s motion and on reargument adhered to its decision. The Appellate Division modified to the extent of granting partial summary judgment dismissing Guard-Life’s claim for punitive damages (an issue not before us on this appeal) and as so modified affirmed the disposition of Supreme Court. It thereafter denied a motion for reargument but granted Parker leave to appeal to our court on a certified question as to the propriety of its order of modification. We now modify further to the extent of directing dismissal of all Guard-Life’s claims against Parker, except that for alleged tortious interference with Kokusan’s performance under Order No. 1001.

Two closely related issues are posed on this appeal: May Parker be held liable to Guard-Life, on the theory of tortious interference with contract rights, first, for having induced Kokusan to cease deliveries on Order No. 1001 in April, 1969 (for which Kokusan was held liable to Guard-Life in the Japanese arbitration proceeding), and, second, for inducing Kokusan thereafter to terminate all contract relations with Guard-Life under their 1968 contract (for which Kokusan was not held liable to Guard-Life in the arbitration proceeding)? We conclude that, on the papers submitted on Parker’s motion for summary judgment, it is not entitled to a dismissal with respect to the alleged interference with Order No. 1001, but that it is entitled to summary judgment with respect to all other claims based on alleged interference with the 1968 contract (CPLR 3212, subd [e]). Additionally, an order should be entered limiting any recovery by Guard-Life to no more than $75,529.

Before proceeding to evaluation of the proof tendered on the motion for summary judgment, it is necessary to state the law applicable to the disposition of Guard-Life’s claims. With respect to the tort of interference with contract relations, it has been aptly said that "the law in this area has not fully congealed but is still in a formative stage” (Restatement, Torts 2d, ch 37, Introductory Note, p 5). That jurisdictions, and even courts within a single jurisdiction, have taken different views with respect to liability for interference with contract performance is demonstrated by the collection of cases appearing in a recent annotation treating only one aspect of the subject, interference with an invalid contract (Ann., 96 ALR3d 1294).

The American Law Institute in the Restatement of the Law of Torts 2d, adopted May, 1977, has stated the fundamental principle: "One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.” (§ 766.) The keystone of the statement is the adverb "improperly” — a term selected in preference to the phrase "without justification” appearing frequently in judicial decisions and giving rise to questions of burden of proof — the definition of which is inconstant and mutable, drawing its substance from the circumstances of the particular situation at hand. Section 767 of the Restatement sets out several factors for consideration in determining whether an intentional interference with a contract is "improper”, accompanied by the observation that "[t]he issue in each case is whether the interference is improper or not under the circumstances; whether, upon a consideration of the relative significance of the factors involved, the conduct should be permitted without liability, despite its effect of harm to another. The decision therefore depends upon a judgment and choice of values in each situation” (Comment b). Included among the factors to be considered are the nature of the conduct of the person who interferes (a chief factor in determining whether conduct is improper), the interest of the party being interfered with (whether in an enforceable contract or in a contract voidable and thus unenforceable or terminable at will), and the relationship between the parties.

Where the party claiming injury and the party charged with interference are business competitors — as are the parties to this action — there is presented a frequently encountered, particularized occasion for the application of the general principles as to liability for tortious interference with contract performance. Generalizations must be refined in this context to achieve a balancing of the protection of the interests of the one party in future enjoyment of contract performance and society’s interest in respect for the integrity of contractual relationships, on the one hand, and, on the other, the right to freedom of action on the part of the party interfering and society’s concern that competition not be unduly hampered. The Restatement in section 768 undertakes to articulate this balance. It differentiates between interference with an éxisting contract and interference with a prospective contractual relation (§ 768, Comment a). Although his status as a competitor does not protect the interferer from the consequences of his interference with an existing contract, it may excuse him from the consequences of interference with prospective contractual relationships, where the interference is intended at least in part to advance the competing interest of the interferer, no unlawful restraint of trade is effected, and the means employed are not wrongful. "Wrongful means” include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone although it is knowingly directed at interference with the contract (op. cit., § 768, Comment e; § 767, Comment c). The distinction thus made between the possible liability of a competitor for interference with performance of an existing contract and the more demanding requirements to establish liability for interference with prospective contractual relations reflects a recognition of the difference in the two situations in the relationship of the parties and in the substance and quality of their resulting interests; greater protection is accorded an interest in an existing contract (as to which respect for individual contract rights outweighs the public benefit to be derived from unfettered competition) than to the less substantive, more speculative interest in a prospective relationship (as to which liability will be imposed only on proof of more culpable conduct on the part of the interferer).

Critical to the determination of the second of the two issues in this case is whether a contract which is voidable for lack of mutuality is to be classified in the category of an existing contract or in that of a prospective contractual relation only. The Restatement (§ 768) expressly places a contract terminable at will in the latter category. Although the similarity between voidable contracts and contracts terminable at will is elsewhere noted, no explicit reference is made in section 768 to voidable contracts. It may be inferred that the reporter thought to classify voidable contracts with existing contracts or perhaps that voidable contracts were not to be classified at all for purposes of this section. For our part, however, we are persuaded that interference with performance of voidable contracts should be treated the same as interference with contracts terminable at will for purposes of imposing liability in tort, and that both fall in the same category with interference with prospective contractual relations. For present purposes there are only superficial distinctions between the rights and interests under contracts terminable at will and voidable contracts of the parties who claim to have been injured by the interference of the alleged tort-feasor. In both instances the contract will continue to be operational until action on the part of the other contracting party brings it to a halt, and in both instances the other party at his election may bring it abruptly to a halt, by termination in the one instance and by avoidance in the other.

It is not sufficient, we suggest, to make the result hinge on the subjective expectation or state of mind of the parties, as the dissenters appear to think appropriate. They would distinguish between contracts which are terminable at will and those which are voidable. The internalized expectation of the party seeking to recover for an alleged tort, however, may well be the same whichever the form of the contract. Thus, under a contract in form terminable at will, other factors may give reliable assurance that there will likely be no exercise of the right of termination, accordingly fostering an expectation of future relations — a consequence the dissenters would ascribe to voidable contracts. By similar token, although their contract contains no right of termination, one party to a contract may be aware, as the result of legal advice or otherwise, that his contracting partner has an equivalent right to escape the obligation to perform because the contract is voidable, thus undermining any expectation of continuity— a consequence attributable by the dissent to a contract terminable at will.

Nor, although the dissenters appear to suggest otherwise, should the state of mind of the interfering tort-feasor be determinative. While it must be established, as a threshold predicate for any claim of tortious interference, that the alleged tort-feasor knew that his competitor had a contract with the third party, as a practical matter he will usually be totally unaware of, and customarily indifferent to, the legal particulars of that contract (as distinguished, perhaps, from its economic or operational aspects). He will seldom if ever know whether the third party has a right to terminate or is entitled to avoid the contract. To the extent that ethical considerations are urged by the dissenters as having a bearing, we perceive no difference in the ethical culpability, if any there be, of the uninformed, intentional interferer, whether it later turns out that the contract he interfered with was terminable at will, voidable, or indeed unquestionably enforceable. Yet the dissenters would deny relief in the first instance (absent fraud or other misconduct) but grant it in the latter two.

In sum, the imposition of liability for intentional interference with performance of a contract to which the competitor is a party must depend on the worth and significance of the objective interest to be protected. The actual, legal interest under a contract which may be avoided by the other contracting party at his election is not materially different from that under a contract which the other contracting party may terminate at will. In both instances the party seeking to impose liability enjoys no legally enforceable right to performance; his interest is a mere expectancy — a hope of future contractual relations. Consequently, there having been no trespass or invasion of a substantial legal interest, there is no liability for interference with performance of a competitor’s voidable contract absent employment of wrongful means, unlawful restraint of trade, or lack of competitive motive.

The principles embodied and the precepts set out in the Restatement and delineated above commend themselves in this developing area of the law and, in large measure, reflect prior case decisions in this jurisdiction. Thus, in Hornstein v Podwitz (254 NY 443) — a case involving a contract neither voidable nor terminable at will — this court upheld a verdict for plaintiff in an action for inducement of breach of the contract on proof of the existence of a valid contract, defendant’s intentional interference with performance and consequential damages suffered by plaintiff, a party to the contract. With respect to a contract for a definite term, persuasion to breach alone, as by an offer of better terms (Gold Medal Farms v Rutland County Co-op. Creamery, 9 AD2d 473), has been sufficient to impose liability on one who thereby interferes with performance (Gonzales v Reichenthaler, 233 NY 607).

Where contracts terminable at will have been involved, we have upheld complaints and recoveries in actions seeking damages for interference when the alleged means employed by the one interfering were wrongful, as consisting of fraudulent representations (Rice v Manley, 66 NY 82), or threats (Lurie v New Amsterdam Cas. Co., 270 NY 379) or as in violation of a duty of fidelity owed to the plaintiff by the defendant by reason of a relation of confidence existing between them -(A. S. Rampell, Inc. v Hyster Co., 3 NY2d 369; Duane Jones Co. v Burke, 306 NY 172). Absent some such misconduct, no liability has resulted to one whose actions have induced nonperformance of a contract deemed to be voidable and thus unenforceable (Livoti v Elston, 52 AD2d 444).

