Dysart Corp. v. Seaboard Sur. Co.

• Decision Date: 04 February 1997
• Docket Number: No. 15476,15476
• Citation: 688 A.2d 306,240 Conn. 10
• Court: Connecticut Supreme Court
• Parties: DYSART CORPORATION v. SEABOARD SURETY COMPANY.

Page 306

688 A.2d 306

240 Conn. 10

DYSART CORPORATION v. SEABOARD SURETY COMPANY.

No. 15476.

Supreme Court of Connecticut.

Argued Nov. 7, 1996.

Decided Feb. 4, 1997.

Jane I. Milas, New Haven, for appellant (defendant).

Lisa A. Magliochetti, Hartford, for appellee (plaintiff).

Before CALLAHAN, C.J., and BORDEN, NORCOTT, KATZ and PALMER, JJ.

BORDEN, Justice.

The dispositive issue in this appeal is whether a pub that has cashed wage checks for employees of a subcontractor on a public construction project is entitled to assert a claim under a labor and material payment bond issued in connection with the project pursuant to General Statutes § 49-41 when the checks are subsequently dishonored by the subcontractor's bank. The defendant surety on the bond, Seaboard Surety Company (Seaboard), appeals ¹ from the judgment of the trial court granting summary judgment to the plaintiff, Dysart Corporation (Dysart), the pub owner, on its claim under the payment bond for the amount of the dishonored checks. Because we conclude that, as a matter of law, Dysart is not a proper claimant under the payment bond, we reverse the judgment of the trial court.

The following facts and procedural history are undisputed. Seaboard, in connection with a middle school construction project in Montville, provided the labor and material payment bond required by General Statutes (Rev. to 1991) § 49-41 ² for all large-scale public works construction projects. The principal on the bond was the general contractor for the project, Suffolk Construction Company, Inc. (Suffolk). One of Suffolk's subcontractors, Diamond Construction, Inc. (Diamond), issued the checks in question.

At all times relevant to this appeal, Dysart conducted business in Massachusetts as the Tara Pub. The sole connection Dysart had with the construction project was that Diamond's employees were frequent customers at the Tara Pub. As a service to these customers, and to solicit and maintain their business, the Tara Pub would often cash the employees' paychecks for them. In such instances, the Diamond employees would endorse their checks over to Dysart by blank endorsements, putting their signatures on the backs of the checks. See, e.g., J. White & R. Summers, Uniform Commercial Code (2d Ed.1980) § 13-10.

From April 30, 1992, to June 12, 1992, Dysart cashed Diamond paychecks in the amount of $23,019 for the Diamond employees. When Dysart subsequently deposited the checks, however, they were dishonored by Diamond's bank because Diamond's account lacked sufficient funds. Dysart then filed a claim with Seaboard under the payment bond to collect the amount of the dishonored checks. Seaboard refused to pay Dysart's claim.

Dysart subsequently commenced this action against Seaboard. The first count of Dysart's complaint was a claim that Dysart is entitled to payment under the payment bond, pursuant to General Statutes (Rev. to 1991) § 49-42, as an assignee of the rights of the Diamond employees in their paychecks. ³ The second count was a claim that Dysart has a right to make a claim under the payment bond as a holder in due course of the paychecks, pursuant to General Statutes § 42a-3-203 ⁴ of [240 Conn. 14] the Uniform Commercial Code. ⁵ In its answer, Seaboard asserted, as special defenses, that Dysart is not a proper claimant within the meaning of § 49-42, and that § 42a-3-203 is inapplicable to the present action.

Both parties moved for summary judgment. The trial court concluded that: (1) Dysart was an assignee of the payment bond rights of the Diamond employees in their paychecks and, as such, is a proper claimant under § 49-42; and (2) Dysart's status as a holder in due course pursuant to § 42a-3-203 also entitled it to make a claim under § 49-42. Accordingly, the trial court granted Dysart's motion for summary judgment and denied Seaboard's cross motion. This appeal followed.

I

Seaboard first claims that the trial court improperly concluded that, by endorsing their paychecks over to Dysart, the Diamond employees assigned to Dysart their rights to make a claim under the payment bond. We agree.

We begin by noting that Dysart does not fall within the specific intended scope of protection of § 49-41. Section 49-42(a) explicitly limits the class of claimants who may seek payment under a § 49-41 payment bond to those who have "furnished labor or material" to the bonded construction project, including "[a]ny person having [a] direct contractual relationship with a subcontractor but no contractual relationship express or implied with the contractor." Dysart does not argue that it qualifies as a claimant under the literal language of § 49-42. That is, Dysart does not allege that it has ever provided labor or materials to the construction project, or that a contractual relationship has ever existed between Dysart and any contractor or subcontractor on the construction project.

