Summary
In Bates v. Salt Springs National Bank (157 N.Y. 322) a building contract provided that no payment should be made to the contractor until he had obtained a certificate from the county clerk that no unsatisfied liens were on file. This was held to be for the benefit of the owner, and not as creating any obligation in favor of third parties furnishing labor or materials.
Summary of this case from Mansfield v. Mayor, Etc., of New YorkOpinion
Argued October 11, 1898
Decided November 22, 1898
William G. Tracy for appellant.
Edwin H. Risley for Edward P. Bates, respondent. William Kernan for Millar Murray, respondents.
S.M. Lindsley for Utica Planing Mill, respondent.
These actions were brought for the foreclosure of mechanics' liens and were consolidated by order of the court. The question presented is whether the appellant, the Salt Springs National Bank of Syracuse, as the assignee of the contractors, is entitled to a fund, which has been paid into court to abide the event of the action, as against the various parties who have filed liens for work done and materials furnished in the execution of the contract. It appears that in December, 1890, the firm of Dickison and Allen entered into a contract with the trustees of the Masonic Hall and Asylum Fund for the erection of a Masonic home near Utica. The contract price of $139,500, was to be paid in twelve installments; the last of which, being stated at the sum of $28,500, was payable when the buildings were completely finished and accepted. After the making of said contract, and in February, 1891, before any work had been performed under the contract, the contractors assigned, in writing, to the defendant, the Salt Springs Bank, the last payment to be made on said contract as collateral security for their existing and future indebtedness to the bank. Notice of this assignment was given to the trustees on April 28th, 1892. On May 31st, and on June 4th following, mechanics' liens were filed by the defendants Cahill and Utica Planing Mills. On the latter date the contractors made a further assignment to the Salt Springs Bank, as collateral security, of all payments then, or which might thereafter become, due and payable on said contract, including extra work. Notice of this assignment was received by the trustees on June 6th. Thereupon, the contractors, being insolvent, abandoned the work and requested the trustees to finish the buildings under the contract. Between June 5th and July 17th, 1892, other liens, aggregating over $18,000, were filed by the creditors of the contractors. At the time of the abandonment of the work, there was unpaid upon the contract, including extra work, the sum of $33,067.31. The trustees in completing the work on the buildings under the contract expended the sum of $8,478.32. Deducting from that amount certain damages for delay and the expenses of completing the buildings, the sum which would have been payable to the contractors, if they had completed their contract, and which is now to be disposed of in this action, is $23,788.49. The Salt Springs Bank, on the 6th and on the 9th of June, 1892, recovered judgments against the contractors aggregating in amount the sum of upwards of $38,000, and, in proceedings supplementary to execution, the defendant Ross was appointed receiver of the joint and several property of the contractors. It was found that the indebtedness unpaid to the bank, inclusive of interest, exceeded the sum of $25,000.
The General Term of the Supreme Court has affirmed a judgment of the trial court, under which the parties who had filed mechanics' liens were adjudged to be entitled to be paid the amount of their respective liens in preference to the Salt Springs Bank. The theory upon which this conclusion has been reached is that, under the proper construction of a certain clause in the contract, it was intended by the parties thereto that persons who labored for, or furnished, materials to the contractors should be protected. The clause which received this construction reads as follows: "It is also agreed that no payment shall be made hereunder until the said parties of the second part, (meaning the contractors), shall have obtained a certificate from the clerk of Oneida county, showing that at the date of such payment, no liens or claims have been recorded or filed against said premises or building, which are then unsatisfied of record." Upon the interpretation to be given to this provision must depend the decision of the question involved in this case, whether the amount unpaid upon the contract belonged to the bank by virtue of its assignment, or whether it belongs to the lienholders to the extent of their liens. In considering that question the learned General Term discarded the suggestion of the respondents, that the amount unpaid upon the contract was not due by reason of the provision that no payment should be made until the contractors produced the county clerk's certificate that no liens were unsatisfied; and, very properly, held that if the assignment to the bank carried the right to the amount unpaid on the contract, it was the duty of the court to set aside the liens, so that the bank could procure the proper certificate and thus obtain the fund to which it was in fact entitled. The opinion held that under the Mechanics' Lien Law, (Chap. 342, Laws of 1885), the laborer, or materialman, has no preferential right to be paid out of the sum due the contractor, until he files his notice of lien. In the absence of anything to the contrary in the contract and before any notice is filed, the contractor may assign to his creditor, in payment of his debt, the whole, or any portion, of the moneys due, or to become due, under the contract and the assignee acquires a preference over a subsequent lienor. This view was based on abundant authority and is indisputable. ( Brill v. Tuttle, 81 N.Y. 454; Lauer v. Dunn, 115 ib. 405; McCorkle v. Herrman, 117 ib. 297; Stevens v. Ogden, 130 ib. 182; Beardsley v. Cook, 143 ib. 143.) The principle to be extracted from the cases is that a lienor obtains no greater right to the moneys payable by the owner, than the contractor has and if the latter has assigned to a creditor, pro tanto, the assignee gains a preference over subsequent liens. The court, however, adopting the view that the provision, or clause, of the contract in question prohibited payments, until the county clerk's certificate was furnished, reached the conclusion that it had for its purpose the protection of the lienors, the laborers and the materialmen, as well as the protection of the trustees. The reasoning to this conclusion was made upon the authority of certain cases in this court, which were thought to be controlling, viz.: The Merchants and Traders' National Bank v. The Mayor ( 97 N.Y. 355), and The Mechanics and Traders' National Bank v. Winant ( 123 N.Y. 265). These cases related to contracts made by the city of New York in 1875 and 1876. They contained, by direction of an ordinance of the city, this clause: "The said party of the second part (meaning the contractor), hereby further agrees that he will furnish said commissioner (meaning the commissioner of public works), with satisfactory evidence that all persons who have done work or furnished materials