Fidelity v. McClintic-marshall CorpFidelity v. McClintic-marshall Corp
The bill is filed by the sureties on the bond of the late Charles T. Kavanagh, given to secure performance of a contract between Kavanagh and the state highway commission for work on one of the state highways. The defendants are subcontractors, materialmen, the administrator of Kavanagh‘s estate, and the National Bronx Bank of New York.
As required by section 4 of “An act to protect persons performing labor or furnishing material for the construction, alteration or repair of public works” (P.L. 1918 p. 203), Kavanagh‘s bond, on which complainants are liable, was conditioned to the payment of “all lawful claims of subcontractors, materialmen and laborers for labor performed and materials furnished in the carrying forward, performing or completing of said contract.” On January 4th, 1933, the highway commission duly accepted the work done by Kavanagh under his contract. Within eighty days thereafter, several of the defendants, pursuant to section 3 of the statute, gave complainants a statement of the amount due them for labor or material furnished either to Kavanagh or to subcontractors. After the expiration of the eighty-day period but within one year from the acceptance of the work by the highway commission, namely, on July 21st, 1933, the bill was filed, and the defendants were enjoined from bringing suit on their claims against complainants. Another group of defendants filed with the state highway commission claims for the amounts due them but did not serve notices on complainants pursuant to the statute of 1918. The National Bronx Bank occupies a peculiar position which will be stated in due course.
In the absence of statute, one who furnishes material or labor for a building or any structure which is part of the land, has no lien, legal or equitable, on the land, the structure, or the contract price. The right of lien in every such a case is the creature of statute. Unless aided by legislation, the materialman or the laborer must rely solely on the general credit of the person with whom he contracts; he has no greater interest in the sum due from the state to Kavanagh or from the latter to a subcontractor, than any other creditor. The Mechanics’ Lien act (Comp. Stat. p. 3291), or the
The effect of the bond, so far as it relates to those who contracted direct with Kavanagh, is to leave him the principal debtor and to make complainants his sureties for the amount which he owes. Incident to the creation of the suretyship, there arose the usual duties, rights and remedies of a surety. If complainants pay a debt of Kavanagh for which they are liable, they stand in the creditor‘s position and may sue Kavanagh for the amount paid, but they do not thereby acquire a lien on the sum due from the highway commission, for the creditor has no lien. Board of Education v. Zink, 101 N.J. Eq. 78; Grover v. Board of Education, 102 N.J. Eq. 415; 104 N.J. Eq. 197; John W. Barwell, Inc., v. Vail, 108 N.J. Eq. 117; 111 N.J. Eq. 431; Guise v. John C. Guise, Inc., 112 N.J. Eq. 11. Or complainants may, on a bill quia timet, require Kavanagh to pay the debt or, under certain circumstances, require his creditor to make the debt out of the principal debtor‘s estate. Greenberg v. Leff, 104 N.J. Eq. 502; 146 Atl. Rep. 196, and earlier cases there cited. But complainants cannot enforce a non-existent lien. They may obtain a money decree generally against Kavanagh in favor of the creditor, but not a decree directing payment out of the amount due from the state highway commission or out of any other particular part of his estate. Counsel refer to Stulz-Sickles Co. v. Fredburn Construction Co., 114 N.J. Eq. 475, in which one of the most learned members of this court, Vice-Chancellor Berry, spoke of a surety‘s right of exoneration as a right to have a particular fund applied to the payment of the guaranteed debt, citing Greenberg v. Leff, supra, and Glades County v. Surety Co., 57 Fed. Rep. 2d 449. In the first of these
The situation arising from the bond so far as it relates to those who furnished labor and material to a subcontractor and not to Kavanagh, is somewhat different. Kavanagh himself, by virtue of the bond, is a surety for the subcontractor, the principal debtor, and complainants are supplemental sureties, that is, their liability is successive to Kavanagh‘s. Again, the familiar rules for the relief of sureties apply not only in favor of complainants but also in favor of Kavanagh. But here a new circumstance intrudes. Kavanagh is not only surety for the subcontractor, for example, the Corbetta Concrete Corporation, but he is also a debtor to the concrete corporation. Upon payment of a debt due by the latter, he is subrogated to the claim of the creditor whom he pays, and can offset the amount due to him as subrogee against what he owes the concrete corporation (Nutz v. Murray-Nutz, Inc., 109 N.J. Eq. 95), and until he can ascertain whether the claim against himself as surety for the concrete corporation is valid, he may, if in danger of loss, retain for his security the amount which he owes to the concrete corporation. 2 White T. 1345, American note to Earl of Oxford‘s Case; Tipula v. Garfield Mill, 115 N.J. Eq. 246. Complainants, as supplemental sureties, could, in an action brought against them by a subcontractor‘s creditor, urge any defense which Kavanagh might have, and in the present suit they may avail themselves of his equitable right of set-off.
