Court Opinion

ID: 5371729
Source: CourtListenerOpinion
Date Created: 2022-01-08 08:15:51.750676+00
Date Added: 2024-06-11T08:30:01.460423
License: Public Domain

Hill, P. J.
(dissenting). Respondent, surety in a “ labor and material ” bond for the defendant Luciano, in connection with his contract with the State of New York to construct a highway in Washington county, has taken summary judgment as permitted by an order of the Albany Special Term directing the Comptroller to pay over $3,778.63 with accrued interest to reimburse in part the surety for amounts paid to sixteen lienors who furnished labor and material used in the construction of the highway. The claim is that under the “ labor and material ” bond the surety takes priority over the assignment to appellant Hannibal M. Fiore, who loaned money to the contractor which was applied to the payment of subcontractors, surveyors, laborers and materialmen in connection with the contract. His assignment complies with the Lien Law, and particularly with subdivisions 1 and 5 of section 25, and was filed as required by section 16. The surety bond was dated August *48121 and the contract was approved by the State on September 11, 1939. The lien first filed to which the surety company claims to be subrogated was filed on November 27,1939, in favor of the Albany Steel & Iron Supply Co., Inc. Prior to that time and on November 25, 1939, appellant Fiore had filed his assignment dated November tenth, and had advanced $7,500 thereunder; $3,950 remained unpaid when the State took over the contract on May 23, 1940. Respondent’s other assigned hens were filed between December 14, 1939, and February 1, 1940.
We are here concerned only with the labor and material bond which required Luciano to pay laborers and materialmen, he agreeing with respondent that he would “ indemnify and save the surety harmless from and against ” all liability and would “ place the surety in funds to meet the same before it should be required to make payment.” The Staté assumed no obligation to pay the laborers and materialmen. The requirement for this type of bond indicated the State’s governmental concern that those dealing with its contractors should not suffer loss. (McClare v. Mass. Bonding & Ins. Co., 266 N. Y. 371.) Respondent paid nothing under the “ completion ” bond, as the State completed the work, paying therefor from the credit balance belonging to Luciano, and after that deduction there remained the fund here involved. The completion bond ran to the State, and the surety therein undertook to protect the State from all loss occasioned by the failure of the principal to complete the work.
Appellant’s assignment is drawn (§ 25) and filed (§ 16) in compliance with the Lien Law. He is entitled to such priorities as are given him by the statute.
“ Except as provided in section five [not here applicable] an assignee of moneys, or any part thereof, due or to become due under a contract for public improvement, whose assignment is duly filed prior to the filing of a notice of lien or assignment of every other party to the action, shall have priority over those parties to the extent of advances made upon such assignment before the filing of the notice of lien or assignment next subsequent to his assignment * * (§ 25, subd. 1.)
Appellant advanced the $3,950 claimed by it “ prior to the filing of a notice of lien” by any of respondent’s assignors, and unless the plain import of this statutory regulation has been changed by court decisions, he is entitled to priority over the respondent as assignee of those who filed hens subsequent to the filing of the assignment. Arrow Iron Works, Inc., v. Greene (260 N. Y. 330) is an authority directly in point, as will appear from the excerpts quoted from the opinion (pp. 339, 340):
*482“ For this sum there are two sets of claimants, (1) the defendant Bank of Yorktown, claiming under a written assignment from the contractor of all moneys due or to grow due under the contract, and (2) the eight defendant lienors whose claims have been allowed. The instrument of assignment, under which the Bank of Yorktown now claims, was executed by the contractor, Harry B. Greene, and delivered to the bank on May 16, 1929. At this time Greene was indebted to the Yorktown Bank for a balance of moneys previously advanced to him * * * and this was the sum repayment of which the assignment was designed to secure. Concededly, this assignment was filed in the appropriate offices. * * * Concededly, it was after this date that the eight defendant lienors * * * filed their claims. It will be seen that either the claim of the Yorktown Bank on the one hand, or the aggregate claims of the lienors on the other, will exhaust the fund * * * remaining payable. Notwithstanding the fact that the assignment to the bank was first filed, it has been held that the defendant lienors, whose notices of lien were subsequently filed, are entitled to priority and must receive the contract moneys remaining unpaid.