Instead, Dysart contends that the Diamond employees intended to assign, and did assign, their rights under the payment bond when they endorsed their paychecks over to Dysart. ⁶ Dysart notes that the Diamond employees themselves would have had the right to assert claims under the payment bond if they personally had attempted to deposit their paychecks and those checks had been dishonored. Dysart argues, and the trial court concluded, that it should be allowed to assert the Diamond employees' rights under the payment bond by virtue of the assignment.

Seaboard's response to Dysart's position is twofold. First, Seaboard argues that a right to make a claim under a payment bond cannot be assigned under § 49-41. Second, Seaboard argues that, even if such a claim can be assigned, no valid assignment was made in this case.

Dysart relies on analogy to federal law to support its position that the assignees of proper claimants are also proper claimants. Section 49-41 was "patterned after federal legislation popularly known as the Miller Act; 40 U.S.C. §§ 270a through 270d; [and] we have regularly consulted federal precedents to determine the proper scope of our statute." Okee Industries, Inc. v. National Grange Mutual Ins. Co., 225 Conn. 367, 374, 623 A.2d 483 (1993); see also American Masons' Supply Co. v. F.W. Brown Co., 174 Conn. 219, 223-24, 384 A.2d 378 (1978). It is true that in the context of the Miller Act, the United States Supreme Court has held that an assignee of the claims of persons furnishing labor or materials on a bonded project is within the protection of the statutory bond, even if the assignee itself did not furnish labor or materials. United States v. Carter, 353 U.S. 210, 218-19, 77 S.Ct. 793, 797-98, 1 L.Ed.2d 776 (1957). We need not determine, however, whether assignees of proper payment bond claimants are also protected under our payment bond statute because we conclude that the Diamond employees cannot be deemed to have assigned their rights under the payment bond to Dysart.

It is undisputed that thirty-two of Diamond's employees negotiated by blank endorsement a total of thirty-nine checks to Dysart. The negotiation of the checks to Dysart in exchange for cash unquestionably gave Dysart the rights of a holder in due course of a negotiable instrument. See General Statutes §§ 42a-3-203, 42a-3-302 and 42a-3-305. The question is whether the mere endorsement and delivery of the checks was sufficient to assign to Dysart the Diamond employees' separate and distinct rights to bring suit under the payment bond in the event that the checks were later dishonored. Assuming, without deciding, that these rights are assignable, we conclude that no such assignment was made in this case.

We first note that the mere negotiation of the checks themselves to Dysart, with nothing more, did not operate as a legal assignment of the employees' separate payment bond rights. "Generally, to constitute an assignment there must be a purpose to assign or transfer the whole or a part of some particular thing, debt, or chose in action, and the subject matter of the assignment must be described with such particularity as to render it capable of identification." 6A C.J.S. 659, Assignments § 46 (1975); cf. Windsor Cement Co. v. Thompson, 86 Conn. 511, 513, 86 A. 1 (1913) (holding that transfer of bill of exchange not assignment of debt or chose in action where nothing in document or factual circumstances surrounding transfer indicated intention to assign). In this case, at the time of the transfer of the checks, there was no objective manifestation by the Diamond employees or Dysart that the employees were assigning to Dysart any rights they may have possessed in the payment bond. The subject matter of the purported assignment was not "described with such particularity as to render it capable of identification." 6A C.J.S., supra, 659. Although case law addressing this issue is scarce, we have found no authority that persuades us that the endorsement and delivery of a check transfers, as a matter of law, anything other than a right to payment from the drawer of the instrument and certain rights against the endorser. ⁷

The question, therefore, becomes whether, when the Diamond employees endorsed their paychecks to Dysart, their payment bond rights can be considered to have been transferred to Dysart pursuant to principles of equity. In support of this theory, Dysart emphasizes the remedial purpose of § 49-41, and urges that this remedial purpose is served by allowing it to "step into the shoes" of the Diamond employees and permitting it to assert those employees' rights against Seaboard. We agree with Dysart that § 49-41 is remedial legislation; Herbert S. Newman & Partners v. CFC Construction Ltd. Partnership, 236 Conn. 750, 757, 674 A.2d 1313 (1996); and that remedial statutes should be construed liberally in favor of those whom the law is intended to protect. A recitation of this general principle, however, merely begs the question of whom the legislation is, in fact, intended to protect. Cagiva...