Against this background of the applicable principles of law, we proceed to consideration of Guard-Life’s claims in this case.

From the several extended affidavits and documentary proof submitted on the motion for summary judgment, Guard-Life has demonstrated that Kokusan ceased deliveries in April, 1969, prior to completion of its performance under Order No. 1001. It also appears undisputed that Parker, through Katsura, began communications with Kokusan as early as the fall of 1968 looking to its replacement of Guard-Life at least in part as Kokusan’s exclusive dealer in the United States and Canada. There is documentary and other evidence that Parker knew of Guard-Life’s 1968 contract with Kokusan. It is true that Katsura by letter dated January 18, 1969 stated that that contract "will last until the end of June this year” and that the seller was willing to terminate it on that occasion and had no intention to "renew” the contract. It is also true however that in that same letter it stated that it was going to cease supplying under that contract to demonstrate its faith to Parker. On March 10, 1969 a contract was entered into with Parker, granting Parker a worldwide exclusive distributorship, the contract to be "for a period of ten years from the date hereof’, although deliveries were not to be made under the agreement until approval of production samples by Parker which did not occur until after the expiration of the one-year term of Order No. 1001. The record further discloses other communications between Parker and Katsura and Kokusan prior to the cessation by Kokusan of performance of its obligations under Order No. 1001 in April, 1969 and prior to the expiration of the 12-month period from June, 1968 fixed for delivery of merchandise included in that order. What significance is properly to be ascribed to these transactions and what inferences are to be drawn as to the part, if any, that they played in Kokusan’s decision not to complete its obligations under Order No. 1001 involve factual determinations appropriately to be made after trial (Restatement, Torts 2d, § 766, Comment o). The fact, so heavily relied on by Parker, that performance under its contract with Katsura did not occur until after expiration of the delivery period under Order No. 1001 does not preclude a finding that Parker’s conduct from the fall of 1968 through the spring of 1969 bore a causal relationship to Kokusan’s default under Order No. 1001. Guard-Life’s submission is adequate to require a trial of material issues of fact insofar as it claims tortious interference with that order and thus to defeat Parker’s motion for summary judgment as to that aspect of the litigation.

The situation is otherwise, however, with respect to Guard-Life’s claim based on alleged tortious interference by Parker in inducing Kokusan to abandon all performance under the 1968 contract after expiration of the term of Order No. 1001. The legal status of Order No. 1001 and that of the 1968 contract for the remainder of the five-year term alluded to in the agreement are significantly and critically different. While the former was an enforceable contract for a definite term, the remainder of the 1968 contract was held to be unenforceable for lack of mutuality in the Japanese arbitration proceeding. Under familiar principles of issue preclusion, or collateral estoppel, Guard-Life is now bound by that determination. It did, as it could, agree to resolution of disputes arising under the contract by arbitration in Japan (Gilbert v Burnstine, 255 NY 348); it fully participated in the arbitration proceeding and there litigated, unsuccessfully, its claim of nonperformance by Kokusan of a continuing obligation (beyond the obligation of delivery under Order No. 1001) under the contract; no assertion is now made that it was restricted or handicapped in presentation of its position, and it has formally admitted that the Japanese award has the effect of a judgment which is final and conclusive between the parties. In these circumstances, Guard-Life is bound by the arbitrators’ determination as to unenforceability of the 1968 contract generally (Schwartz v Public Administrator of County of Bronx, 24 NY2d 65; cf. Matter of American Ins. Co. [Mes-singer — Aetna Cas. & Sur. Co.], 43 NY2d 184).

Moreover, inasmuch as the alleged interference on this branch of the case was with respect to an unenforceable contract, there is no liability in tort unless the means employed to effect the interference was wrongful; mere knowing persuasion would not be sufficient. The evidence tendered by Guard-Life has been described in detail above. There was no proof tendered of any wrongful means — persuasion and offer of better terms, yes; fraud, misrepresentation, threats, other wrongful conduct, no. In sum, Guard-Life has made no submission sufficient to defeat Parker’s motion for summary judgment with respect to alleged interference with the 1968 contract when Order No. 1001 is disregarded.

Finally, defendant Parker requests that it be granted partial summary judgment "limiting plaintiff’s monetary claim against defendant”. It contends that if plaintiff recovers at all its recovery should be limited either to $37,284, the amount of lost profits found by the arbitrators to have been sustained by reason of defendant’s actual purchases of front door locks of the type covered by plaintiff’s agreement with Kokusan, or to $75,529, the total lost profits found by the arbitrators to have been sustained by plaintiff by reason of Kokusan’s failure to fulfill Order No. 1001.

There is no merit to the claim that recovery should be limited to the first figure tendered, for if it should be determined on the trial of the action that defendant improperly interfered with Kokusan’s performance with respect to Order No. 1001 then Guard-Life will be entitled not simply to lost profits attributable to the type of locks purchased by defendant Parker but to the full pecuniary loss of the benefits of the contract with which Parker interfered (Restatement, Torts 2d, § 774A, subd [1], par [a]). What other damages, if any, might be recovered in an action of this nature we are not here required to determine, inasmuch as Guard-Life, by its bill of particulars, has limited its claim only to lost profits resulting from Parker’s alleged interference. Because the determination by the arbitrators that with respect to Order No. 1001 those profits amounted to $75,529 is conclusive on Guard-Life — though of course not on Parker, a stranger to the arbitration process — it necessarily follows that an award to it on the trial of the action may not exceed that figure. While a holding to the effect that a verdict may not be more than a stated amount does not lend itself to the form of an award of judgment on this motion for summary judgment, it may properly be included in an order aiding in the disposition of the action as authorized by CPLR 3212 (subd [g]).

For the reasons stated, the order of the Appellate Division should be modified, with costs, to the extent of remitting the case to Supreme Court, New York County, with directions to grant Parker’s motion for summary judgment dismissing the complaint except with respect to Guard-Life’s claim of tortious interference with Kokusan’s performance under Order No. 1001 and to order that damages awarded to Guard-Life on that claim may not exceed $75,529, and as so modified, affirmed.

Chief Judge Cooke

(dissenting in part). I dissent in part and vote that the order of the Appellate Division be affirmed.

It is agreed that summary judgment should be denied to plaintiff in respect to the claim of tortious interference with the order for locks, denominated as "Order No. 1001”.

Issue, however, is taken with that portion of the majority’s determination which grants summary judgment to defendant dismissing that part of the complaint relating to claims of tortious interference in respect to the underlying 1968 contract (apart from said numbered order). It is agreed that if that contract, granting Guard-Life an exclusive distributorship, was terminable at will, defendant’s competitive interference would be justified (Restatement, Torts 2d, § 768; accord, e.g., Terry v Dairymen’s League Co-Op. Assn., 2 AD2d 494, 500-501). The fact, however, is that the contract, though voidable, was for a definite term and prior to defendant’s interference was being performed by the parties. It was not terminable at will. Being such a contract, the rules governing tortious interference with voidable contracts should be applied here. The majority’s failure to apply said rules is the touchstone from which this dissent springs.

It is undisputable that where an agreement is terminable at will, a competitor of one of the parties is free to use proper and legal means to induce termination (e.g., Terry v Dairymen’s League Co-Op. Assn., 2 AD2d 494, supra; Restatement, Torts 2d, § 768; Prosser, Torts [4th ed], § 129, at p 946). This privilege of competition exists because the contracting parties have no contractual right to have their "relation continued, but only an expectancy” (Prosser, at p 946). Such an expectancy of future relations has, from early common-law days, always been subject to competitive interference (see, e.g., Mogul S. S. Co. v McGregor, Gow & Co., 23 QBD 598, affd [1892] AC 25).

But, for present purposes, a voidable contract with a prescribed duration simply is not akin to a contract terminable at will. Indeed, the Restatement of Torts Second, heavily relied upon by the majority, treats the two types of agreements differently. According to the Restatement, "the fact that the contract is terminable at will * * * is a factor to be considered in some cases in determining whether the defendant is free to interfere (see § 768, Comment j)” (Restatement, Torts 2d, § 766, Comment g [Tent Draft No. 23]; emphasis added). With respect to voidable contracts, however, the Restatement provides that the existence of a formal defect does not justify interference "with performance of the contract before it is avoided” (Restatement, Torts 2d, § 766, Comment f). Moreover, section 768 of the Restatement, which deals with the privilege of competition, expressly states that competition provides no justification for interfering with an agreement, "if the contract is not terminable at will” (Restatement, Torts 2d, § 768, subd [2]).

There are sound reasons supporting the distinction drawn by the drafters of the Restatement. Significantly, the expectations of the parties to a voidable contract, which is for a prescribed duration, differ substantially from the expectations of parties to a terminable at will agreement. The latter are usually aware, when they enter into the contract, that their relationship is to continue only so long as is mutually agreeable, and hence will refrain from relying on the agreement in planning future transactions. Parties to a voidable contract, on the other hand, believe that they have established a relationship which will span a period of time and may order their future conduct accordingly. Indeed, since the formal defect which renders the agreement voidable — such as a failure to comply with the Statute of Frauds or technical rules relating to mutuality — often does not surface except as a post hoc defense to an action for breach, the fact that the agreement is voidable is of little practical significance. From a pragmatic standpoint, then, parties to such a voidable contract are in a situation akin to parties to an enforceable agreement with a fixed duration.