under this agreement, and who may have given written notice to the said commissioner, * * * have been fully paid or secured such balance. And in case such evidence be not furnished as aforesaid, such amount as may be necessary to meet the claims of the persons aforesaid (meaning the persons who had done work or furnished materials), 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." Those cases held, in effect, that the purpose of that provision was to protect those employed under the contractor. That was its only purpose, and the reason for it was obvious. At the time when the contracts were made, there was no lien law relating to work done and materials furnished on public works in cities. Such an act was not passed until 1878 (Chap. 315, Laws of 1878). The construction of the ordinance which required such a provision in city contracts, as given in the Bank Cases ( supra), was that it did secure to persons furnishing labor and material to contractors with the city some of the advantages, which the Lien Laws of the state gave to mechanics and materialmen. The city in such a contract assumed no express liability to pay them and could not be sued therefor; but it was placed under the implied obligation to hold, as trustee, the unpaid balance due upon its contract for the benefit of such persons. In the Bank v. Winant ( supra), the opinion followed the case of Bank v. The Mayor ( supra), as to the nature of the contract; but it dealt with a question of the effect of the sub-contractor's failure to file the notice, provided for in the clause of the contract, with the comptroller, as the city official designated, and it was held that the plaintiff could not raise such an objection. The distinction between those cases and the cases where the contract is between private parties is marked; for, in the latter, a lien could be acquired which would be binding upon the owner and, therefore, the presence of a clause in the contract dispensing the owner from the obligation of payment, if there were liens upon the building, is only for his relief and protection. To this effect is Lauer v. Dunn ( supra). In Lauer v. Dunn, the provision was that "in case any lien or liens shall exist upon the property at the time or times when any payment is to be made such payment, or such part thereof as shall be equal to not less than double the amount of or for which such lien or liens shall or can exist, shall not be payable at the said stipulated times, notwithstanding anything in this agreement to the contrary contained." It was there held of that provision, that it was for the protection of the owner simply. In that case, if, when moneys were payable to the contractor, liens existed, the owner might reserve double the amount claimed under the liens from the funds in his hands; while, in the present case, no payment should be made. The plaintiffs in that action were sub-contractors for the construction of buildings and received from the contractors a written order on the owner for the payment of a certain sum. We held that the order amounted in law to an assignment pro tanto of the funds in the owner's hands and as such it bound that fund in preference to liens which were subsequently filed. The provision in the contract was for the protection of the owner and, after notice of the order, which was in effect an assignment of the contractor's interest in the money in the owner's hands, the owner was bound to apply the fund in his hands to its payment and to no other purpose. That decision is controlling upon the decision in the present case: for there is no material distinction to be made in the effect of the respective clauses under consideration.
The reasoning in the New York city cases is not applicable to create a distinction as against the authority of Lauer v. Dunn in the decision of this case. It is not quite consistent with reason, or with the motives which usually influence parties in the making of contracts, that we should regard the clause in the present contract as inserted otherwise than for the protection of the trustees who had contracted for the construction of the buildings. The owner, in such a case, is only desirous to be protected, in his payments due under the contract, against the liens of laborers and materialmen and that purpose is accomplished by requiring the contractor, as a condition precedent to payment, to produce a certificate as to no liens being filed. Of course, the contractor is not interested in the insertion of such a provision. To infer from the presence of the clause a design to protect third parties, requires something more definite to that effect in writing, in order to make the inference reasonable and natural. To attribute to an ordinary business agreement between parties an altruistic purpose requires some support in the language. In its absence, the inference to be drawn, in the interpretation of its clauses, is subject to the usual rules which govern in the construction of legal instruments, which define the respective undertakings and obligations of the parties.
Nor does the fact that the trustees completed the buildings affect the right of the plaintiff. They elected to do so and, therefore, such part of the last payment as remained in their hands, after deducting the cost of completion, became applicable to the payment of the claim of the assignee of the contractor. ( Beardsley v. Cook, 143 N.Y. 143, 148.) That election and the payment of the moneys into court are a waiver of any objection that the moneys unpaid upon the contracts were not due, by reason of the non-production of the county clerk's certificate as to there being no liens. ( Beardsley v. Cook, supra.) Under the doctrine of equitable assignments, it is of no consequence to the relative rights of assignees and lienors that the money may not be immediately payable.
Concluding, therefore, as I think we are bound to do under the authority of Lauer v. Dunn, that this clause in the contract was for the benefit of the trustees only, it follows that the assignment by the contractor to the Salt Springs Bank of the last payment upon the contract, executed upon the making of the contract, operated as an equitable assignment of the moneys remaining unpaid upon the contract, when notice of it was given to the trustees, and gave to the assignee a preference over liens subsequently filed. There is no question as to there being an indebtedness from the contractors to the bank and upon notice of the assignment to the trustees, the effect was to bind the moneys remaining unpaid upon the last installment in favor of the bank's claim. There had been an equitable assignment of the moneys, which only required for its enforcement a fund to fasten upon and a notice to the holder of the fund. The bank acquired the right of the contractors; who lost their interest in, and dominion over, the fund and its assignment was subject to no other equities than such as the trustees may have had against the contractors at the time they had notice of the assignment.
It follows from the views expressed that the judgment appealed from should be reversed and a new trial ordered, with costs to abide the event.
All concur, except O'BRIEN, J., dissenting, and MARTIN, J., not sitting.
Judgment reversed, etc.