Fehlhaber Corp. v. State

• Decision Date: 24 September 1970
• Docket Number: M--12987,No. 47387,47387
• Citation: 314 N.Y.S.2d 574,64 Misc.2d 167
• Parties: FEHLHABER CORPORATION and Terry Contracting Co., Inc., Claimants, v. The STATE of New York, Defendant. Claim
• Court: New York Court of Claims

Page 574

314 N.Y.S.2d 574

64 Misc.2d 167

FEHLHABER CORPORATION and Terry Contracting Co., Inc., Claimants, v. The STATE of New York, Defendant.

Claim No. 47387.

M--12987.

Court of Claims of New York.

Sept. 24, 1970.

Emil V. Pilz, New York City, for claimants.

Louis J. Lefkowitz, Atty. Gen., by George Cochran, Asst. Atty. Gen., of counsel for the State of New York.

MEMORANDUM-DECISION

ALEXANDER DEL GIORNO, Judge.

By this show cause order the State seeks to determine why an order should not be granted amending that portion of the Memorandum-Decision of this Court dated April 2, 1970 as well as the Judgment entered in the office of the Clerk of the Court of Claims on April 17, 1970 which provides for the payment of interest on bonds held by the State in lieu of retained percentages. The State contends that the correction of such an erroneous award of interest is within the inherent power of the Court as well as within the contemplation of Section 5019 of the CPLR, since the mistake was clearly one in the nature of a clerical error. Claimant on the other hand contends that no error was made in the aforementioned interest award and, in the alternative, that any error made was substantive in nature and correctible only on appeal, the time for which appeal has since lapsed. Initially to be determined is whether this Court erred in awarding interest on the retained bonds since absent such an error the question of its right to correct a final judgment becomes moot.

The question of the interest arose as a result of a claim filed against the State arising out of a contract entered into between the parties on April 8, 1960 and accepted by the State on December 28, 1964. A final estimate was received by claimants in January of 1966 which indicated a balance due of $369,159.88, consisting of $55,459.42 in cash and the remaining $313,700.46 payable by the return to claimants of $314,000.00 in par value Municipal Bonds then on deposit with the State pursuant to the State Finance Law § 139 (McKinney's 1940, Supp. 1969--70) so that money retained under the contract would be released to claimants.

Subsequently, a notice of intention to file a claim was filed with the Clerk of the Court of Claims on July 13, 1966 and served upon the Attorney General of the State of New York on that same date. The claim itself was both filed and served on November 17, 1966. Claimants thereafter moved this Court by notice of motion dated March 31, 1967 for an order severing the Eighth Cause of Action which sought award of the aforementioned sum, as well as the bonds on deposit with the State of New York. The Court, in an opinion rendered on January 30, 1968 held, in relevant portion, that claimants were entitled to judgment against the defendant for the sum of $55,459.42 as well as the return of $314,000.00 par value bonds on deposit but reserved the question of interest, if any, as to both the aforementioned sum and the aforementioned retainage until the 'final determination of the balance of the Claim.'

On August 7, 1969 an Article 78 proceeding was brought on in the Supreme Court, Albany County, by an Order to Show Cause directing respondent to show why a judgment should not be entered in favor of petitioner requiring the payment to petitioner of $55,459.42 and the return to the petitioner of $314,000.00 in par value bonds 'all with appropriate interest thereon.' It is clear from the Verified Petition on which the Order to Show Cause was based that the reason underlying the State's refusal to return the aforementioned cash and bonds was the filing of two purported notices of lien in June of 1965 by a steel supplier of claimant Terry Contracting, Inc. Although the causes of action predicated upon these purported liens were dismissed on June 9, 1966 and the liens ordered cancelled and discharged of record, the dismissal was not affirmed in the Appellate Division, Third Department (Ingalls Iron Works Company v. Fehlhaber Corporation, 29 A.D.2d 29, 285 N.Y.S.2d 369) until December 13, 1967, and in the Court of Appeals (24 N.Y.2d 862, 301 N.Y.S.2d 95, 248 N.E.2d 923) until April 16, 1969. Despite the fact that the purported lienor had exhausted its judicial remedies either by motion for reconsideration in the Court of Appeals or by appeal to the United States Supreme Court, the State did not make the payments in question on the further ground that the funds in question "could be classified as trust funds' under the Lien Law' and as such were payable only at the direction of the Court.

