Case ID: ny-super-ct_47/html/0212-01.html
Source: Caselaw Access Project
Author: {"author": "By the Coubt.—Sedgwick, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

PHILIP QUINLAN, Plaintiff and Respondent, v. JEREMIAH P. RUSSELL, Defendant and Appellant, Impleaded with the MAYOR, ALDERMEN and COMMONALTY of the CITY OF NEW YORK.
    I. Lien, material-men, &c.—Equitable assignment.—Trust.
    1. Contract for performance of work and furnishing of material.
    
      (a) Provision for retention by contractor, when it does not enure to raise an equitable assignment of, or a lien upon, or create a trust in respect of the fund retained, in favor of material-men, &c.
    1. A contract provided, “ and the said party of the second part hereby agrees that he will furnish said commissioners with satisfactory evidence that all persons who have done work or furnished materials under the agreement, and who have given written notice to the said commissioners before or within ten days after the completion of the work, that any balance for such work or material is still due and unpaid, have been fully paid or secured said balance; and in case such evidence be not furnished, such amount as may be necessary to meet the claims of the persons aforesaid, shall be retained from any moneys due said party of the second part under the agreement, until the liability aforesaid shall be fully discharged, or such notice withdrawn.
    Held,
    that one who furnished materials to the contractor for the doing of the work contracted for, and had given the notice specified in above provision, had no lien on a sum retained by the commissioners; was not the equitable assignee thereof; and that such provision raised no trust in his behalf.
    II. New York City.
    1. Contract for regulating and grading, &c.
    
      (a) Provision for retention.
    1. Above principle; application.
    Before Sedgwick, Ch. J., Freedman and Truax, JJ.
    
      Decided April 4, 1881.
    Appeal from judgment in favor of plaintiff.
    One Smith had entered into a contract with the corporation of the city to regulate, grade, Ac., apart of 9th avenue, for which the corporation contracted to pay him certain sums.
    In that contract, there was the covenant: “And the said party of the second part hereby agrees, that he will furnish said commissioners with satisfactory evidence that all persons who have done work or furnished materials under this agreement, and who have given written notice to the said commissioners, before or within ten days after the completion of the work aforesaid, that any balance for such work or materials is still due and unpaid, have been fnlly paid or secured such balance. And in case such evidence be not furnished, such amount as may be necessary to meet the claims of the persons aforesaid shall be retained, from any moneys due the said party of the second part, under this agreement, until the liabilities aforesaid shall be fully discharged or such notice withdrawn.
    Smith, with the consent of the corporation, before any money became due, assigned all moneys to become due under the contract. Such moneys were re-assigned .until the plaintiff became the .assignee.
    The contract having" been performed, the plaintiff brought this action against the city for the moneys :due, and the complaint charged that the defendant, now appellant, claimed that he had some lien upon the moneys due, and demanded judgment against him that he had no such lien. The answer of the city admitted that money was due, but alleged that the present appellant, then defendant, claimed an interest in or lien upon the moneys, and asked the judgment as to the party really entitled, &c. The defendant, now appellant, by answer, alleged that he had furnished materials for the work above referred to, and that they were used therein, that he had duly filed the notice provided for in the contract, that his claim had not been paid, and asked judgment that he had a valid lien or •claim upon the funds in the hands of the city, as moneys due upon the contract, and that the city pay over to him, out of such funds, the money due to him for the materials, &c.
    The court gave judgment for plaintiff against the ■city for the moneys unpaid upon the contract, and also that the defendarit, now appellant, had no lien or claim ■upon the moneys.
    The city does not appeal from the judgment.
    