Moreover, the nature of the conduct of one who interferes with a voidable contract does not differ from that of the person who interferes with an enforceable contract. In both cases, the wrongdoer is aware of the existing contractual relation, and chooses to intentionally interfere with it. In both cases, the contracting parties are performing their agreement, and expect the relationship to continue for a set period of time. And, in both cases the wrongdoer has violated "the ethical precept that one competitor must keep his hands off of the contracts of another” (Prosser, Torts [4th ed], § 129, p 945).

In fact, it is this ethical precept which, at bottom, is the raison d’etre of the law of interference with contractual relations. If society were interested only in fostering economic competition, the tort of contractual interference would never have developed. Rather, the law would have allowed business entities to engage in unfettered competition, and relegated injured parties to a breach of contract action. But this is not the path that has been followed.

Instead, the law has decided, long ago, that enforcement of certain market morals is a societal interest worthy of protection. When these fundamental precepts are violated, the law provides a remedy. And the remedy, in form a tort action, exceeds that which would be available in a contract action. One who induces a breach of contract is liable, not just for contractual damages, but for all damages legally caused by the wrong (Restatement, Torts 2d, § 774A, Comment c; majority opn, at p 197, n 6). The form of the action and the measure of damages signals that more than economic interests are being protected. Contrary to the majority opinion, then, the interests involved here are not solely protection of contract rights versus freedom to compete. Rather, society’s weighty interest in insuring a minimum level of ethical behavior in the marketplace is directly implicated.

It becomes clear why voidable contracts must be distinguished from contracts terminable at will. When a competitor induces termination of a contract terminable at will, he commits no ethical violation, and does not produce a result contrary to the expectations of the parties. In such a situation, there is no basis for prohibiting competitive interference. By contrast, where a competitor induces a breach of a voidable contract, which was being performed and which was for a designated period, he not only violates an important ethical precept himself, but he induces the contracting party to abandon his ethical obligation to carry out the promise contained in the technically unenforceable agreement. In addition, since the parties did not intend to create a voidable contract, and were likely unaware qf the defect, the interferer has upset their expectaticns.

Finally, the majerity’s suggesticn that neither the subjective expectations of the contracting parties nor the state of mind of the interferer are relevant factors is noted. It is precisely those factors which must be balanced in determining liability for interference with economic relations. As the Restatement puts it, "the plaintiffs interest in his contractual rights and expectancies must be weighed * * * against the defendant’s interest in freedom of action”. And, "the nature of [the interferer’s] conduct is an important factor” (Restatement, Torts 2d, § 766, Comment c). Indeed, the subjective expectancies of the contracting party are a major reason for permitting competitive interference with contracts at will, while not allowing it when a durational contract exists. In the latter instance, "the greater definiteness of the [contracting party’s] expectancy and [the] stronger claim to security for it” justify legal protection against interference (Restatement, Torts 2d, § 767, Comment e). In short, the subjective expectations of persons who enter into a contract are important considerations when evaluating whether a third party is free to interfere with the ongoing contractual relationship. A view that would make liability turn upon the circumstance that the contract might be voidable — without regard to the interests involved — would exalt form over substance.

To uphold contracting parties expectations, and to protect the society’s interest in assuring a level of market morality, I would adopt the formulation of the Restatement, and hold that the privilege of competition only justifies interference with an at will and not a voidable contract.

Contrary to the implication of the majority, then, the wrongfulness of the act of the interferer in respect to a voidable contract need not rise above "intentional interference, without justification”, with the contractual rights of another, with knowledge of the contract (see, e.g., Campbell v Gates, 236 NY 457, 460). Accordingly, Guard-Life need only show that defendant intentionally interfered with its contractual rights, without justification and with knowledge of the contract to make out a cause of action. Having produced ample evidence in substantiation, but there being a true factual question as to the intentional interference, summary judgment should be denied in this respect.

Accordingly, affirmance is in order.

Judges Jasen, Wachtler and Meyer concur with Judge Jones; Chief Judge Cooke dissents in part and votes to affirm in a separate opinion in which Judges Gabrielli and Fuchs-berg concur.

Order modified, with costs to defendant, and the case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed. Question certified answered in the negative.

      . The Restatement recognizes that these two types of contracts present similar situations. In each there is a valid and subsisting relation until opposition to enforcement is raised or termination is effected (Restatement, Torts 2d, § 766, Comments f, g).

      . Other factors include the motive and interests sought to be advanced by the one who interferes, the social interests in protecting the freedom of action of that person as well as the contractual interests of the party interfered with, and the proximity or remoteness to the interference of the conduct complained of.

      . Section 768 of Restatement, Torts 2d, provides:
      "§ 768 Competition as Proper or Improper Interference
      "(1) One who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other’s relation if "(a) The relation concerns a matter involved in the competition between the actor and the other and
      "(b) the actor does not employ wrongful means and
      "(c) his action does not create or continue an unlawful restraint of trade and "(d) his purpose is at least in part to advance his interest in competing with the other.
      "(2) The fact that one is a competitor of another for the business of a third person does not prevent his causing a breach of an existing contract with the other from being an improper interference if the contract is not terminable at will.”

      . See footnote 1, supra. To describe these contracts as "existing” in the sense that they are conceptually in esse and form the predicate for enforceable obligations unless and until terminated or avoided does not advance our present analysis. In this sense contracts terminable at will and contracts which are voidable at the election of the party concerned are indistinguishable. The Comments of the Restatement with respect to contracts terminable at will would appear to be equally applicable to voidable contracts: "If the third person is free to terminate his contractual relation with the plaintiff when he chooses, there is still a subsisting contract relation; but any interference with it that induces its termination is primarily an interference with the future relation between the parties, and the plaintiff has no legal assurance of them. As for the future hopes he has no legal right but only an expectancy; and when the contract is terminated by the choice of the third person there is no breach of it. The competitor is therefore free, for his own competitive advantage, to obtain the future benefits for himself by causing the termination. Thus he may offer better contract terms, as by offering an employee of the plaintiff more money to work for him or by offering a seller higher prices for goods, and he may make use of persuasion or other suitable means, all without liability.” (Op. tit., § 768, Comment i.)

      . There is no suggestion that any of the other bases for liability as to an unenforceable contract set out in section 768 of the Restatement of Torts 2d — the relation concerns a matter not within the competition between the parties, the action complained of creates or continues an unlawful restraint of trade, or the purpose of the interference is other than to advance the competitive interest of the one interfering with performance of the contract — is applicable in the present case.

      . On principle, the injured party in the action against the other contracting party for breach of contract would be limited to the elements of damage recoverable in a contract action. In an action against the third party for tortious interference, however, the elements of damages, including consequential damages, would be those recognized under the more liberal rules applicable to tort actions (Restatement, Torts 2d, § 774A, Comment c).

      . Guard-Life concedes its willingness to give credit to Parker for whatever has been paid by Kokusan in satisfaction of the arbitration award. Whether Parker will assert any claim for additional credit for funds it may contend could have been collected by Guard-Life by recourse to reasonable collection methods remains to be seen when the action is tried.

       The contract was found to lack mutuality in a Japanese arbitration proceeding and plaintiff Guard-Life is bound by that determination. A contract may be voidable because of lack of mutuality (Restatement, Torts 2d, § 766, Comment f). The question whether the contract would be enforceable in New York need not be reached (see Prosser, Torts [4th ed], § 129, p 932).


source: Caselaw Access Project

author: Jones, J.

license: Public Domain

text:
    The People of the State of New York, Appellant, v Lawrence D. Chesler, Respondent. The People of the State of New York, Appellant, v Lawrence D. Chesler, Respondent.
    (Appeal No. 1.)
    (Appeal No. 2.)
    Argued March 24, 1980;
    decided May 1, 1980

      POINTS OF COUNSEL

      Ralph W. Smith, Jr., Acting Deputy Attorney-General, Statewide Organized Crime Task Force (John P. Mansour of counsel), for appellant.
    I. Respondent’s defense that he believed his disbursements of trust funds were for the repayment of advances under subdivision 2 of section 79-a of the Lien Law was an affirmative defense. (Century Ind. Co. v Bank of Gowanda, 263 App Div 1068; Gramatan-Sullivan, Inc. v Koslow, 143 F Supp 641, 240 F2d 523; People v Laietta, 30 NY2d 68; People v Strong, 47 AD2d 798; People v Bornholdt, 33 NY2d 75.) II. The indictments should be remanded for a new trial.

