National Surety Co. v. Collins
| Decision Date | 27 April 1925 |
| Docket Number | 25090 |
| Citation | 105 So. 7,158 La. 901 |
| Court | Louisiana Supreme Court |
| Parties | NATIONAL SURETY CO. v. COLLINS |
Rehearing Denied June 22, 1925
Appeal from Civil District Court, Parish of Orleans; H. C. Cage Judge.
Action by the National Surety Company against John D. Collins, in which Isidore Singer was garnished. From a judgment dismissing garnishment process, plaintiff appeals.
Affirmed.
William B. Grant, of New Orleans, for appellant.
A. D Danziger, of New Orleans (P. H. Stern, of New Orleans, of counsel), for appellee Singer.
O'NIELL, C. J.
This is an appeal from a judgment dismissing a garnishment process. It was issued against one Isidore Singer, as garnishee, on a judgment against John D. Collins in favor of the National Surety Company, for $ 6,133.69.
Collins owned three vacant lots, which he had bought from one Paillet, and on which he had paid $ 400 and owed a balance of $ 2,700 of the purchase price. The debt of $ 2,700 was represented by Collins' promissory note, secured by mortgage and vendor's lien on the lots. The note was held by Felix J. Dreyfus as collateral security for a loan of $ 1,500. Collins, being a building contractor, undertook to build three houses on the lots; but, before he had quite finished the job, he found it necessary to negotiate a loan to pay the workmen and furnishers of materials. He applied to Dreyfus for a loan of $ 6,600, which was the amount needed to pay the mortgage note held by Dreyfus, and pay for the materials furnished and to be furnished, and for the work done and to be done on the buildings. Dreyfus agreed to make the loan; but, in order to protect himself against the recording of liens in favor of workmen or furnishers of materials, he required that Collins should give a bond and surety, according to the provisions of the statute on the subject (Act 134 of 1906, p. 223), or, as the statute says, for "the true and faithful performance of the contract [to complete the buildings], and the payment of all subcontractors, workmen, laborers, mechanics, and finishers of materials." An agent of the National Surety Company was consulted, and was willing to furnish the bond; but it was deemed impracticable for Collins to give a bond according to the statute while he was building the houses for himself, and therefore had nobody to make a contract with. The agent of the surety company suggested that Collins should convey the lots to some third party, who would be interposed merely as an accommodation, and then enter into a contract to complete the buildings for him. Accordingly, Collins made a conveyance of the lots to his friend, Singer, who, without being really concerned in the transaction, lent his name as an accommodation to Collins. It was stated in the deed that the price was $ 7,500, and that Singer paid $ 900 in cash; and for the balance of the supposed price Singer gave three promissory notes for $ 2,200 each, signed and indorsed by him, and secured by mortgage and vendor's lien on the property. At the same time, Collins, as contractor, entered into a contract with Singer, as owner, to complete the buildings, and gave bond for $ 6,600, according to the statute, with the National Surety Company as surety, for the true and faithful performance of the contract, and for the payment of all subcontractors, workmen, laborers, mechanics, and furnishers of materials. The three mortgage notes for $ 2,200 each were then delivered to Dreyfus, who canceled the Paillet mortgage of $ 2,700, and paid other sums to and for Collins, amounting to $ 559. Dreyfus was to pay out the balance of the $ 6,600 as it would be needed to pay workmen and furnishers of material. Collins then proceeded to complete the buildings, but, before the work was finished, Dreyfus discovered that workmen and furnishers of materials were recording claims against the property and obtaining liens that might interfere with the collection of his loan, and he therefore declined to make further payments on the loan. Collins soon after went into bankruptcy in the United States District Court for the Eastern District of Louisiana. A formal statement by Singer was filed in the bankruptcy proceeding, acknowledging that the three lots and buildings were the property of the bankrupt, Collins. Singer then made a formal assignment of the property to the trustee, who sold it at public auction under orders of the United States District Court. Dreyfus transferred his three notes, secured by the mortgage vendor's lien, to Mrs. Isabel Danziger Miller, and she filed claim on them in the bankruptcy proceedings. The C. C. Hartwell Company and numerous other creditors of Collins, holding claims for materials furnished or work done on the buildings, and claiming liens on the property, opposed the claim of Mrs. Miller, on the ground that the transaction by which Collins had pretended to transfer the lots to Singer was a sham or fraudulent conveyance. The United States District Court sustained the oppositions, holding that the claim of Mrs. Miller could not be proven as a debt in the bankruptcy proceeding. On appeal to the Circuit Court of Appeals, Fifth Circuit, the judgment was reversed; the claim of Mrs. Miller was adjudged to be secured by a mortgage and lien for the amount which Dreyfus had actually paid or advanced on the security of the three mortgage notes, and that the claim was collectible out of the proceeds of the sale of the mortgaged property. There was no decision then, either by the United States District Court or by the Circuit Court of Appeals, as to whether Mrs. Miller's claim should be paid in preference to or was subordinate to the claims of her opponents having liens for materials furnished or work done on the buildings. The case was remanded for further proceedings consistent with the ruling. See Miller v. C. C. Hartwell Co. et al., 241 F. 636, 154 C. C. A. 394.
On the second trial of the oppositions, the United States District Court held that the bankruptcy proceeding had had the effect of a concursus proceeding under the provisions of the Act 134 of 1906, and that, by the terms of the statute, the opponents, workmen and materialmen, had by their failure to object to the solvency of the surety on the contractor's bond in the bankruptcy proceeding, released their liens on the property and on the proceeds of the sale of it, and were remitted to a suit on the bond of the surety company. On appeal to the Circuit Court of Appeals, it was held that the claims of the laborers and materialmen who had furnished labor or materials before the lots were transferred by Collins to Siner were governed, not by the Act 134 of 1906, but by article 3274 of the Civil Code, and that, by the terms of the article of the Code, the claims were subordinate to Mrs. Miller's mortgage, because the claims of the opponents were not recorded within seven days from the date of the obligation, so as to preserve a lien on the property. With regard to the claims for labor done and materials furnished after Collins had transferred the property to Singer, which claims were governed by the Act 134 of 1906, it was held that the bankruptcy...
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