This was the situation created by the statute of 1918 and by the bond given thereunder when the contract between the highway commission and Kavanagh and the contracts between him and the subcontractors were made. Thereafter, on June 15th, 1932, two statutes were approved and took effect immediately — chapters 268, page 604 and 269, page 605, of the laws of that year. The first provides that moneys paid by the state or a department thereof to any person pursuant to the provisions of a contract for a public improvement made between such person and the state or the department “are hereby declared to constitute a trust fund in the hands of the said person, firm or corporation as such contractor, until all claims for labor, materials and other charges incurred in connection with the performance of said contract shall have been fully paid.” The second statute, a supplement to the Crimes act, denounces as guilty of a misdemeanor any such contractor “who shall use any such moneys so received from the State of New Jersey * * * for any purpose other than the payment of claims for labor and material and other charges incurred in connection with the performance of said contract.”
Chapter 268 creates an equitable lien to secure claims for labor, materials, c., and leaves the residuary title in the contractor. The important question is, what claims are secured? It is urged on the one hand that the phrase “all claims for labor, materials and other charges incurred in connection with the performance of said contract,” should be construed to mean all claims incurred by the contractor or any subcontractor and it is argued on the other hand that the only claims secured are those incurred by the contractor himself. The first construction would make the contractor‘s property liable for the debt of another. The legislative purpose, to have this effect, must be plainly expressed and not depend on implication. The phraseology of the statute may be contrasted with that of our other laws dealing with the same general subject, the Mechanics’ Lien act, section 3, the Municipal Mechanics’ Lien act, section 1, and the Bond act of 1918. These statutes leave nothing to implication but
Again, the fund is a trust fund in the contractor‘s hands but not in the hands of the subcontractor, since the latter has no contract with the highway department. To parties who furnish labor or materials to subcontractors but who fail to proceed under the 1918 law, no equitable lien is given.
The statute of 1932 was passed after Kavanagh‘s contracts with the highway commission and with his subcontractors were made and after a large part of the work was done. If the statute were construed to impose a lien on the contract price, for the benefit of persons to whom the contractor is not otherwise liable, I would say that the constitution prevents the act from operating in this cause. But since, in my opinion, the lien runs to those only to whom the contractor is bound, the statute does not, I take it, impair his vested rights, or the obligation of his contracts. 12 C.J. 1072. The law should be construed, however, to give a lien only for labor or materials furnished after it took effect, and not for work theretofore done. Steurwald v. Munn, 90 N.J. Eq. 474. The right of lien is determined by the law existing when the work is done. Passinger v. Magliaro, 109 N.J. Eq. 381. Kavanagh‘s counsel informs me that his client is indifferent whether there be a general pecuniary decree against him, or a decree for payment out of the fund. So I may proceed as to him, as if all the work had been done after the statute of 1932 became operative.
In the present instance, the contract price was never actually paid by the highway department to Kavanagh, but instead was paid into court to be disbursed in the suit. This was equivalent to payment to Kavanagh.
Now for the claim of the National Bronx Bank. On September 23d 1932, the bank loaned one of the subcontractors, Corbetta Concrete Corporation, $28,000 on a demand note and took as security an assignment of all money due or to become due to the concrete corporation out of the retained percentage under its subcontract with Kavanagh. The assignment recites that the retained percentage at the date thereof was $29,983; it is now $38,128.50. The concrete corporation has failed to pay the bank and it has failed to pay its own materialmen to whom is owing approximately the sum last mentioned. Most of these materialmen filed statements of their claims with complainants within the time required by law, so that complainants and Kavanagh are undoubtedly liable to them. Can the amount for which complainants
I reach the same conclusion with regard to the fund in court. The only title of the bank to that fund is the one given by the statute of 1932 to the concrete corporation. The lawful claims of the subcontractor‘s materialmen are a prior charge on that part of the fund which would otherwise go to the subcontractor.
To conclude, the fund in court should be used to pay all claims incurred in connection with the performance of Kavanagh‘s contract and for which he is liable, either by reason of his promise to pay or else by action taken by the claimants under the act of 1918. The amount payable to any claimant is subject to reduction to the extent of his own debts satisfied out of the fund. The bank will take what, if anything, would be payable to the concrete corporation were it not for the assignment. The claims will carry interest in accordance with the rule of J.J. Shannon Co. v. Continental Casualty Co., 106 N.J.L. 200. Any balance remaining will be payable to Kavanagh. Defendants who did not perfect their claims under the Bond act and to whom Kavanagh is not liable, take nothing. If the fund be insufficient to pay all claimants in full, they will, I assume, share pro rata, although the point was not argued. And the deficiency will be made good by Kavanagh
The amount due McClintic-Marshall Corporation and Taylor-Fichter Steel Construction Company is in dispute and is being determined in a separate cause. Contested claims of other defendants may be settled on a reference to a master. I see no reason why those whose claims are undisputed should be further delayed in the receipt of what is due them. Final decrees for their relief may be made under rule 15. All defendants who share in the fund are entitled to costs. I will hear counsel whether the costs should be borne by complainants or Kavanagh.