Court Opinion

ID: 5808475
Source: CourtListenerOpinion
Date Created: 2022-01-12 18:42:05.508823+00
Date Added: 2024-06-11T08:42:47.012343
License: Public Domain

Reynolds, J. (dissenting).
It is our view that the result reached at Special Term was legally and equitably sound. The original order was changed by stipulation between the parties to give Aetna about $56,000 which was not considered as arising out of the breach of contract suit, reducing the bank’s judgment to about $96,000.
When the assignment to the bank as collateral was prepared, it was prepared at a joint meeting attended by Terry, Aetna as surety (Beasley) and the representative of Royal-Chemical. This assignment was described as ambiguous by William Rehfuss of the Comptroller’s office when the Aetna attorneys attempted to have him issue them a check for the entire amount of the breach of contract suit by Terry v State of New York. Mr. Rehfuss quoted the language of the assignment to Royal in paragraph 2 on page 4: "An assignment only of the moneys to become due on account of the claims against the State for damages sustained through breaches of the terms of said contract. ” (Emphasis added.) It is claimed and not denied that Beasley of Aetna prepared, drew and approved this assignment. The letter from Beasley of July 18, 1962 to his superior confirms this. For Aetna to now claim that there can be no distinction between money due under the contract and damages incidental to the contract (damages for breach of contract) when in fact Aetna was the real beneficiary of the $330,000 loaned by the bank to Terry and drew the collateral assignment, is difficult to understand or to support.
This construction contract was executed in 1959; was to be completed in 1960, however, it was not completed until 1964 and accepted in 1965. It developed apparently from the start that Terry and his associates were having problems in successfully completing it and in 1961 it was apparent that Terry was in real trouble and the surety knew it. Appellants point to a letter in January, 1962 from Terry to the surety that it was out of funds. It is obvious that the money loaned to Terry by the bank was used in this contract whether the actual transfer of the funds was in 1961 or 1962. The date of the transfer is immaterial. Even the appellants admit that if the money borrowed from the bank was used in the performance of the contract that the lender is equitably entitled to the benefit of the proceeds of the assignment, but they say that the agreement and assignment between Terry and Royal is silent as to the purpose of the loan and the bank did not prove the money was used to further the contract.
*8It is obvious from the record that the Aetna knew that the money was used in the contract as contended by Royal. If this were not so, how simple it would have been for the surety on this proceeding to produce an affidavit from Terry, their plaintiff, that the money for the loan did not go into the performance of the contract instead of weak and evasive positions regarding same. And, if the money received by Terry from the bank were not used in the performance of the contract they would have never entered into and prepared the assignment to the Royál Bank. It is significant that the matter of the Royal assignment was discussed for some period before the actual execution of same. While Beasley of Aetna was engaged in the discussions preparatory to the Royal assignment he attempted to file (June, 1962), the application for the bond which contained the original assignment of Terry to the surety which was refused by the Comptroller as defective and later withdrawn on June 28, 1962. His letter to his superior Halley, after the assignment to Royal of the proceeds of the breaches of contract, states nothing about the fact that the bank’s loan was not used in the performance of the work of the contract, but on the contrary states: "Frankly I did not believe that the Bank would accept an assignment such as the one I drafted”. (Referring to the devious clauses inserted.) We say his actions admit the legality and equity of the bank’s claim and his insertion of priorities show that. Special Term did not commit error in strictly construing the assignments against Aetna. The language of both Aetna assignment and the Royal-Chemical assignment show that Royal-Chemical alone was assigned damages arising out of breach of the contract. The language of the Royal-Chemical assignment reads as follows:
"Now, Therefore, in consideration of the sum of $1.00 and other good and valuable considerations in hand paid by Royal State Bank of New York, a New York banking corporation, having its principal office at 245 Fifth Avenue, New York 16, New York, Terry Contracting, Inc. does hereby assign to the said Royal State Bank the sum of $700,000 out of the proceeds of its claims against the State of New York for damages sustained through the breaches of the terms of said contract by the State of New York in compelling the performance of work above and beyond that specified by the terms of the contract, by compelling work to be performed methods which differed from those shown on the Plans and Specifications, by *9delaying the work without cause, and by disrupting the work without cause, all of which required the employment of additional labor, the furnishing of additional materials and service without compensation, and for other breaches of said contract which resulted in damages, and referred to hereinabove. * * * it being the intention of the parties that this shall be an assignment only of the moneys to become due on account of the claims against the State of New York for damages sustained through the breaches of the terms of said contract * * *. Terry Contracting, Inc. hereby, for itself, its successors, and assigns, convenants with the said Royal State Bank as follows: * * * That it will not hereafter collect or receive any part of the moneys hereby assigned, or intended to be assigned, except for the benenfit of said Royal State Bank.”
Special Term in its decision was correct when it stated in connection with the assignment from Terry to Aetna (1959): "Certainly there is some merit to the argument that the Sureties’ assignment must be construed strictly against the draftor, Aetna, and in light of the circumstances which existed at the time. When so construed it can not be said to include an assignment of damages for a breach of a contract as yet not even awarded. * * * Moreover, while a claim not as yet in existence may validly be assigned and is inforceable [sic] in equity as between the assignor and the assignee, such an assignment can not operate to effect adversely the interests of others.”
We feel that the majority has made conclusions of law and fact not justified by this record. The judgment obtained in the action by Terry against the State arose in part out of the breach of contract by the State of New York and does not represent moneys due Terry for work, labor or services performed pursuant to the contract allegedly assigned to Aetna. The subrogation rights raised by appellants in their brief that they are subrogees or lienors; and subrogees of subcontractors and suppliers; and subrogees of trust beneficiaries and the claim that this article 78 proceeding can be construed as an action to settle a trustee’s account are without merit.
We are faced herein with a determination of the intent of the parties in this loan and collateral assignment. It is our view that Special Term was correct in finding that it was the intent of the parties to assign the damages for the breaches of contract to Royal-Chemical and that legally and equitably the bank is entitled to the judgment as rendered below. We also *10find that under the facts Aetna is estopped from taking the position it has taken and we would affirm the judgment at Special Term.
Sweeney and Main, JJ., concur with Greenblott, J.P.: Herlihy and Reynolds, JJ., dissent and vote to affirm in an opinion by Reynolds, J.
Judgment modified, on the law and the facts, so as to delete the first, second, fifth and sixth decretal paragraphs thereof; third decretal paragraph modified so as to grant the petition of Terry Contracting, Inc., Aetna Casualty and Surety Co. and American Employer’s Insurance Co. to the extent of $230,205.25 inclusive of interest, and, as so modified, affirmed, with costs to appellants filing briefs.