After reviewing the history of this case, the Supreme Court, Albany County, in its opinion dated December 10, 1969, held that the sums in question were not trust funds and ordered the payment to petitioner of the cash sum and the return of the bonds. On the question of interest the Court therein stated as follows:

The Court of Claims judgment, by the first decretal paragraph thereof, having reserved the question of interest on the payment to the petitioner until final determination of the remainder of the petitioner's claim, and there being justification for the withholding of payment during the pendency of intervenor's lien actions (Lien Law, § 5), and the instant proceeding, the payment herein shall be without interest.

On December 23, 1969 a judgment was entered which stated that 'the aforesaid payment shall be without interest.'

Finally, this Court in its opinion of April 2, 1970 on the remaining seven causes of action awarded, in relevant portion,

* * * interest on $369,159.88, the amount awarded in the Severance Action, from March 28, 1965 (three months after the date of acceptance of the contract) to the date of payment of the severed judgment (January 19, 1970) * * * together with interest on that interest on the severance judgment, if unpaid, from the date of the severance judgment to the entry of judgment herein (April 17, 1970).

For reasons which follow, it is clear that this Court's decision in which interest was awarded on the bonds in lieu of retained percentages was not in accordance with either the law of New York, the prior proceedings in this case, or its own intent. Clearly, claimants on March 28, 1965 were entitled to the sum of $55,459.42 and are entitled to interest from that date. But under no circumstances can this reasoning as to an award of interest be extended to the bonds deposited in lieu of retained percentages. Claimants' argument to the contrary, that as a result of depositing the bonds there was still due and owing them the sum of $314,000.00 on which interest is payable, is fallacious since by depositing the bonds claimants obtained the release for their use of almost $314,000.00, while at the same time collecting interest on said bonds.

The deposit of the bonds with the State is in the nature of an escrow. The State merely receives physical possession of the instruments and it is only when some default on the contractor's part arises in the course of construction that the State has any right to use the bonds. Thus claimants receive both the use of the funds plus whatever interest coupon the bonds deposited carry.

At this juncture we must agree that claimants are correct in their argument that if an award of interest is due on the securities deposited, this interest should not be withheld simply because the bonds which were deposited already happen to be interest-bearing instruments. Unfortunately, claimants have cited no authority to justify the awarding of any interest on bonds deposited in lieu of retained percentages. Section 139 of the State Finance Law (McKinney's 1969) (Supp.) which permits the depositing of such securities provides only that (except where the securities deposited are applied by the State) all interest due on the bonds shall be collected by the State and forwarded to the depositing contractor(s), which was done. No authority is therein set forth that would give this Court the right to award interest on the bonds or, as claimants alternatively argue, the right to award interest to the extent of the difference between the legal rate of interest and the interest payable on the bond itself.

The Quid pro quo is clear. The contractor receives the immediate use of funds retained by depositing securities. Since he is no longer owed any money by the State (A. E. Ottaviano, Inc. v. State of New York, 32 A.D.2d 87, 91, 299 N.Y.S.2d 938, 942 (3rd Dep't 1969),) the running of interest ceases when the securities are deposited. The State's retention of the bonds to insure satisfactory performance by the contractor is a bare minimum in fiscal responsibility. Any decision to award interest on such securities would be gratuitous on our part and must await legislative action.

Claimants' cases on the point are wide of the mark. In both D'Angelo v. State of New York, 200 Misc. 657, 106 N.Y.S.2d 350 (Ct.Cl. 1951) and Rusciano & Son Corp. v. State of New York, 201 Misc. 690, 110 N.Y.S.2d 770, aff'd 278 App.Div. 999, 105 N.Y.S.2d 719 (3rd Dep't 1951) the Court was concerned with the question of awarding interest on retained percentages. More in point is Agostini, et al. v. State of New York, 255 App.Div. 264, 5 N.Y.S.2d 732 (3rd Dep't 1938). In Agostini, claimants, in accordance with the predecessor of Section 139 of the State Finance Law, sought to withdraw retained percentages by depositing with the Comptroller securities equal to the sum to be withdrawn. The Comptroller refused to permit any such substitution until the surety on the performance bond consented to the withdrawal of the amount retained. Subsequently, the Supreme Court issued a mandamus order directing the substitution and the Court of Claims later awarded interest on the money wrongfully retained for the period running from the date claimants requested permission to withdraw the retained percentages until the date that the Comptroller complied with the Court's mandate. Claimants now make much of the fact that the Attorney General there...