341 Pa. 85 | Pa. | 1941
Opinion by
This is an action in assumpsit instituted by Theodore 'A. DuBois, Trustee in Bankruptcy of the Estate of Fiorentino Feraco, Bankrupt, against the United States Fidelity and Guaranty Company, surety upon Feraco’s bonds, to recover the sum of $10,184.37, with interest.
From the admitted facts and from the findings of fact by the learned trial judge, confirmed by the court en banc, it appears that on August 24, 1932, Feraco entered into a written contract with the Commonwealth of Pennsylvania and the City of Scranton for the construction of a certain highway, known as Section 2 of State Highway Route No. 9. The appellant (hereinafter called defendant) was surety for Feraco, as principal, upon bonds given to the Commonwealth of Pennsylvania and to the City of Scranton, to guarantee the completion of the contract and the payment of labor and materialmen.
Feraco entered into the performance of the contract and proceeded with the work until the spring of 1933. At that time, because of the closing of his bank during the 'banking holiday declared by the President of the United States and its failure to reopen, he was unable to'procure funds necessary for the continuance of the construction. The work then completed totaled $58,396.32 in value, and Feraco had received the total sum of $45,718.45. At that time he had. failed to pay certain
After conferring with representatives of the Department of Highways, and with full knowledge of the Commonwealth and the City, Feraeo, on May 10, 1933, executed a written contract with Frank Snead Company, Inc., a construction company, which undertook to complete the contract for a fee of $3,500 to be paid out of the proceeds. Feraeo gave to W. Frank Snead, president of the company, a power of attorney to receive all checks and funds payable under the contract, and agreed that the monies should be used: (1) to pay the fee mentioned; (2) to pay bills incurred by the Snead Company for labor and materials; (3) to reimburse defendant for the payment of claims against Feraeo; (4) to pay the balance, if any, to Feraeo. The highway was completed and accepted on July 18, 1933.
During June and July, 1933, defendant paid the outstanding claims against Feraeo for labor and materials and, on August 16, 1933, entered judgment against him for their total amount. From June to August payments upon the contract totalling $48,485.86 were made by checks drawn to the order of “F. Feraeo, c/o Frank Snead & Co.” These were endorsed by Snead under his power of attorney and applied in accordance with the agreement of May 10, 1933. At the time of the completion of the work, there remained unpaid upon the contract $13,492.92. On August 22, 1933, Feraeo was adjudged a voluntary bankrupt and plaintiff was duly elected and qualified as trustee of the estate. Thereafter, on October 6 and 10, 1933, defendant procured the payment to it of $10,182.37 of the amount due upon the contract. It is to recover this sum that plaintiff, the trustee in bankruptcy, brought this action, and from the judgment in his favor, the surety company appealed.
Defendant’s first contention, that an action of assumpsit to recover these funds will not lie against it,
Defendant has advanced several theories in support of its claim to keep this money. It contends that Peraco defaulted upon his contract, and that defendant having paid claims for labor and materials in accordance with
It is true that payment for labor and materials by defendant gave rise to a right of indemnity against Feraco, which was the basis of the judgment which defendant caused to be entered. But the sole question here is whether defendant’s right to the funds involved is superior to that of plaintiff, a trustee representing all of Feraco’s creditors. Undoubtedly defendant is a creditor of the bankrupt, but is it entitled to a preference in these funds.
The contract between Feraco and the Commonwealth and the City conferred no rights upon the materialmen to obtain payment of their bills, nor to file liens upon the property. Their claims were against the contracto?
In Sundheim v. Phila. School Dist., 311 Pa. 90, the question Avas, as it is here, whether a surety who had paid materialmen had a right superior to other creditors of the contractor to funds in the hands of the owner of the building. In that case, also, the surety had given construction bonds and additional bonds for the payment of materialmen and labor. There was no obligation in the construction contract to pay such claims, nor could the school district withhold payment of deferred percentages for that purpose. We held (p. 100) : “The only subrogated rights that surety could claim were those of the labor and materialmen it had paid, but they had no lien on the buildings, no right to the funds in the hands of the owner district, nor any contractual obligation on the part of the owner to see that they were paid. They, as labor and materialmen, had no right of subrogation against the owner. They had a claim against the contractor and it was to that claim the surety was subrogated, but that right did not extend to the contractor’s money due and in the owner’s hands, unless it was seized by legal process. To hold otherwise would be to give suretyship an exalted position in the ranks of creditors.”
Distinguishing the decisions of the Federal courts cited, we said (pp. 96-97) : “Under federal statutes a
Defendant has endeavored to incorporate the additional bonds for labor and materials into the construction contract, to give it the effect of the contract involved in Lancaster County National Bank’s App., supra, by a general reference in the introduction of the contract: “It is understood and agreed that everything herein contained, as well as the proposal or bid, is hereby made part of the specifications and contract.” These words manifestly are not sufficiently definite or pertinent to accomplish defendant’s purpose, and the contract as a whole negatives the contention.
The finding of the court below that there was no default disposes of defendant’s attempt to assert an equitable lien upon these funds through a conditional assignment contained in Peraco’s agreement of indemnity and application for the bonds. It is there provided that defendant shall be subrogated, as of that date, to
There remains for consideration only the argument that defendant is entitled to the funds under the agreement of May 10, 1933, between Feraco and the Snead Company. Defendant asserts that this was, in effect, an assignment of the contract to that Company, and a surrender of Feraco’s right to subsequent payments, except for such balance as should remain after payment of the fee and satisfaction of claims for labor and materials. It seems clear that there was no assignment of the contract. The' agreement was, as stipulated at the pre-trial conference, for “the financing, supervision and completion of the work” for a stated compensation. None of the parties treated it as an assignment. The construction contract itself provides: “It is further distinctly agreed that the said contractor shall not assign this contract, nor any part thereof, nor any right to any moneys to be paid him hereunder, nor shall any part of the work to be done or material furnished under
But, even if the agreement should be regarded as an equitable assignment of Feraeo’s interest in the funds in question, and if it be further assumed that defendant, rather than the Snead Company, was the assignee to the extent of its claim for reimbursement, the alleged assignment would be voidable under the provisions of the Bankruptcy Act, as amended, section 60 (b) [11 U. S. C. A. section 96 (b)]. The agreement was executed within the period of four months prior to the adjudication in bankruptcy. The claims for which defendant seeks reimbursement were paid by it in June and July, within the same four-month period. The funds were not received by it from the Commonwealth and the City until after the adjudication. Although it is a question of fact whether defendant had reasonable cause to know that the payment would constitute a preference, it is apparent from the record that it was familiar with Feraco’s financial condition and his insolvency at the time the agreement was made. The payment of these funds to defendant did, in fact, constitute a preference of its claim.
And it is equally obvious, in view of the foregoing, that defendant could not have obtained a preferential payment by virtue of the power of attorney given by Feraco to Snead, see In re Columbia Shoe Co., 289 Fed. 465; Restatement of Agency, section 114.
Under these circumstances it is unnecessary to discuss whether the evidence offered by defendant to show the total expenses incurred by the Snead Company, and that some of these bills had been paid by defendant, should have been admitted. It may be added that such payments were not properly averred in the affidavit of defense.
While it is true that defendant is not unjustly enriched by these funds in the sense that they represent reimbursement for monies expended on Feraco’s behalf,
Judgment affirmed.