      L. Lajlin Kellogg, attorney, and of counsel, for ¡appellant, as to questions passed on by the court, urged :
    I. Objection is made to the use of the' word “lien ” in describing defendants’ claims. The word as now used means any claim upon or right to claim a fund or property. The legal status of this claimant under this clause in the agreement is that of beneficiary under a trust created by the contractor, and of which the city is the trustee. It was for the benefit of ■ people in esse who have acquired right under the trust, superior to other equities, and cannot be disturbed. It is no answer to this argument, that the city cannot act as trustee, the contractor and his assigns are completely estopped by their agreement from maintaining such a position.
    II. The acquisition of this money required no further intervention of the debtor, as claimed to be decided in Hoyt v. Story (3 Barb. 262). It was a promise made directly for the benefit of a third party, a party in esse, to wit, the material man, and not within Kingston Mutual Ins. Co. v. Clark (33 Barb. 195). An agreement for a future lien is good (Wisner v. Ocumpaugh, 71 N. Y. 116; Hale v. Omaha Nat. Bank, 49 Id. 626). It is a license irrevocable (McCaffrey v. Woodin, 65 N. Y. 469).
    III. A case in full point with this in every respect has recently been decided by the supreme court, entirely in favor of claimants, standing in the same position as the defendant, Russell (Mechanics’ & Traders’ Bank v. Mayor, 58 How. Pr. 207).
    
