Court Opinion

ID: 7057497
Source: CourtListenerOpinion
Date Created: 2022-07-24 07:08:10.952625+00
Date Added: 2024-06-11T16:12:02.686702
License: Public Domain

On Petition for Rehearing.
Lairy, J.
— The original opinion holds that unpaid claims for material furnished to the contractor before it abandoned the work had no priority over the claim of appellant under its equitable assignment of the proceeds of the contract. The writer of the opinion entertained some doubt as to the correctness of this statement at the time of the adoption of the opinion by the court, and, from subsequent consideration and investigation, the doubt has ripened into a conviction that the rule thus announced is erroneous.
2. The opinion holds that appellant’s rights under the equitable assignment of the prospective assessments were such only as could have been asserted by his assignor in case no assignment had been made. In order to entitle the contractor to a final estimate, it was necessary that the work should be completed and accepted by the city. If he failed to complete the contract, he would be entitled in equity to receive only the balance of the proceeds of the assessments after deducting the amount of all costs and expenses incident to the completion of the work to be done under the contract and the amount of all unpaid claims for labor and material which entered into its construction. Appellant took the assignment of the proceeds of the contract subject to all equitable defenses. Rosenthal *636v. Rambo (1905), 165 Ind. 584, 76 N. E. 404, 3 L. R. A. (N. S.) 678; Copeland v. Manton (1872), 22 Ohio St. 398; Hardaway v. National Surety Co. (1908), 211 U. S. 552, 29 Sup. Ct. 202, 53 L. Ed. 321.
By the appointment of a receiver the whole controversy was drawn within the jurisdiction of a court of equity. In a court of equity having jurisdiction to declare priorities and to order a distribution of the proceeds of the contract, the rights of the assignee of such proceeds were the same that those of the assignor would have-been in case no assignment had been made. If the contractor had been in court, and had been insisting on an order directing the proceeds to be turned over to him in preference to the unpaid claims allowed by the court for labor and material which entered into the construction of the work, I think there can be little doubt that the claims for such materials would be entitled to priority of payment.
For the reasons stated, I am of the opinion that the unpaid claims for materials furnished to the contractor prior to the time he abandoned the contract are entitled to preference over the claims of appellant under the equitable assignment of the proceeds of the contract.
While I vote to deny the petition for rehearing in preference to adopting the views expressed in the dissenting opinion, I do so with the mental reservation herein expressed. I have an abiding conviction that the original opinion should be modified in the manner indicated. None of the other members of the court agree that it should be so modified.
Separate Opinion.
Harvey, J.
— I agree with the prevailing opinion wherein it holds that the superior court erred in requiring that out of the assessment roll should be paid two claims for materials purchased by the contractor for *637use in the construction of the sewer in question. It has been expressly held in the decisions cited that claims for materials and labor are not liens upon or chargeable against the fund raised by the assessment. Such claimants must seek payment from the contractor or his surety.
The superior court was doubly wrong in allowing payment out of the assessments to the surety of an amount the surety had paid out in a pretended purchase of one of these material accounts, because: first, such account was not chargeable against the assessment roll; and, second, the surety was liable therefor directly, and had no right as against others having equities in the fund to buy this claim and assert a prior equity securing its payment.
I cannot agree, however, that the prevailing opinion is correct in allowing as prior to the claim of appellant for money advanced on faith and security of the assessment roll the amount the receiver borrowed for use in completing the contractor’s work, or in allowing priority to the costs and expenses of the receivership. While it is a fact that the receiver borrowed from appella'nt the sum needed and used in completing the work, and the superior court ordered that the sum so borrowed be repaid to appellant as a prior claim, it may seem on first impression to matter little, in dollars and cents, to appellant that this sum is deducted from the assessment, as it is paid to appellant after such deduction; but appellant loaned the total amount of the assessment roll, and in addition thereto loaned the amount needed to complete, and is entitled to recover both sums, and its equities as to both should be considered. If the contractor had purchased the amount of material and labor necessary to complete his contract, and had not paid therefor, there can be no doubt that his surety would have been directly liable therefor and the assessment *638roll would not have been chargeable therewith. What equity protects the surety at the expense of one having an existing and valid lien on the assessment roll, where the only difference is that the receiver who is attending to the affairs of the contractor purchases the material and labor? Existing liens on property coming into the hands of a receiver are not so easily displaced or destroyed.
This is a proceeding in equity, and the result sought is a marshalling of priorities and the application of a certain fund in accord with equity. As shown by the prevailing opinion, the amount derived by assessment for sewer construction primarily constitutes the fund. The relations of the parties to this fund were originally such that the contractor would be entitled thereto under his contract. To mature his said right thereto he must perform his contract, including payment of all expenses of labor and material. Thus far his rights and obligations are rights at law. He abandoned the work. Out of this failure no equities grow in his favor. He filed bond securing such performance. The surety on this bond then became bound at law in some manner to make good the default. Such a surety is not a favorite at law or in equity. It received compensation it deemed sufficient to protect it in the event of liability on the bond.