      Herald Price Fahringer and Barbara Davies Eberl for respondent.
    I. The court below holding that payments made in good faith by a trustee to creditors was an ordinary defense— rather than an affirmative defense — is manifestly correct and should be affirmed. (Patterson v New York, 432 US 197; Mullaney v Wilbur, 421 US 684; Matter of Winship, 397 US 358; People v Reyes, 63 AD2d 917; People v Guarino, 56 AD2d 638; People v Miller, 247 App Div 489; People v Rosano, 69 AD2d 643; People ex rel. Perkins v Moss, 187 NY 410; People v Teplitz, 27 AD2d 891; People v Elhage, 14 AD2d 986.) II. Where a defendant, in a single indictment, is acquitted of common-law grand larceny and conspiracy but is convicted of grand larceny by reason of a violation of the Lien Law and criminal facilitation, the verdicts are repugnant requiring a dismissal of the indictment. (People v Bullis, 30 AD2d 470; People v Pastore, 46 AD2d 870; People v Pierce, 40 AD2d 581; People v Potwora, 44 AD2d 207; United States v Sager, 49 F2d 725; Lent v Shear, 160 NY 462; People v Rastelli, 37 NY2d 240; Cosgrove v United States, 224 F2d 146; Williams v United States, 179 F2d 644, 341 US 70.) III. The evidence was legally insufficient to sustain the judgment of conviction and thus the indictment should be dismissed. (People v Kress, 284 NY 452; People v Mullens, 292 NY 408; People v Ohlstein, 54 AD2d 109, 44 NY2d 896; People v Hayes, 37 AD2d 375; People v Santos, 38 NY2d 173.)
   OPINION OF THE COURT

Jones, J.

On a charge of larceny in violation of section 79-a of the Lien Law, a defense of actual repayment to creditors based on subdivision 2 of that section is an ordinary defense and not an affirmative defense. To the extent that the application of section 155.15 of the Penal Law would classify as an "affirmative defense” the related "good faith” defense based on the contention that, even if the payments in question were not actually made to creditors as required by subdivision 2, defendant nonetheless in good faith believed them to be at the time, such application would be unconstitutional because it would shift the burden of proof to defendant.

In 1969 Local 246 of the Journeymen Barbers’ International Union of America of Rochester embarked on the construction of an apartment house project to be located in the Town of Greece in Monroe County. Barbers Realty and Holding Corporation was formed as the corporate vehicle for the project. Vincent A. Verrone, business agent for the union, became the corporate president and Vincent J. Rallo was appointed secretary. After another law firm had been legal counsel for the project for a year and a half, when additional financing was needed the corporation retained the law firm of which defendant Lawrence D. Chesler was a partner. Inasmuch as defendant customarily handled the firm’s commercial transactions, he was assigned to work with the new client.

On August 17, 1971 the corporation obtained a building loan from a New York City lender in the amount of $3,440,000. Defendant’s law firm represented the corporate borrower on the closing and arranged for the deposit of a portion, said to be $190,109.45, of the proceeds of the construction loan in the law firm’s special trust account for the purpose of paying certain creditors. Thereafter defendant, assertedly at the direction of Verrone or Rallo, drew checks on the account to a number of creditors and on occasion to Verrone and Rallo, allegedly as repayment of funds they were said to have advanced on behalf of the corporation.

Defendant was indicted on four charges arising out of his participation in these transactions — one count for common-law larceny, a second count for larceny in violation of section 79-a of the Lien Law and a third count for conspiracy, all in one indictment, and a fourth count of criminal facilitation in the second indictment. In January, 1974 the indictments against defendant were dismissed on the ground that there was insufficient evidence before the Grand Jury to sustain the charges and for the further reason that the New York State Organized Crime Task Force had exceeded its authority in conducting the underlying investigation and obtaining the indictments. The Appellate Division reversed the dismissal and reinstated the indictments (46 AD2d 518), and we affirmed (39 NY2d 217).

Defendant then proceeded to trial in Supreme Court, Monroe County, in September, 1977. The jury acquitted defendant of common-law larceny and conspiracy but found him guilty of larceny in violation of section 79-a of the Lien Law and of criminal facilitation. On appeal the Appellate Division reversed both convictions and granted a new trial on two separate grounds — first, with respect to the larceny conviction, that the Trial Judge had erroneously charged that the defense of repayment under subdivision 2 of section 79-a of the Lien Law was an affirmative defense which defendant was required to prove by a preponderance of the evidence and second, with respect to both convictions, that the court had also erred in refusing to charge that the counts of the indictment must be proved by reference to the transactions specified in the bill of particulars (evidence of other transactions having also been received in evidence to show intent or motive, absence of mistake and a common scheme or plan under People v Molineux, 168 NY 264). The People were granted leave to appeal by a Judge of our court. We now affirm the disposition below, and in doing so, because the case must go back for a new trial, uphold another of the contentions advanced by defendant.

As appellant prosecutor now concedes, and as we agree for the reasons stated in the memorandum opinion at the Appellate Division (71 AD2d 792), it was error, on the charge of larceny in violation of subdivision 1 of section 79-a of the Lien Law to have instructed the jury that a defense under subdivision 2 of that section based on repayment to creditors of advances made by them was an affirmative defense which defendant had the burden of proving by a preponderance of the evidence (see Penal Law, § 25.00, subd 2). On the contrary, this is an ordinary defense which the People have the burden of disproving beyond a reasonable doubt (Penal Law, § 25.00, subd 1). (Cf. People v Rosano, 69 AD2d 643.)

In its opinion the Appellate Division distinguished the subdivision 2 defense from what it termed "the affirmative defense of good faith contained in section 155.15 of the Penal Law”, and characterized the former as "a different and more substantial showing than that provided in the Penal Law, that the appropriation was made in a good faith (but perhaps erroneous) claim of right” (71 AD2d 792, 794). Both the People and defendant have addressed the status of this related "good faith” defense in our court, apparently recognizing that on a new trial, defendant may claim that, even if the People prove beyond a reasonable doubt that the payments made by him were not in fact repayments within the contemplation of subdivision 2 of section 79-a, at least he believed in good faith that they were such repayments at the time he made them. Because of what appears to be the probability that defendant will present both defenses on a new trial, it is appropriate that we address defendant’s contention that to the extent that section 155.15 of the Penal Law would make the latter "good faith” defense an affirmative defense the statute is unconstitutional because it impermissibly shifts the burden of proof to the defendant.

The larceny count of which defendant was found guilty is that based on section 79-a of the Lien Law. That section provides as follows:

"§ 79-a. Misappropriation of funds of trust

"1. Any trustee of a trust arising under this article, and any officer, director or agent of such trustee, who applies or consents to the application of trust funds received by the trustee as money or an instrument for the payment of money for any purpose other than the trust purposes of that trust, as defined in section seventy-one, is guilty of larceny and punishable as provided in the penal law if

"(a) such funds were received by the trustee as owner, as the term 'owner’ is used in article three-a of this chapter, and they were so applied prior to the payment of all trust claims as defined in such article three-a, arising at any time; or

"(b) such funds were received by the trustee as contractor or subcontractor, as such terms are used in article three-a of this chapter, and the trustee fails to pay, within thirty-one days of the time it is due, any trust claim arising at any time; provided, however, that if the trustee who received such funds as contractor or sub-contractor disputes in good faith the existence, validity or amount of a trust claim or disputes that it is due, the application of trust funds for a purpose other than a trust purpose, or the consent to such application, shall not be deemed larceny by reason of failure to pay the disputed claim within thirty-one days of the date when it is due if the trustee pays such claim within thirty-one days after the final determination of such dispute.

"2. Notwithstanding subdivision one of this section, if the application of trust funds for a purpose other than the trust purposes of the trust is a repayment to another person of advances made by such other person to the trustee or on his behalf as trustee and the advances so repaid were actually applied for the purposes of the trust as stated in section seventy-one, or if the trustee has made advances of his personal funds for trust purposes and the amount of trust funds applied for a purpose other than the trust purposes of the trust does not exceed the amount of advances of personal funds of the trustee actually applied for the purposes of the trust, such application or consent thereto shall be deemed justifiable and the trustee, or officer, director or agent of the trustee, shall not be deemed guilty of larceny by reason of such application or by reason of his consent thereto.

"3. Failure of the trustee to keep the books or records required by section seventy-five shall be presumptive evidence that the trustee has applied or consented to the application of trust funds received by him as money or an instrument for the payment of money for purposes other than a purpose of the trust as stated in section seventy-one.

"4. Notwithstanding any other provision of law, no act of the trustee in relation to the assets of the trust shall, by reason of any express covenant as provided in section thirteen or section twenty-five of this chapter, be deemed larceny in a case in which it is not declared by subdivision one of this section to be larceny or in a case in which the act is deemed justifiable as provided in subdivision two of this section.”

Initially it must be noted that nothing in this statute suggests that the Legislature intended therein to create a "strict liability”, i.e., that for a conviction the prosecutor is not required to prove any culpable mental state on the part of the defendant. Subdivision 2 of section 15.15 of the Penal Law is pertinent. It provides: "2. Although no culpable mental state is expressly designated in a statute defining an offense, a culpable mental state may nevertheless be required for the commission of such offense, or with respect to some or all of the material elements thereof, if the proscribed conduct necessarily involves such culpable mental state. A statute defining a crime, unless clearly indicating a legislative intent to impose strict liability, should be construed as defining a crime of mental culpability. This subdivision applies to offenses defined both in and outside this chapter.” Indeed, "larceny”, the crime of which violation of subdivision 1 of section 79-a is explicitly made a particular instance, is defined as requiring on the part of the defendant the "intent to deprive another of property or to appropriate the same to himself or to a third person” (Penal Law, § 155.05, subd 1). Thus, to obtain a conviction the burden is unmistakably on the prosecutor to prove the requisite criminal intent beyond a reasonable doubt.

