State Bank of Albany v. Dan-Bar Contracting Co.
| Decision Date | 01 April 1960 |
| Docket Number | DAN-BAR |
| Citation | 23 Misc.2d 487,199 N.Y.S.2d 309 |
| Parties | STATE BANK OF ALBANY, Plaintiff, v.CONTRACTING CO., Inc., the Lehigh Portland Cement Company, United States Steel Corporation (American Bridge Division), Maryland Casualty Company, Charles Roder, People of the State of New York, Department of Labor of the State of New York (Division of Placement and Unemployment Insurance) and the United States of America, Defendants. MARYLAND CASUALTY COMPANY, as assignee of F. J. Croissant, Plaintiff, v. ALLIED CHEMICAL AND DYE CORPORATION (Barrett Division), Harry Osborne Co., Inc., Estes Ready Mix Concrete Co., William Beckman, M. Kranz Engineering and Contracting Co., State Bank of Albany, Ruth Myrron, Kenneth E. Fidler, Dan-Bar Contracting Co., Inc., Clark Concrete Co., Inc., Donald L. Eliott d/b/a Don Elliott's Fuel Service, People of the State of New York, and the United States of America, Defendants. STATE BANK OF ALBANY, Plaintiff, v.CONTRACTING CO., Inc., People of the State of New York, Maryland Casualty Company, United States of America, Isador Lubin, as Industrial Commissioner of the State of New York, Kenneth E. Fidler and William L. Healy, Defendants. F. J. CROISSANT, Plaintiff, v.CONTRACTING CO., Inc., State Bank of Albany, People of the State of New York, Maryland Casualty Company, Agnes M. MacInnes, Executrix of the Estate of James MacInnes, deceased, Thomas D'Angelo, Joseph D'Angelo, Daniel D'Angelo, Louis D'Angelo, Jr. and Christina D'Angelo, as Executrix of Louis D'Angelo, deceased, co-partners, doing business as Triple Cities Construction Co., Eastern Rock Products, Inc., and Walton East Branch Foundry Corp., Defendants. |
| Court | New York Supreme Court |
Whalen, McNamee, Creble & Nichols, Albany, for plaintiff and defendant, State Bank of Albany.
DeGraff, Foy, Conway & Holt-Harris, Albany, for plaintiff and defendant, Maryland Cas. Co., and plaintiff F. J. Croissant.
Louis J. Lefkowitz, Atty. Gen., (John F. Hmiel, Asst. Atty. Gen., of counsel), for defendant, State.
The four above entitled actions, although not consolidated, were tried together.
The actions involve four separate public improvement contracts awarded to defendant Dan-Bar Contracting Co., Inc., hereinafter referred to as 'Contractor'. In each instance, the contract was completed by 'Contractor' and on each contract there is a balance due to 'Contractor', which is being withheld by the State by reason of claims against the funds by State Bank of Albany, hereinafter called 'Bank' on assignments by 'Contractor' to it and by Maryland Casualty Company, hereinafter referred to as 'Maryland', based on certain mechanics' liens, which it has paid under Labor and Material Bonds, furnished by it for 'Contractor' pursuant to Section 137 of the State Finance Law, or on its claim of rights as subrogee or as assignee, or as equitable assignee.
There is no dispute as to the facts. The question to be resolved in each case is the relative priority of the claims of 'Bank' and 'Maryland'.
In determining the questions posed, we must, in the first instance treat the performance bonds separate and apart from the material and labor bonds. There has been no default in any of the four cases in performance by 'Contractor' therein, insofar as completion of the work is concerned, and hence 'Maryland' has incurred no liability on the performance bonds. No payments were made by 'Maryland' under its payment bonds, prior to completion and acceptance of the work by the State and, in fact, the payments made by 'Maryland' were made after the contract had been completed and accepted as shown by the following table:
Date of Payment
Action No. Contract No. Completed & Accepted by "Maryland"
---------- ------------ -------------------- ---------------
1 2151 7-8-54 1955
2 2502 6-1-55 6-28-55
3 2877 12-22-54 1955
4 1981 1-26-53 1954,1955,1959
It is thus clear that 'Maryland' made no payments towards accomplishment of completion by 'Contractor' of any of the contracts. All payments were made after completion and acceptance. Obviously, therefore, 'Maryland' paid nothing towards completion of the contracts, all of which were completed by the 'Contractor' with a balance due on each one from the State to the 'Contractor'.