In this case the surety refused on demand of the city to do anything. This did not add to its. equities. It was expressly obligated to pay material and labor claims. ' This it refused to do. In an effort to save itself from one such claim it purchased the same, and asserted that it thereby was entitled, as against all others interested, to an allowance of this claim. No equity arises in its favor out of this attempted evasion of its legal obligation. If it had performed its obligation, this litigation and receivership would have been *639avoided. No allowance for services of the receiver or his attorney could have been asked, or made. No equity arises in its favor out of its conduct, indirectly causing this expense. Therefore, as the surety was obligated to so act as to avoid such expense, the receiver should have called upon the surety for funds to complete the contract and pay the expenses of the receivership. Equity to others demanded this, and a court of equity, having jurisdiction of all parties, should have required that the receiver collect from the surety this expense, because of its default, and the default of its principal, the contractor. In • all this there is not the slightest suggestion of an equity in favor of the surety. So much for the equities of the contractor and its surety.
The city is a party to this proceeding. It is not involved at this stage, except as a stakeholder, ready to pay the right party, or to pay to the court of equity, that the court may distribute to the right party. The material claimants are parties, but they have legal remedies against the surety, and have no claims, legal or equitable, to the fund. The only other party is the Aetna Trust Company. It was induced to loan money to the contractor by the fact that a legal contract had been made between the city and the contractor, the performance of which was secured by a bond. The payment of all material and labor claims necessary to completion was secured by the bond. This was assurance that the sewer would be completed, and that the city would resort to the bond in event of default by the contractor, or that the city would complete the sewer, or cause it to be completed, at the expense of the contractor or his surety. Thus an assessment roll and the collection thereof was assured, and the statute in force when this contract was made created a lien upon the property affected at the date of the contract. Acts 1905 p. 236, §108, §8711 Burns 1914.
*640If, by reason of defaults and refusals of the contractor and his surety, a court of equity took jurisdiction, the exercise of its powers would bring completion at the expense of those obligated for the expense thereof. If the cost of completion exceed the contract price, the contractor or his surety must furnish the excess. Induced by all these provisions, the Aetna Trust Company agreed to and did take an assignment of the'prospective assessment roll as security. The Aetna company advanced all it agreed to and more. It defaulted in nothing. It did not become an assignee of the contract, or assume any obligations thereunder, and neither law nor equity imposes any such obligation. It took the beneficial results of performance which others were obligated to complete.
It might have resisted, as might others, the appointment of a receiver, because an ample legal remedy existed in the city to cause completion at the expense of the surety. There may have been need, however, for a receiver, because neither the city, nor the contractor, nor his surety would move or act toward completion. The assignee of the roll waived nothing by allowing a court of equity to undertake working out the duties, obligations and equities of all parties. It had a right to anticipate that a court of équity would so do at the expense of those obligated therefor, and that the court would use its powers to bring in from such obligated parties the expense of so doing. When all this is considered, where does equity range the rights and priorities of the surety and the Aetna Trust Company? That is the only question here. The defaulting surety cannot stand on the same plane, as to any part of the Aetna company’s advancement, with the Aetna company, which company has defaulted in nothing.
The prevailing opinion holds that in any event the *641surety could only be held for that part of the expense of completion which the assessment did not pay, hence the assessments must be first applied to completion, though this damages the Aetna company’s security. This might well be true if the contractor and the surety were the only parties interested in the application of the assessments; but it cannot be true where another has in good faith, and for a consideration which moved to the use and benefit of the contractor and his surety, taken as security the assessment roll.
The prevailing opinion admits that the assignee of an anticipated assessment roll takes an equitable interest, but states that this amounts to nothing except as ripened by performance of the contract. Such an equitable interest included a right to the protection of performance by those obligated thereto. The surety became responsible for the completion, and thus for the ripening of the equitable rights of the assignee, and cannot take advantage of its own wrong in failing to cause completion, and assert that its own default having prevented the assignee’s rights from ripening, the assignee must suffer and the surety benefit.
Therefore I am of opinion that the trial court also erred in protecting the surety by requiring that the amount borrowed by the receiver be paid out of the assignee’s assessments, and in requiring that the costs of the receivership be paid out of the assessments.
The reversal of the decree is approved, but the mandate should be that the total amount of the assessments be paid over to appellant, less the inspection charges, and including that to be released by the city at the end of the guaranty period, and, further, that the'receiver be directed to proceed against the surety for the amount expended in completion, and the costs of the receiver*642ship, and, when collected, the amount advanced by appellant to the receiver should be repaid.
Myers, J., concurs herein with Harvey, J.
Note. — Reported in 122 N. E. 421,125 N. E. 213,123 N. E. 353.