      John H. Strahan, attorney, and of counsel, for respondent, on the points passed on by the court, urged:
    I. It is no doubt a well-settled rule of law that an action may maintained on a promise made to a third person for the benefit of another without any consideration passing from such other ; but in all such cases it is required that the promise be made upon a valid consideration passing from such ‘third person. This is fully illustrated in the authorities cited in Judson v. Gray (17 How. Pr. 289). In the present contract there is no promise for the performance of which the mayor, aldermen and commonalty of the city of New York is answerable to this defendant, Bussell. All that can be said as to the particular clause in this contract, on which the defendant Bussell relies, is that its performance might benefit him. But there is a plain distinction between a promise, the performance of which might benefit a third party, and a promise made expressly for the benefit of a third party. As to the former promise the courts have not yet held that an action thereon can be maintained by the person who might be benefited by its fulfillment (Hoffman v. Schwab, 33 Barb. 195, 196). In accordance with these well-settled principles of law, Judge Fbeedmax, in this court, lately decided that an action commenced by the defendant Bussell against the mayor, aldermen and commonalty of the city of New York, in which Bussell sought to enforce the claim he makes in the present action, could not be maintained by Bussell. Bussell therefore has no claim against Gavin, or the contractor Smith, for stone furnished and used in the performance of the contract in question which he can enforce in a direct action against the city. Neither can the defendant Bussell enforce his claim indirectly against the city in the present action. If he has no right of action directly against the city for his claim, he cannot for such claim have a right to a judgment against the city in the present action. The explanations made by the counsel for the defendant Bussell, as to the legal or equitable character of the claim of the latter, are exceedingly vague. Sometimes this claim is called a lien, at other times he claims that the fund is a trust held by the city for the benefit of Bussell as beneficiary. In the points for Bussell, the claim is stated thus: “ The legal status of the .claimant under the clause in the contract .is, that of a beneficiary nnder a trust created by the contract, and of which the city is trustee.” This is pure nonsense. No authority exists countenancing such a position. The object of the contract was not to create a trust, and no trust was created by the clause referred to. If there exists a trust fund in the hands of the city, as trustee, created for the express benefit of certain beneficiaries, every beneficiary has an undoubted right of action against the trustee to compel an accounting of the fund, and to pay over the same. But no such right of action exists under the clause in the contract in favor of Russell, as was expressly decided by ¡Judge Fbeedjian. A claim by a beneficiary of a fund against the trustee, the holder of such fund, is not a claim of lien. None of the city officers could by any unauthorized act on the part of such officers create a trusteeship in the city. It would require express legislative sanction to authorize such a trust. No such authority exists. What the defendant Russell really claims is this: granting, as he in effect says, that he has no right of action against the city for Gravin’s debt to him—he insists he has a claim upon the fund (the balance due by the city on the contract referred to), and he desires that the fund should be applied by this court to the payment of Gravin’ & debt to him. This is maintained on—(1) The clause in the contract which is quoted in Russell’s answer. (2) The notice alleged to have been given by Russell to the commissioner of public works. Legally stated, this claim is that under the clause in the contract, by the service of the notice on the commissioner of public works, so much of the fund due under the contract was set apart, or appropriated, as was necessary to pay the amount specified in the notice ; that there was by the clause in the contract and the service of the notice an equitable assignment created in favor of the claimant Russell of the fund in the hands of the city to the extent of the amount specified in the notice. This is what Russell claims constitutes in his favor a lien on the fund to the extent of the amount in his notice. But such a claim has no foundation in law or equity. Two things are essential to constitute an equitable assignment. (1) An agreement to pay out of a particular fund ; and (3) An appropriation of the fund in such a manner that the holder thereof would be authorized to pay it to the creditor without the intervention of the debtor. These constitute the true distinction between a mere contract to pay out of certain funds, and an appropriation of the funds which courts of equity will uphold as an equitable assignment (Hoyt v. Story, 3 Barb. 363, and various authori- ■ ties cited). In the present case neither of these essentials exist. (1) There is no agreement to pay contained in the clause in the contract. The contractor does not in that clause authorize the city to pay any money to any person, a creditor of his, or of his assignee, for labor or material furnished under the contract, who may serve a notice upon the commissioner of public works ; and the city does not agree to pay the fund referred to in the clause to any person whatever. (3) There is no appropriation by the clause in the contract of the fund in such a manner that the city would pay the same, or any portion thereof, directly without the intervention of the contractor, or his assignee, to any person giving notice to the commissioner. On the contrary, the clause in the contract shows clearly that it never was contemplated by the parties to the same that any portion of the funds due under the contract should be applied by the city to the payment of the debts referred to in any notice served upon the commissioner of public works. This provision reads that so much of the moneys due to the contractor should be retained until the liabilities—that is, the debts specified in the notices served—were discharged; clearly implying that in the contemplation of the parties the debts were to be discharged or paid otherwise than out of this particular fund. In fact, the fund was to remain intact until the debts were discharged: So far, therefore, as the claim of the defendant Russell is founded upon the provision contained in this clause in the contract, they are void of every essential required to constitute a lien by equitable assignment. And the notice served by the defendant Russell, assuming that such notice was served upon the commissioner of public . works, adds no strength to the claim. In no view which can be taken of this notice, does it constitute an agreement by any person to pay any money out of any fund. Neither does the notice appropriate any fund in such a manner that the city would be authorized to pay the same to the creditors giving the notice without the further investigation of the contractor or his assignee. There is not, therefore, the first element of an equitable assignment in the claim of the defendant Russell, either under the provisions of the clause of the contract, or in virtue of the notice served upon the commissioner of public works. A reference to the provisions of the Revised Ordinances, pursuant to the requirements of which it is alleged by the defendant Russell in his answer, that the clause referred to in the contract was inserted, makes the point still clearer. The ordinance is set forth in the case. The ordinance requires that in all contracts with the city there should be a clause, that if any person who did work, or furnished material under the contract, and gave notice as therein provided, should give satisfactory evidence that money was due to him by the contractor under such contract, such head of department should retain the last installment, or such portion thereof .as might be necessary, until such liability is discharged or secured. Here, instead of an agreement that the city should pay the creditor of the contractor, without the intervention of the debtor or an appropriation of the fund to enable such payment to be made, the agreement authorized by the city to be made by the commissioner of public works with the contractor, was, that the head of the department should retain this particular fund until the contractor should, out of his other funds, pay his creditors, or until the debt of such contractor was secured. Instead of the fund under the contract being appropriated to the payment, by the city, of the debts of the contractor, and secured for this purpose, the ordinance requires that the contract should provide for the fund being paid to the contractor, even after the notice by his creditors to the head of the department, without the creditor’s interference, on the security being given by the contractor, that he should otherwise pay his creditor’s debt. No agreement was authorized in the contract to pay the v funds otherwise than to the contractor or his representatives. He or they could obtain the funds from the city independent of his creditors, but the creditors could not, without the intervention of the contractor, secure from the city the funds or any portion thereof. The agreement so authorized was in no sense an equitable assignment of the fund in favor of the creditor of the contractor. As the defendant Russell has, therefore, no claim of lien by equitable assignment under the' contract, or under the notice, or under both contract and notice, or under the provisions of the Revised Ordinances, upon the fund, the balance due by the city to the contractor’s assignee under the contract in question, he has no right which he can maintain in this action. The claim of the defendant Russell, that his material created a part of the fund—and here an equity arises in his favor, if founded on fact, which it is not—has no force, and can receive no effect (Barculo, J., in Hoy v. Story, 3 Barb. 266).
    