“ The preponderance of authority, to the effect that an assignee of the moneys due or to become due under a contract for a public improvement, has priority over all lienors whose liens are subsequently filed, is overwhelming. (Lauer v. Dunn, 115 N. Y. 405; McCorkle v. Herrman, 117 N. Y. 297; Stevens v. Ogden, 130 N. Y. 182; Beardsley v. Cook, 143 N. Y. 143; Bates v. Salt Springs Nat. Bank, 157 N. Y. 322; Hackett v. Campbell, 10 App. Div. 523; 159 N. Y. 537; Hall v. City of New York, 79 App. Div. 102; 176 N. Y. 293; Riverside Contracting Co. v. City of New York, 218 N. Y. 596; Anderson v. Hayes Construction Co., 243 N. Y. 140.)”
The same opinion distinguishes and explains Laski v. State of New York (126 Misc. 360; 217 App. Div. 420; 246 N. Y. 569), and terminates the explanation and distinguishing discussion with this sentence, “ These may have been the considerations which induced our affirmance of the decision; certainly it was not the proposition that generally subsequent lienors should have priority over assignees ” (p. 343). It is a novel doctrine that a subsequent lienor whose claim is junior to a prior assignee gains priority by assignment to a surety company, particularly in view of the latter’s relation to the parties under the labor and material bond.
Scarsdale National Bank & Trust Co. v. U. S. Fidelity & Guaranty Co. (264 N. Y. 159) is the authority upon which the respondent relies and which was persuasive in the court below. That case is not an authority under the facts here presented. The last sentence of the opinion (p. 164) reads*. “ We held nothing to the contrary *483in Arrow Iron Works, Inc., v. Greene (260 N. Y. 330) and Laski v. State (217 App. Div. 420; affd., 246 N. Y. 569).” The following are some of the distinguishing features between the instant case and the Scarsdale case. Here it is unquestioned that the money was loaned directly to the contractor Luciano and used in building the road. There the contractor was “ Cook Contracting Company.” The money was loaned to “ George T. Cook & Sons ” upon notes indorsed by Cook Contracting Company and Anna B. Cook. The assignment to the bank was executed by “ Cook Contracting Company.” There was no clear-cut finding that the moneys borrowed were used in the prosecution of the work. Here there was no default under respondent’s completion bond. The State completed the work out of moneys which it held and thereafter there remained the sum involved in this suit. There the default was in the completion contract, and the surety suffered a loss of more than $50,000 in completing the contract. (146 Misc. 819.) The distinction between the position of a surety company under a “ completion ” bond and under a “ labor and material ” bond is plain. Under the former, it is epitomized in the Scarsdale opinion in the Court of Appeals (p. 163): “ The bonding company succeeded to all these rights of the State, under the principle of subrogation. Having completed the work in behalf of the State, it was subrogated to all the rights of the State as against the contractor. This was not a right given to it by the judgment of the court, or arising at the time of the default. It was implicit in its undertaking and agreement with the State.” This default gave rise to no liability on behalf of the State. It was not holden to and did not pay these lienors. The surety company had been paid its premium for assuming the statutory liability that arose only when there was default by the contractor and debtor in paying and discharging its obligations.
The fund here involved, $3,778.63, remained after the State had completed the work upon which Luciano defaulted. Fiore having an assignment senior in point of time to all other hens, was entitled thereto unless by assignment to the surety company, the junior lienors are promoted to a superior position.
A contractor’s default in his obligation under a labor and material bond gives rise to a different jural relation as to the funds in possession of the State than when there is a default in connection with a completion bond, under which the State, having suffered financial damage, compensated and paid by the surety, the latter is subrogated to the State’s claim and its rights are prior to liens or assignments filed after the filing of the bond, the reason as given in the opinion in the Court of Appeals in the Scarsdale case being, “ The equity in favor of the surety company arose at the time of *484the giving of its bond. The right became available when the surety company completed the work at a loss. * * * The equitable lien arose at the time of the execution of the bond and was thus superior to the assignment.” Under a labor and material bond, no obligations from which equities could arise existed at the time of the giving of the bond, and under the Lien Law (§ 25, subd. 1) an assignee has priority as to advances made before the filing of a notice of lien. This rule is recognized in the Arrow case (supra). The doctrine of that case is not questioned but restated in the Scarsdale case (supra).
The order and judgment should be reversed and the cross-motion by the appellant Fiore for summary judgment should be granted.
Bliss, J., concurs.
. Order and judgment affirmed, with costs.