There can be no doubt in this instance that an assertion that the payments were made in good faith by defendant from the law firm’s special trust account to those whom he believed to be creditors who had advanced funds for construction of the project is the obverse of the contention that the payments were made with intent to deprive another of property and to appropriate it to a third person. Then to apply section 155.15, which explicitly makes it an affirmative defense "that the property was appropriated under a claim of right made in good faith” — thus, in consequence of subdivision 2 of section 25.00, placing the burden of proof on the defendant to establish such defense by a preponderance of the evidence — would be to prescribe a constitutionally impermissible shift in that burden in this instance. Such a shift in burden of proof is precisely what the Supreme Court of the United States has struck down (Mullaney v Wilbur, 421 US 684; Matter of Winship, 397 US 358.)

The Appellate Division correctly reversed defendant’s convictions for the reasons stated by that court, and its orders should therefore be affirmed.

Chief Judge Cooke and Judges Jasen, Gabrielli, Wachtler, Fuchsberg and Meyer concur.

Orders affirmed.

      . In view of the fact that neither the People nor defendant addressed this second error in our court, we shall make no further reference to it.

      . Subdivision 1 of section 155.15 of the Penal Law provides: "In any prosecution for larceny committed by trespassory taking or embezzlement, it is an affirmative defense that the property was appropriated under a claim of right made in good faith.”


author: Chief Judge Cooke.

text:
    Joseph McDermott et al., Plaintiffs, v City of New York, Defendant and Third-Party Plaintiff-Appellant. Heil Company, Third-Party Defendant-Respondent; International Harvester Co., Third-Party Defendant.
    Argued March 19, 1980;
    decided May 1, 1980

      POINTS OF COUNSEL

      Allen G. Schwartz, Corporation Counsel (Stephen J. McGrath and Bernard Burstein of counsel), for defendant and third-party plaintiff-appellant.
    I. The court erred in finding that the city’s indemnity claim based on the theory of products liability accrued in 1969 and in thus dismissing that claim as untimely. (Bay Ridge Air Rights v State of New York, 44 NY2d 49; Jackson v Long Is. Light Co., 59 AD2d 523; Musco v Conte, 22 AD2d 121; Martin v Dierck Equip. Co., 43 NY2d 583; Victorson v Bock Laundry Mach. Co., 37 NY2d 395; Bulova Watch Co. v Celotex Corp., 46 NY2d 606; Mack v

      Clairol, Inc., 69 AD2d 752; Infante v Montgomery Ward & Co., 49 AD2d 72; Mead v Warner Pruyn Div., Finch Pruyn Sales, 57 AD2d 340; Winn v Bratti Assoc., 80 Misc 2d 756.) II. The settlement of plaintiffs claim against defendant city does not render academic the city’s claim against the Heil Company. (Codling v Paglia, 38 AD2d 154, 32 NY2d 330; State of New York v County of Sullivan, 54 AD2d 29, 43 NY2d 815; Rock v Reed-Prentice Div. of Package Mach. Co., 39 NY2d 34; Letteire v Martin Elevator Co., 62 AD2d 810; Riviello v Waldron, 47 NY2d 297; McFall v Compagnie Maritime Belge [Lloyd Royal], S.A., 304 NY 314; Dole v Dow Chem. Co., 30 NY2d 143; Crawford v Blitman Constr. Corp., 1 AD2d 398; Jackson v Associated Dry Goods Corp., 13 NY2d 112.)

      Anthony J. McNulty, Eugene Lieber and William F. McNulty for third-party defendant-respondent.
    I. The Trial Justice properly dismissed the city’s third-party cause of action against Heil for breach of warranty of fitness for use on the ground that it was barred by the breach of warranty Statute of Limitations. (Bay Ridge Air Rights v State of New York, 44 NY2d 49; Klinger v Dudley, 41 NY2d 362; Citizens Utilities Co. v American Locomotive Co., 11 NY2d 409; Martin v Dierck Equip. Co., 43 NY2d 583; Victorson v Bock Laundry Mach. Co., 37 NY2d 395; Bulova Watch Co. v Celotex Corp., 46 NY2d 606; Celeste v Prudential-Grace Lines, 35 NY2d 60; Blessington v McCrory Stores Corp., 305 NY 140.) II. Wholly apart from the question of whether the city’s third-party cause of action against Heil for breach of warranty of fitness for use was barred by the Statute of Limitations, said cause of action should have been dismissed on the ground that the record herein is completely devoid of any proof to support such a cause of action. (Goodrich v Ross-Ketchum Co., 274 App.Div 157; Willie v Maier, 256 NY 465; Howard Iron Works v Buffalo Elevating Co., 113 App Div 562, 188 NY 619; Fogal v Genesee Hosp., 41 AD2d 468; Halloran v Virginia Chems., 41 NY2d 386.) III. By settling with McDermott, the city clearly waived any right of contribution that it might otherwise have had against Heil under subdivision (c) of section 15-108 of the General Obligations Law. (Rock v Reed-Prentice Div. of Package Mach., 39 NY2d 34; Carhuff v Barnett’s Bake Shop, 54 AD2d 969; American Ind. Contr. Co. v Travelers Ind. Co., 54 AD2d 679; Mulligan v Lackey, 33 AD2d 991.)
   OPINION OF THE COURT

Chief Judge Cooke.

The cause of action for indemnification interposed against the manufacturer of an allegedly defective product is independent of the underlying wrong and for the purpose of the Statute of Limitations accrues when the loss is suffered by the party seeking indemnity. Hence, the dismissal of that part of the third-party complaint seeking indemnity, as barred by the four-year Statute of Limitations for breach of warranty measured from the date of tender of delivery (Uniform Commercial Code, § 2-725), was unwarranted.

Plaintiff Joseph McDermott, an employee in the New York City Sanitation Department, commenced this action against the city in 1969 after his arm was severed by the hopper mechanism of a sanitation truck. The city, in turn, brought a third-party action in June, 1975 against respondent Heil Company, the manufacturer of the body and hopper of the truck. The city alleged that any injury to the plaintiff was caused solely by Heil’s breach of duty, and demanded full indemnification. Specifically, the city claimed that the product was not fit for its intended use and was dangerous to those who used it. In addition, the third-party complaint asserted a claim for negligence.

The trial evidence indicated that sanitation truck bearing . serial number 252-386 was delivered to the city on February 5, 1969. On the evening of February 24, 1969, plaintiff and two fellow sanitation workers, Richard Mancuso and Joseph Cantelli, were assigned to that truck. When the accident occurred, Mancuso was driving, while McDermott and Cantelli were collecting refuse and loading it into the rear of the truck. Plaintiff testified that he was dumping the contents of a refuse can into the truck when the hopper activated. His arm got caught, he was raised up in the air, screaming, and his limb was severed. It is undisputed that the hopper mechanism was designed to activate only when a button at the rear of the truck was pressed. Both plaintiff and Caiitelli related, however, that they did not activate the hopper, and it was impossible for Mancuso to have done so from the cab of the vehicle. Another city employee swore that, after the incident, he checked the hopper and it seemed to be functioning properly.

After all parties had rested, the trial court dismissed the third-party complaint on the ground that it was a products liability action barred by the Uniform Commercial Code four-year Statute of Limitations for breach of warranty claims, calculated from the date of delivery of the sanitation truck. Before plaintiff’s case was submitted to the jury, the city and the plaintiff arrived at a $150,000 settlement. On the city’s appeal from the dismissal of the third-party complaint, the Appellate Division affirmed, without opinion. The city now urges, according to the accepted rule, that the cause for indemnification did not accrue until payment was made to the injured plaintiff. For its part, the Heil Company argues for a differing accrual rule for indemnification claims relating to defective products.

There must be a reversal. Indemnification claims generally do not accrue for the purpose of the Statute of Limitations until the party seeking indemnification has made payment to the injured person. This principle stems from the nature of indemnification claims and does not vary according to the breach of duty for which indemnification is sought. Since the city’s third-party complaint was interposed before payment to plaintiff — before the city sustained damage — the indemnification cause of action was not time barred.

At the outset, it bears emphasis that no issue involving Dole v Dow Chem. Co. (30 NY2d 143) is implicated here. Dole dealt with apportionment of liability among joint tort-feasors, commonly referred to as contribution, and left undisturbed the established rules of indemnification (e.g., Riviello v Waldron, 47 NY2d 297, 306; Rock v Reed-Prentice Div. of Package Mach. Co., 39 NY2d 34, 38-40; Rogers v Dorchester Assoc., 32 NY2d 553). This court has often pointed to the "fundamental distinction between contribution and indemnity. The right to contribution is not founded on nor does it arise from contract and only ratable or proportional reimbursement is sought in an action for contribution. * * * The right to indemnity, as distinguished from contribution, is not dependent upon the legislative will. It springs from a contract, express or implied, and full, not partial, reimbursement is sought” (McFall v Compagnie Maritime Beige [Lloyd Royal], S. A., 304 NY 314, 327-328; accord, e.g., Riviello v Waldron, 47 NY2d 297, supra; Rock v Reed-Prentice Div. of Package Mach. Co., supra, at pp 38-39).