Clearly, then such payments as 'Maryland' made were made by 'Maryland', under its Material and Labor Bonds.
'Maryland' contends, however, that since it made such payments, it has done something by way of completion of the contracts and, hence, is equitably subrogated to the rights of the state in and to the respective balances due to 'Contractor' which it holds on the four contracts. Logically, 'Bank' could make the same claim, since its money went into the projects.
The difficulty with this contention, in my judgment, is the basic fact that the State has no rights in and to the funds which it holds. Those funds belong to the 'Contractor' and not to the State. True, the State, in a sense, is interdicted against payment to the 'Contractor' of the balances due it, by force of the Lien Law. If the State paid over those balances to the 'Contractor', it would subject itself to a possible double payment, to the extent of such payment, by reason of the rights conferred upon 'Bank' and the lienors by the provisions of the Lien Law, with which they have complied.
There is a basic difference between a Performance Bond and a Material and Labor Bond. They serve and are intended to serve entirely different purposes.
The Performance Bond, or as it is sometimes called, the Completion Bond, is given pursuant to Section 38 of the Highway Law. Its purpose is to insure the State that a contract once let will be completed within the amount for which the contract is let. If 'Contractor' defaults, the State, in the absence of a Performance Bond, would have to expend its own funds to complete the contract, even if the cost of completion were to exceed the balance unpaid on the contract. Where, however, there is a Performance Bond, the surety completes the contract, at its own costs and expense, and becomes equitably subrogated to the same rights as the State had in and to the unpaid balance of the contract price. The rationale for such a right of subrogation is stated so forcefully and so well in the case of Scarsdale National Bank and Trust Company v. United States Fidelity and Guaranty Company, 264 N.Y. 159, 190 N.E. 330, as to require no repetition here. Thus, if the surety company completed the contract at a cost in excess of the balance due under the contract, the assignee and lienors, could collect nothing thereon from the State, since their liens attach only to the balance due to the 'Contractor' and in such case there is no balance due to a contractor. And since the surety, on the performance bond, in such a situation, is subrogated to the rights of the State, it has priority in and to the balance due under the contract, over the assignee and the lienors. They then can get nothing out of the balance due nor can they collect anything under the Performance Bond, which is solely for the benefit of the State and not for third parties.
The State as a matter of public policy however has enacted Section 137 of the State Finance Law. That section itself recognizes a distinction between a performance bond and a material and labor bond. So far as pertinent, it provides that
'In addition to other bond or bonds, if any, required by law for the completion of a work specified in a contract for the prosecution of a public improvement * * *, the comptroller may nevertheless require prior to the approval of any such contract a bond guaranteeing prompt payment * * * to all persons supplying the contractor * * * with labor and materials employed and used in carrying out the contract, which bond shall inure to the benefit of the persons supplying such labor and materials.'
The third party beneficiaries must comply with certain provisions of the Labor Law or the Lien Law, in order to avail themselves of the benefits conferred upon them by the bond furnished pursuant to Section 137 of the State Finance Law. It is true that such a bond runs to the State as obligee, but it is clearly not for the benefit or protection of the State. The State has neither any common law nor statutory liability or obligation to pay anything to the persons, providing such labor or materials, except as provided for in Section 38 of the Highway Law and Sections 220-a and 220-b of the Labor Law. Those exceptions are not present in the instant case. The purpose of the bond provided for in Section 137 of the State Finance Law is not to protect the State against such claims as are therein sought to be protected but rather is the result of the public policy of the State to protect the persons for whose benefit it was enacted, against non-payment for labor and material, furnished in the execution of a public project, even though payment to such persons results in a total cost of the project in excess of the contract price. In other words, the State has declared its policy to be that persons furnishing labor and materials to a contractor on a public project shall be paid by the contractor, even if by so paying, the cost to the contractor to complete the contract exceeds the contract price; that such persons shall not be left exclusively to the remedies provided by the Lien Law, since there are often cases where the balance due the contractor is not sufficient to pay the lienors in full. Since the State has no obligation to make such payments, the labor and material bond is not for the benefit of the State at all. Such a bond is exacted in order that the public policy of the State that the persons for whose benefit the bond is exacted,...
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