Aetna Cas. & Sur. Co. v. Perrotta

• Decision Date: 03 February 1970
• Citation: 62 Misc.2d 252,308 N.Y.S.2d 613
• Parties: In the Matter of Application Under Article 78 of the Civil Practice Law and Rules of The AETNA CASUALTY AND SURETY COMPANY, Petitioner, v. For an order directing Fioravante G. PERROTTA, Finance Administrator of the City of New York, Respondent, to draw to petitioner's order, execute and deliver to petitioner warrants totalling the sum of $17,813.00, which warrants are presently held by respondent and are drawn to the order of the M.K.B. Industries, Inc.
• Court: New York Supreme Court

Page 613

308 N.Y.S.2d 613

62 Misc.2d 252

In the Matter of Application Under Article 78 of the Civil Practice Law and Rules of The AETNA CASUALTY AND SURETY COMPANY, Petitioner, v. For an order directing Fioravante G. PERROTTA, Finance Administrator of the City of New York, Respondent, to draw to petitioner's order, execute and deliver to petitioner warrants totalling the sum of $17,813.00, which warrants are presently held by respondent and are drawn to the order of the M.K.B. Industries, Inc.

Supreme Court, Special Term, New York County, Part I.

Feb. 3, 1970.

Max E. Greenberg, Trayman, Harris, Cantor, Reiss & Blasky, New York City (George N. Toplitz, David A. Trager, New York City, on the brief), for petitioner.

Harold Simon, New York City, for cross-movant Associated Factors Corp.

J. Lee Rankin, Corp. Counsel (Herbert Perlman, New York City, of counsel), for respondent.

HYMAN KORN, Justice.

Petitioner, Aetna Casualty and Surety Company, moves by order to show cause to direct the Finance Administrator of the City of New York to deliver to petitioner warrants totaling $17,813. Associated Factors Corp. (hereinafter called Associated) cross-moves for an order pursuant to Article 78, CPLR, to compel the Finance Administrator to deliver to it warrants totaling $14,033. In effect, both parties are seeking to recover moneys presently held by City and payable to a defaulting contractor, M.K.B. Industries, Inc. (hereinafter called MKB). It appears that MKB, a general contractor, entered into a series of public improvement contracts with the Board of Education of the City of New York. Separate contracts were entered into by MKB relating to P.S. 50, P.S. 616, P.S. 193, P.S. 177 and P.S. 11. Petitioner, as surety, executed and delivered to the Board of Education performance bonds and payment bonds in connection with each of the contracts entered into by MKB. Said bonds were filed with the Comptroller's office. The contractor (MKB) in turn simultaneously executed separate indemnity agreements for each undertaking provided by petitioner. The indemnity agreement provided, inter alia, that in the event MKB fails to complete the undertaking or fails to pay any bills for work performed, all moneys due under the contract were assigned to petitioner.

Associated alleges that on August 1, 1963 it purchased from MKB 'certain accounts receivable due' MKB from the Board of Education and that MKB thereafter assigned to Associated all moneys due on the various contracts. Associated specifically alleges assignments made by MKB of the proceeds for work performed with respect to P.S. 193, P.S. 616, P.S. 50 and P.S. 177. However, no assignment is shown of the moneys due MKB for work performed with respect to P.S. 11.

Associated filed a financing statement on September 23, 1965 covering all the accounts receivable as per their alleged agreement with MKB dated August 1, 1963. Thereafter on February 9, 1966, Associated filed with the City copies of said assignments.

It is undisputed that on May 18, 1966 the Board of Education declared MKB in default on all of its contracts and thereafter notified petitioner of MKB's default.

Petitioner, as completing surety and pursuant to demand of the Board of Education, was called upon to complete all of the public improvements originally undertaken by MKB.

Respondent's answer denied, on knowledge or information sufficient to form a belief, all of the essential allegations of the petition. However, respondent affirmatively requests that a determination be made with respect to the rights and priorities of the adverse claimants.

It should be noted that Internal Revenue had filed a Federal tax lien against MKB in the amount of $28,473.89. However, a certificate of discharge was thereafter filed with the Department of Finance.

Associated's claim to the funds held by respondent is predicated on the theory that the petitioner had a security interest which was not perfected under the Uniform Commercial Code. Associated further argues that since it complied with the Uniform Commercial Code 9--312 by filing a financing statement it obtained priority to the funds held by the City of New York.

Apparently the courts in this State have not been confronted with this precise issue. However, it is nevertheless clear that proper resolution of this controversy cannot be based solely on this issue. The Court must look to the underlying agreement made by MKB and the Board of Education as well as the applicable provision of the Lien Law.

Article 57 of MKB's contract with the Board of Education prohibits the assignment of the contract without the Board's consent. It further provides 'No right under this contract or to any moneys to to become due * * * shall exist against the City * * * by reason of any socalled assignment.'

Furthermore, the Board had the right to revoke or annul the contract made by MKB since it never consented to the assignments. Moreover, Article 57 makes it clear that Associated does not have any right to any moneys due under the purported assignments.

A fortiori, apart from the inhibiting clause of this agreement, Associated failed to comply with the provisions of section 16 of Article 2 of the Lien Law. That section provides in short that an assignment of a public improvement contract is not valid unless such assignment is filed within 20 days after the date of such assignment 'with the head of the department or bureau having charge of such construction * * *'.

Here Associated did not file copies of the assignment made by MKB until approximately four months from the date of the last assignment. It is well established that the provisions of section 16 must be strictly complied with (see Vulcan Rail and Const. Co., Inc. v. Co. of Westchester, 250 App.Div. 212, 221, 293 N.Y.S. 945).

Petitioner completed all of the projects at an excess cost of over $38,000. In particular, with respect to Contract No. 700469 (P.S. 177), petitioner has expended, in addition to the above amount, the sum of $10,032.76 for supplies and materialmen.

The applicable provisions of the Lien Law were enacted to protect suppliers of labor and materials to contractors from diversion of funds which are not used to pay creditors on such jobs (Lien Law § 72; Aquilino v. United States of America, 10 N.Y.2d 271, 278--279, 219 N.Y.S.2d 254,...