Conceptually, implied indemnification finds its roots in the principles of equity. It is nothing short of simple fairness to recognize that "[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity” (Restatement, Restitution, § 76). To prevent unjust enrichment, courts have assumed the duty of placing the obligation where in equity it belongs (see, e.g., Dunn v Uvalde Asphalt Paving Co., 175 NY 214, 217-218; Oceanic S. N. Co. v Compania Transatlantics Espanola, 134 NY 461, 465-468; City of Brooklyn v Brooklyn City R. R. Co., 47 NY 475, 486-487; Leflar, Contribution and Indemnity Between Tortfeasors, 81 U of Pa L Rev 130, 147; Meriam & Thornton, Indemnity Between Tortfeasors: An Evolving Doctrine in the New York Court of Appeals, 25 NYU L Rev 845). As was true with many unjust enrichment cases, the vehicle through which the law operated was the quasi contract (see, e.g., Roberts v Ely, 113 NY 128, 131). Thus, the rule developed that "[w]here payment by one person is compelled, which another should have made * * * a contract to reimburse or indemnify is implied by law” (Brown v Rosenbaum, 287 NY 510, 518-519; Dunn v Uvalde Asphalt Paving Co., supra, at pp 217-218). This implied in law contract covers, "not mere liability”, but loss or damage (Dunn v Uvalde Asphalt Paving Co., supra, at p 218; Occhialino, Contribution, Nineteenth Ann Report of NY Judicial Conference, 1974, pp 217, 229).

Given the quasi contractual character of the indemnification action, it was obvious that the contract Statute of Limitations, now six years (CPLR 213, subd 2), would be held controlling (Occhialino, Contribution, Nineteenth Ann Report of NY Judicial Conference, 1974, at pp 229-230). And, since the cause of action is not complete until loss is suffered, familiar Statute of Limitations principles dictate that accrual occurs upon payment by the party seeking indemnity (see, e.g., Bay Ridge Air Rights v State of New York, 44 NY2d 49, 54; Musco v Conte, 22 AD2d 121, 125-126 [Hopkins, J.]; Occhialino, Contribution, Nineteenth Ann Report of NY Judicial Conference, 1974, at p 229; see, also, Ann., 57 ALR3d 867). Because the indemnity claim is a separate substantive cause of action, independent of the underlying wrong, this accrual rule remains the same, whatever the underlying breach of duty for which indemnification is sought.

Contrary to respondent’s position, then, that the city’s indemnification cause of action stems from an allegedly defective product does not alter the general Statute of Limitations rules. It is true, as respondent maintains, that earlier lower court decisions refused to allow an indemnification action based upon a breach of warranty (e.g., Ibach v Donaldson Serv., 38 AD2d 39; C.K.S., Inc. v Borgenicht Sportswear, 22 AD2d 650). But those holdings, repeatedly criticized (see, e.g., Note, An Appraisal of Judicial Reluctance to Imply an Indemnity Contract in Time-Barred Breach of Warranty Suits, 39 St John’s L Rev 361; Occhialino, Contribution, Nineteenth Ann Report of NY Judicial Conference, 1974, at pp 234-236), were not premised on Statute of Limitations considerations. Rather, they reflected the then existing substantive limitations of the products liability concept. Recent developments in the products liability area have eroded the theoretical underpinning of such cases (see, e.g., Codling v Paglia, 32 NY2d 330; see, also, Victorson v Bock Laundry Mach. Co., 37 NY2d 395; Velez v Craine & Clark Lbr. Corp., 33 NY2d 117). Indeed, it would be illogical, in view of the breadth of the indemnification concept, to deny indemnity where a duty imposed by the law of products liability is breached, while allowing it in all other instances of breach of duty. No rationale supports that result.

Accordingly, the Statute of Limitations serves as no bar to the city’s third-party action for indemnity. The action accrued upon payment to the injured party, and thus was not barred by the six-year period of limitation (CPLR 213, subd 2).

Respondent Heil also contends that the indemnity action is precluded by subdivision (c) of section 15-108 of the General Obligations Law, inasmuch as the city has settled the action against it. Under that statute, "[a] tortfeasor who has obtained his own release from liability shall not be entitled to contribution from any other person” (emphasis added). The fatal flaw in respondent’s position is that the General Obligations Law provision, on its face, is applicable only to contribution claims.

As this court has previously noted, "[e]ven upon a cursory reading of the statute, it becomes evident that section 15-108 is meant to be read in conjunction with the contribution rights set forth in article 14” of the CPLR (Riviello v Waldron, 47 NY2d 297, 306, supra; see Rock v Reed-Prentice Div. of Package Mach. Co., 39 NY2d 34, 38-39, supra).* **** Section 15-108 was generally designed to foster settlements in multiple party tort cases by prescribing the effects of the settlement and altering rules of law which were not conducive to the negotiating process (Rock v Reed-Prentice Div. of Package Mach. Co., supra, at pp 40-41). Thus, subdivision (a) defines the rights of the plaintiff who settles with one joint tort-feasor, allowing plaintiff to pursue his claim against other joint tort-feasors, with certain, limitations. Subdivision (b) deals with the released tort-feasor, and precludes a claim for contribution from being asserted against him. By the same token, subdivision (c) prohibits the released party from obtaining contribution from the remaining tort-feasors.

The effect of the statute is to permit a joint tort-feasor to buy his peace by terminating, completely, his rights and liabilities in the action. It is obvious that this statutory scheme can find application only where the tort-feasors share, in some degree, responsibility for the wrong. For it is only in such situation that the impact of a settlement upon proportional liability need be considered. By contrast, where indemnity is at issue, one party is alleging that the other party should bear complete responsibility for the tort. Should the party seeking indemnity negotiate a settlement, this in itself would have no consequences upon the indemnity claim. Irrespective of the amount of the settlement, the indemnitor is either totally responsible or not.

Thus, our prior holdings that section 15-108 of the General Obligations Law has no application to indemnity claims are controlling in the present circumstances (Riviello v Waldron, 47 NY2d 297, 306-307, supra; Rock v Reed-Prentice Div. of Package Mach. Co., supra). In short, one who settles a tort action against him may continue to pursue a cause of action for indemnification, unencumbered by section 15-108.

Finally, it cannot be held, as a matter of law, that the city failed to establish a prima facie case of products liability. Both plaintiff, and his coworker, testified that they did not start the hopper mechanism, thus raising a viable issue of fact as to whether the device self-activated. And, since this creates a fact question concerning whether the product performed as intended by the manufacturer, the trier of fact could infer the existence of a defect as of the time of delivery (see, e.g., Codling v Paglia, 32 NY2d 330, 337-338, supra). True, there is evidence in the record tending to negate the inference that a defect existed. But it is for the trier of fact to decide whether to accept that evidence, or to credit the testimony of the two sanitation workers and find that the product malfunctioned due to a latent defect. Thus, the fact finder is generally free to infer, in a products liability case, the existence of a defect upon a showing that the product did not perform as intended.

Accordingly, the order of the Appellate Division should be reversed, with costs, the third-party complaint reinstated, and the action remitted for trial.

Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Meyer concur.

Order reversed, with costs, third-party complaint reinstated and case remitted to Supreme Court, New York County, for a new trial on the third-party complaint.

      . The trial court also dismissed the negligence claim, finding no evidence of negligence. The city does not now dispute this ruling.

      .  The quasi contract was a form adopted by common-law courts to incorporate the equitable principles of unjust enrichment. Thus, although remedies such as indemnity are derived from equitable notions, the action is and has been an action at law (see, e.g., Roberts v Ely, 113 NY 128, 131-132, supra; but cf. Blum v Good Humor Corp., 57 AD2d 911).

      . Indeed, at one time it was thought that the cause of action for indemnity could not be brought by impleader in the main action, since the indemnity claim was premature (e.g., Milstein v City of Troy, 272 App Div 625, 626). This view did not prevail, however, and it is settled that an indemnity claim may be asserted, by a third-party action, in the main case (CPLR 1007; Matter of Valstrey Serv. Corp. v Board of Elections, Nassau County, 2 NY2d 413, 416; see, e.g., Grant Co. v Uneeda Doll Co., 19 AD2d 361, affd 15 NY2d 571; Taca Int. Airlines v Rolls Royce of England, 47 Misc 2d 771, 773).

