Court Opinion

ID: 9668859
Source: CourtListenerOpinion
Date Created: 2023-08-24 02:28:54.935373+00
Date Added: 2024-06-11T18:15:49.092601
License: Public Domain

ON MOTION FOR REHEARING OR TO TRANSFER
PER CURIAM:
In its alternative motion for rehearing or for transfer to the Supreme Court, the plaintiff bank asserts, among other things: 1) that it should not be charged with notice that a “completion” bond existed, because § 107.170 requires only a labor and materials payment bond; and 2) that, to quote plaintiffs’ motion, “the resolution of this case depends upon whether it is fair to give the surety’s right of equitable subro-gation priority over the bank’s assignment . . . when the bank gave the surety notice of the assignment . . . and the surety remained silent.” The plaintiff suggests that the surety should be required to give any subsequent assignee who gives notice some indication that there is a bond and that the surety will have an equitable right of subrogation after default. Such contentions, in point of fact, were considered and rejected by the courts whose decisions we cited in the principal opinion, but perhaps we should state our position more explicitly.
Plaintiffs’ argument that it cannot reasonably be held to constructive notice of the existence of a “completion” bond, as distinguished from a “payment” bond draws a distinction without a difference, for the surety’s subrogative right is essentially the same whether it performs as a “completing” surety or as a “payment” surety. Moreover, statutory provisions requiring some kind of bond from a public works contractor are usual, not exceptional, 64 Am.Jur.2d Public Works and Contracts § 99, pp. 961-962 (1972), and the rule charging the assignee of a public works contractor with constructive knowledge of such statutory provisions has been applied as a matter of state law, as well as federal law. See Standard Acc. Ins. Co. v. Federal Nat. Bank, supra, 112 F.2d 692, 695 (10th Cir. 1940) (applying Oklahoma law); Derby v. United States F. & G. Co., 87 Or. 34, 169 P. 500, 503 [3] (1917).
As for the plaintiffs’ argument that the surety should be required to notify the contractor’s assignee of its equitable right of subrogation, we might suggest, as most courts have, that the bank was certainly under no compulsion to loan the contractor any money, and might easily have protected itself by making inquiry of the arrangements between the contractor and the surety, since it knew of the surety’s existence. However, we wish to emphasize *485that the surety’s right of equitable subrogation does not arise out of the assignment contained in the application for the bond, even though the plaintiff persists in regarding this case as a case involving two competing assignments. The surety’s right of subrogation arises independently of contract by operation of law under familiar principles of equity. Pearlman v. Reliance Ins. Co., supra, 371 U.S. at 136, n. 12, 83 S.Ct. at 235, n. 12, 9 L. Ed.2d at 193 n. 12; Standard Acc. Ins. Co. v. Federal Nat. Bank, supra, 112 F.2d at 695. As for the bank’s argument that the general rule affording the surety a right to the retained fund superior to that of the assignee (with the exceptions noted in the principal opinion) is inherently “unfair”, and should be reexamined, we again note that we did not purport in the principal opinion to establish a general rule of law applicable to all public works contracts in this state. However, our Supreme Court, in Nat’l Sur. Corp. v. Fisher, supra, 317 S.W.2d at 341, acknowledged the general rule that a surety which executes a performance bond on a construction contract, and which thereafter is required to pay labor or material claims, has an equitable right of subrogation and an equitable lien on funds retained by the owner or ob-ligee which is superior to the right of one who takes by assignment from the contractor after the execution of the bond, and the bank’s argument that it has, or should be held to have, an inherently superior status, has been rejected again and again by the courts, generally on grounds of public policy. See again Nat’l Shawmut Bank of Boston v. New Amsterdam Cas. Co., 411 F.2d 843, 845 (1st Cir. 1969); United States F. & G. Co. v. First State Bank of Salina, 208 Kan. 738, 494 P.2d 1149, 1154— 1155 [1] (1972); note, supra, 71 Yale L.J. at 1278-1280. We see no reason for reexamination of the existing law in the circumstances of this case.
The alternative motion for rehearing or for transfer is denied.