      II. The authority given by the provision in question transferred no title to the money to become due under the contract, nor any beneficial interest therein. No benefit was to inure to the city by the exercise of this authority. The authority is not a chattel mortgage. Neither is it a grant, and it is not a trust. It is a mere authority to do a certain act, viz.: to retain from moneys to become due to the contractor, until certain liabilities which he may incur are discharged by him, or the notice in reference thereto is withdrawn. This authority rests on contract, and is in its nature a license, revokable at pleasure (Exp. Colburn, 1 Cow. 568; Jamieson v. Millemann, 3 Duer, 255 ; Tillotson v. Preston, 7 Johns. 285; Mumford v. Whitney, 15 Wend. 380; Babcock v. Utter, 1 Keyes, 115). The license was terminated by the assignment by the contractor to Gravin of all sums due and to become due under the contract approved by the city (Jackson v. Babcock, 4 Johns. 418). When this assignment was made, no person had or pretended to have acquired any right or interest of any description as against the contractor under the provision in question, and after such assignment no person could acquire any such right or interest.
   By the Coubt.—Sedgwick, Ch. J.

A conclusive consideration against appellant is, that there was enough testimony to support the finding by the court below that the material furnished by appellant was not used upon the work in question, excepting a small quantity. And there was no proof as to the value of that quantity.

I am not able to perceive that there’is any foundation for the proposition that there was any lien or claim upon the moneys due, given to the appellant by reason of the contract, even if the materials had been used upon the work contracted for. Irrespective of the provisions that have been extracted from the contract, there was no lien, and the contract cannot create any lien that its terms do not provide for. It must be held that it wyas not the intention of the parties to give a right of action to the material-man, upon the terms of the contract. • For what, within those terms could he sue.? Who would be the defendants ?

Passing this consideration, it must be asked, what is the nature of the material-man’s interest in such a provision ?. He can demand no more than the contract provides shall be done. The plaintiff’s assignor did not promise to pay the claim or to secure it, but only to furnish evidence that it had been paid or secured, in case the notice had been filed. The appellant of course gets no right of action from that. The contract then provides that if such evidence be not furnished, an amount necessary to meet the claims shall be retained from moneys due “until the liabilities aforesaid shall be fully discharged, or such notice withdrawn.” This does not even permit the city to pay the claim out of the moneys retained. In effect, if the agreement be carried out by the voluntary acts of the parties to the contract, the only benefit a material-man filing notice would possess would be, that he would know where his debtor had property wherewith to pay the' claim. The loss of such knowledge would not constitute damage. There is no presumption that it would delay him in obtaining payment.

Or, in another view, the terms of the contract do not provide for any application of the moneys retained to the payment of the claim contained in the notice. The filing of the notice is not proof of the validity of the claim. The law would not impound the property of a debtor in favor of a creditor who had not obtained judgment. Equity would not give an injunction for that purpose. Under the statute, it would be necessary to show that there was an intention to dispose of the moneys fraudulently, and then it could be granted only in a proceeding to obtain a judgment against the debtor on an original indebtedness. There can be then no equity as to the fund, which creates a lien upon it by virtue of a contract, that does not in terms create the lien or give the elements of an equitable lien. It would be inequitable to stay the transfer of property, when there is no judgment at law that the owner of the property is indebted; and more especially, when there can be no judgment against the owner, as in this case, the plaintiff here. If, however, the plaintiff stood in the shoes of Smith, the original contractor, the contract would not give the elements of a lien, if there were no other reason, because the terms of the contract do not provide for the application of the fund to the payment of the claim.

Judgment affirmed, with costs.

Freedman and Trcíax, JJ., concurred. 
      The briefs of counsel contain much information as to the power of municipal corporations, their officers or agents, to make contracts or exercise authority in disregard of prohibitions, and as to the construction of their contracts containing provisions contrary to prohibitions applying to them; also as to repeal by implication.
      Cloud or title. The point as to whether plaintiff had any cause of action against defendant Russell was not raised. If he had, it would seem to rest solely on the theory that Russell’s claim was a cloud on bis title to the fund, which it was necessary for him to get rid of through the aid of a court of equity, exercising its jurisdiction of removing clouds on title, before he could recover the fund from the mayor, &c.