      . Indemnity actions have been permitted in a variety of situations. A classic indemnity claim exists, of course, in favor of a person who has been held vicariously liable for the tort of another. Thus, an employer who has been cast in damages, by virtue of respondeat superior, may obtain indemnity from his employee (e.g., Schubert v Schubert Wagon Co., 249 NY 253, 257 [Cardozo, Ch. J.]). In such a case, of course, the underlying breach of duty is tortious in nature. Similarly, where a party is held accountable for another’s breach of contract, indemnity may be recovered. Thus, if the owner of a building is forced to respond in damages for injuries caused by a service contractor’s breach of contract, the owner is entitled to be indemnified by the contractor (see, e.g., Rogers v Dorchester Assoc., 32 NY2d 553, 562-563, supra). And, prior to the rule of Dole v Dow Chem. Co. (30 NY2d 143), one tort-feasor who was only "passively” negligent could maintain an indemnity action against the tort-feasor who was "actively” negligent (e.g., Tipaldi v Riverside Mem. Chapel, 273 App Div 414, affd 298 NY 686).

      . Respondent repeatedly asserts that the city seeks recovery for breach of warranty. This is inaccurate. As discussed, the city is asserting a cause of action for indemnification. The allegedly wrongful conduct pleaded in the third-party complaint as the basis for indemnification is Heil’s failure to provide a product "fit for the use for which it was intended and [which] was otherwise dangerous and unsafe for those lawfully using same.” Since the focus of the indemnity claim is on whether the city has discharged a duty which should have been borne by Heil, the products liability assertion is relevant only to determine whether Heil breached a duty owed to the injured sanitation worker. In short, the city does not seek to recover in its own right for products liability; rather, it asserts that Heil breached a duty to the injured sanitation worker and is therefore responsible for damages the city had to pay on account of the breach of duty.

      . Section 15-108 of the General Obligations Law states:
      "(a) Effect of release of or covenant not to sue tortfeasors. When a release or a covenant not to sue or not to enforce a judgment is given to one of two or more persons liable or claimed to be liable in tort for the same injury, or the same wrongful death, it does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms expressly so provide, but it reduces the claim of the releasor against the other tortfeasors to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, or in the amount of the released tortfeasor’s equitable share of the damages under article fourteen of the civil practice law and rules, whichever is the greatest.
      "(b) Release of tortfeasor. A release given in good faith by the injured person to one tortfeasor as provided in subdivision (a) relieves him from liability to any other person for contribution as provided in article fourteen of the civil practice law and rules.
      "(c) Waiver of contribution. A tortfeasor who has obtained his own release from liability shall not be entitled to contribution from any other person” (added L 1972, ch 830, § 3; amd L 1974, ch 742, § 3).


text:
    The People of the State of New York, Respondent, v Leonard Copicotto and Myriam Copicotto, Appellants.
    Argued March 26, 1980;
    decided May 6, 1980

      POINTS OF COUNSEL

      Stanley L. Shapiro for appellants.
    I. The motion court erred in that it lacked the statutory or discretionary authority to direct the defense to turn over to the prosecution evidence in defendant-appellants’ possession. (People v Remaley, 26 NY2d 427; People v Utley, 77 Misc 2d 86, 60 AD2d 657, 45 NY2d 908; Brady v Maryland, 373 US 83; People v Green, 83 Misc 2d 583; People v Traver, 70 Misc 2d 162; Matter of Lee v County Ct. of Erie County, 27 NY2d 432; People v Catti, 90 Misc 2d 409; People v Nitzberg, 289 NY 523; Matter of Erie County Agric. Soc. v Cluchey, 40 NY2d 194; Matter of Anonymous [St. Christopher’s Home], 40 NY2d 96.) II. The motion court’s misapplication of the statute in directing the defense to turn over the sales slips to the prosecution violated defendant-appellants’ rights under the Fifth and Fourteenth Amendments to the United States Constitution and section 6 of article I of the New York State Constitution. (Boyd v United States, 116 US 616; People ex rel. Ferguson v Reardon, 197 NY 236; People v Capetta, 89 Misc 2d 937, affd sub nom. Matter of Capetta, 57 AD2d 596, 42 NY2d 1066; United States v Cohen, 388 F2d 464; United States v Buccoto, 175 F Supp 886, 274 F2d 860; United States v Pizzo, 260 F Supp 216; United States v Zakutansky, 278 F Supp 682.) III. The motion court violated defendant-appellants’ constitutional rights under the Fourth and Fourteenth Amendments to the United States Constitution in directing the defense to turn over to the prosecution evidence in defendant-appellants’ possession. (Wong Sun v United States, 371 US 471.) IV. The trial court erred in refusing to dismiss the indictment because the motion court’s error, both constitutional and statutory, created a legal impediment to further prosecution. (Matter of State of New York v King, 36 NY2d 59; Public Serv. Mut. Ins. Co. v McGrath, 56 AD2d 812; Matter of Wright v County of Monroe, 45 AD2d 932; Carlos v Motor Vehicle Acc. Ind. Corp., 22 AD2d 866; People v Solomon, 91 Misc 2d 760; People v Clayton, 41 AD2d 204; People v Collier, 85 Misc 2d 529; People v Rao, 53 AD2d 904.) V. The errors ascribed to the motion and trial courts were properly preserved prior to trial and the introduction of the sales receipts at trial did not constitute a waiver of these rights. (People v Williams, 36 NY2d 829; Gardner v Broderick, 392 US 273; Randall-Smith, Inc. v 43rd St. Estates Corp., 23 AD2d 835, 17 NY2d 99; People v Vina, 47 AD2d 895; United States ex rel. Newsome v Malcolm, 492 F2d 1166, affd sub nom. Lefkowitz v Newsome, 420 US 283; United States ex rel. Powell v La Valle, 385 F Supp 931, 506 F2d 1396, 420 US 995; People v Huntley, 15 NY2d 72.)

      John J. Santucci, District Attorney (John H. Larsen of counsel) for respondent.
    I. The order directing discovery of the sales receipts was proper. (People v Gaissert, 75 Misc 2d 478; People v Bennett, 75 Misc 2d 1040; People v Daniels, 82 Misc 2d 780; People v Utley, 77 Misc 2d 86; United States v Estremera, 531 F2d 1103; People v Blacknall, 82 Misc 2d 646; Wardius v Oregon, 412 US 470; People v Catti, 90 Misc 2d 409.) II. The order granting reciprocal discovery was not violative of appellants’ constitutional rights. (People v Green, 83 Misc 2d 583; United States v Powell, 379 US 48; United States v Dionisio, 410 US 1; Wardius v Oregon, 412 US 470; Williams v Florida, 399 US 78; Hael v Henkel, 201 US 43; Oklahoma Press Pub. Co. v Walling, 327 US 186; United States v Nobles, 422 US 225; People v Mono, 96 Misc 2d 382; People v Lacey, 83 Misc 2d 69.)
   OPINION OF THE COURT

Chief Judge Cooke.

Defendants were convicted upon a jury’s verdict of petit larceny for the theft of merchandise from Macy’s Department Store. Prior to trial, the People were granted discovery of sales receipts in defendants’ possession, allegedly for the property which was the subject of the charge. At trial, these receipts were used by defense counsel in an effort to impeach prosecution witness Kitty Wills, the store detective, by seeking to create an inference that the receipts were for the items of property allegedly stolen. On the People’s rebuttal, the prosecutor recalled Ms. Wills and swore another Macy’s employee to show that the receipts actually represented purchases made after defendants had been arrested and questioned. Defendants urge on this appeal that the grant of the People’s motion for pretrial discovery was improper under the discovery statute and the Fourth and Fifth Amendments to the United States Constitution. We take a contrary view and therefore affirm.

In this State, pretrial discovery by the defense and prosecution is governed by statute, CPL article 240. As applicable to this case, that article provides that upon motion of a defendant, the court must order discovery of the defendant’s Grand Jury testimony and any written or recorded statements within the possession or control of the District Attorney made by the defendant to persons engaged in law enforcement activity (CPL 240.20, subd 1). An order of discovery in favor of the defendant may be issued as a matter of discretion with respect to reports and documents concerning physical or mental examinations or scientific tests and experiments which are within the possession or control of the District Attorney (CPL 240.20, subd 2). Upon a showing that the request is reasonable and that the property is material to the preparation of the defense, discovery may also be ordered for any other property specifically designated by the defendant, except exempt property, which is within the possession or control of the District Attorney (CPL 240.20, subd 3).

Discovery ordered in the court’s discretion under subdivisions 2 and 3 serves as a predicate for a prosecution motion for reciprocal discovery. Upon motion by the People showing that the request is reasonable and the property is material to the preparation of their case, the grant of the defendant’s discovery motion may be conditioned by a direction for "discovery by the people of property, other than exempt property, of the same kind or character as that authorized to be inspected by the defendant, which is within the possession, custody or control of the defendant and which he intends or is likely to produce at the trial” (CPL 240.20, subd 4). Both sides have a continuing duty to disclose property covered by a discovery order and, for a breach of that duty, the court may order the violating party to permit inspection of subsequently discovered property, grant an adjournment, preclude use of the property as evidence or take other appropriate action (CPL 240.40).

The criminal discovery procedure embodied in article 240, adopted in substance from Rule 16 of the Federal Rules of Criminal Procedure (see Denzer, Practice Commentary, McKinney’s Cons Laws of NY, Book 11 A, CPL art 240, p 466; Judicial Conference Report on the CPL, Appendix B, Mc-Kenna, Memorandum and Proposed Statute Re Discovery, McKinney’s 1974 Session Laws of New York, pp 1860, 1868), evinces a legislative determination that the trial of a criminal charge should not be a sporting event where each side remains ignorant of facts in the hands of the adversary until events unfold at trial. Broader pretrial discovery enables the defendant to make a more informed plea decision, minimizes the tactical and often unfair advantage to one side, and increases to some degree the opportunity for an accurate determination of guilt or innocence (see Notes of the Advisory Committee on the Proposed 1974 Amendment to Rule 16 of the Federal Rules of Criminal Procedure). In short, pretrial discovery by the defense and prosecution contributes substantially to the fair and effective administration of justice.

Examination of the disclosure proceedings here in light of the statutory provisions and the underlying legislative policy reveals that the prosecution request was properly granted. At the first hearing on the omnibus defense motion seeking discovery and the prosecution motion for reciprocal discovery, the People were directed to turn over any statements made by defendants and to provide defendants with a list of property seized. The prosecutor complied by offering a copy of the police property voucher and by stating that no other property was seized. Defense counsel also sought discovery of statements contained in an internal security report of the incident to Macy’s, prepared by the store detective, Kitty Wills. At the November 4 hearing, Judge Roth ordered the prosecutor to make the material available to the defense. The court also granted the prosecution motion for disclosure of sales receipts allegedly showing the purchase by defendants of the merchandise they were charged with stealing. Defense counsel had informed the prosecution of the existence of these sales receipts but had refused to permit inspection. Defense counsel objected, arguing that there was no predicate for reciprocal discovery as disclosure of defendants’ statements was mandatory and the request for the Kitty Wills memorandum was for material favorable to the defense under Brady v Maryland (373 US 83), not the discovery provisions.

Contrary to defendants’ assertion, the then applicable statutory prerequisites for reciprocal discovery were present. True, the request by defendants for disclosure of their written or recorded statements cannot serve as the predicate for discovery by the prosecution, for disclosure of such material is available to the defense as of right (CPL 240.20, subd 1, par [b]). The grant of defendants’ request for the Wills memorandum, however, did provide a foundation sufficient to permit discovery by the prosecution. Defendants have pointed to nothing to indicate how the memorandum can be considered Brady material or subject to the mandatory disclosure provisions of article 240.

Also rejected is defendants’ argument that disclosure of the sales receipts was improperly directed because they were not property "of the same kind or character as that authorized to be inspected by the defendant” (CPL 240.20, subd 4). Notwithstanding the protests to the contrary, an adequate relationship exists between the request for the receipts and defendants’ request for the memorandum from the security officer. In opposing disclosure, defendants apparently seek to limit the availability of prosecution discovery to items which are the mirror image of items directed to be disclosed to the defendants. The statutory requirement, however, should not be so narrowly construed. Of course, the prosecution’s right to discovery is not an independent right, being triggered only by a defense request for discretionary discovery and restricted to like property. *8 But this restriction does not demand identity of requests (see People v Catti, 90 Misc 2d 409; People v Green, 83 Misc 2d 583). To so construe the statute would defeat unnecessarily the legislative design to increase the availability of information to both sides. Consistent with both the purpose to expand discovery rights and the notion that prosecution discovery is merely reciprocal, it is sufficient if the material sought by the prosecution is of the same general character as that sought by the defendant and touches the same subject matter.

Having concluded that the People’s discovery was proper under the statute, we reach and reject defendants’ constitutional assault upon the grant of the People’s motion here. Of course, in authorizing disclosure in favor of the People, care must be taken not to impinge upon the criminal defendant’s right not to be compelled to be a witness against himself. This Fifth Amendment privilege proscribes only testimonial compulsion, not that which merely makes a person the source of real or physical evidence (People v Thomas, 46 NY2d 100, app dsmd 444 US 891; Schmerber v California, 384 US 757). In this case, there has been no compelled testimonial disclosure in violation of the privilege.

The act of complying with a demand to produce specified evidence has communicative aspects, involving the tacit representation by the individual of the existence of the item, its possession by him and his belief that the item produced is that sought in the demand (see Schmerber y California, 384 US 757, 764, supra; Curcio v United States, 354 US 118, 125; 8 Wigmore, Evidence [McNaughton rev], § 2264, p 380). Whether such representation is testimonial or incriminating in the constitutional sense may turn on the particular facts and circumstances presented (see Fisher v United States, 425 US 391, 410). No testimony is procured through production where the item sought is a document prepared by another, containing no "testimonial declarations” of the accused, and its existence and the fact of its possessions are known to the prosecution (id., at p 411 [accountant’s workpapers concerning taxpayer’s business records]). And, where testimony from other sources authenticates the item for introduction against the defendant, then the communication resulting from compliance with a production demand poses an insubstantial threat of self incrimination and is without constitutional significance (id., at p 413). Of course, production of an accused’s purely private papers may not be compelled, for there the State extracts testimonial disclosure, invading the "private inner sanctum of individual feeling and thought” (Couch v United States, 409 US 322, 327) that the Fifth Amendment was designed to protect.

In this case, there was no request for purely private papers. A simple request for sales receipts from Macy’s would not involve testimonial compulsion. The receipts were prepared by the department store in the normal course of business and the People, through defense counsel, were aware of their existence. Authentication also comes from a source other than defendants. True, the People’s demand here went beyond such a request, identifying the receipts as those allegedly showing the actual purchase of the merchandise defendants were accused of stealing. And by production defendants tacitly represented that they purchased the property and their belief that the receipts show the purchase. But by this assertion, defendants did not give evidence of a testimonial or communicative nature for purposes of the Fifth Amendment.

That the defendant may be required to disclose his defense prior to trial does not render the discovery scheme invalid, for "[n]othing in the Fifth Amendment privilege entitles a defendant as a matter of constitutional right to await the end of the State’s case before announcing the nature of his defense” (Williams v Florida, 399 US 78, 85; see, also, Traynor, Ground Lost and Found in Criminal Discovery, 39 NYU L Rev 228, 248-249). Like the notice-of-alibi rule upheld in Williams, the procedure employed in this case involved no compulsion violative of the Fifth Amendment, for defendants were directed only to accelerate disclosure of information which they apparently intended to disclose at trial (see Williams v Florida, supra, at p 85; Jones v Superior Ct., 58 Cal 2d 56 [Traynor, J.j). It was only after the defense made use of the receipts in cross-examination of Ms. Wills that the prosecution took advantage of the pretrial disclosure and then only to rebut the impression conveyed that the receipts represented the purchase of the items allegedly stolen.

None of this means that the State may require a defendant to lay bare his defense, purporting to advance the search for truth, yet at the same time shield its own evidence from discovery (see Wardius v Oregon, 412 US 470, 475). But, in an effort to further the ends of justice and enhance "the fairness of the adversary system”, the States are free to experiment "with systems of broad discovery designed to achieve these goals” (id., at p 474). Article 240 represents one such effort. In the circumstances of this case, no violation of defendants’ statutory or constitutional rights occurred.

Accordingly, the order of the Appellate Term should be affirmed.

Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Meyer concur.

Order affirmed.

      . CPL article 240 was recently repealed and new article 240 was added, effective January 1, 1980 (L 1979, ch 412). Unless otherwise indicated, statutory references are to the pre-1980 article. Article 240 as originally enacted retains force for cases commenced prior to the effective date of the new legislation (see L 1979, ch 412, § 4).

      . Property which is exempt from discovery consists of "(a) reports, memoranda or other internal documents or work papers made by district attorneys, police officers or other law enforcement agents, or by a defendant or his attorneys or agents, in connection with the investigation, prosecution or defense of a criminal action, and (b) records of statements made to such parties, attorneys or agents by witnesses or prospective witnesses in the case” (CPL 240.10, subd 3).

      . We recognize that in some cases discovery may be constitutionally required (see People v Iannone, 45 NY2d 589, 596-600).

      . We also reject the argument that the grant of defendants’ request for all statements made to persons engaged in law enforcement activity, including oral statements, was a predicate for the People’s reciprocal rights. The statutory requirement of notification of an intention to offer at trial evidence of statements made by a defendant (CPL 710.30) militates in favor of mandatory disclosure of oral statements (see People v Spruill, 47 NY2d 869; People v Briggs, 38 NY2d 319; People v Utley, 77 Misc 2d 86).

      . Defendants may not rely on the purported withdrawal of their motion for discovery to render improper the direction for reciprocal discovery. The equivocal withdrawal of the request for the Wills memorandum, with the mere characterization of it as property discoverable as of right as Brady material, without more, does not preclude a request for reciprocal discovery.

      . The prosecution’s right to reciprocal discovery is not defeated merely because compliance with an order granting a defense motion for discovery simply informs the defendant that the People do not have either the information or property which is the subject of the request or that it does not exist. In such a situation, the defendant does receive the benefits of discovery, gaining knowlege of the extent of the State’s case and having available the enforcement mechanisms for discovery.

      . The denial of defendants’ request for a list of all Macy’s employees working on the day of the crime does not justify characterizing the procedures here as "maintaining 'poker game’ secrecy” for the State (Wardius v Oregon, 412 US 470, 475, supra).