E. Turgeon Const. Co. v. Elhatton Plumbing & Heating Co.
| Decision Date | 30 June 1972 |
| Docket Number | No. 1387-A,1387-A |
| Citation | 292 A.2d 230,110 R.I. 303,10 U.C.C.REP. 1353 |
| Court | Rhode Island Supreme Court |
| Parties | , 10 UCC Rep.Serv. 1353 E. TURGEON CONSTRUCTION CO., Inc. v. ELHATTON PLUMBING & HEATING COMPANY, Inc., et al. ppeal. |
This is an interpleader action wherein the receiver of an insolvent corporation and one of the insolvent's creditors both claim a sum of money which is presently on deposit in the registry of the Superior Court. A hearing on the conflicting claims was held before a justice of the Superior Court. He found for the creditor and the receiver appeals. Hereafter, we shall refer to the plaintiff as 'Turgeon'; the insolvent corporation, Elhatton Plumbing & Heating Company, Inc., as 'Elhatton' the creditor, National Plumbing and Heating Supply Corp., as 'National' and the Small Business Administration as 'S.B.A.'
Some time prior to 1968, Brown University chose Turgeon as the builder of its graduate center complex. Turgeon, in turn, hired Elhatton as the project's plumbing subcontractor. The subcontract provided for a system of progressive payments based upon the percentage of work completed with a certain percentage of the contract price being retained by Turgeon and not payable until the plumbing installation had been completed. The final contract price for the plumbing work amounted to about a half-million dollars with the retainage due Elhatton being just in excess of $20,765. Certain costs were deducted from that amount so that the actual sum deposited in the registry was $20,182.
National furnished plumbing equipment to Elhatton. Elhatton was not prompt in paying for such supplies. In December, 1964, Elhatton received a S.B.A. loan of $50,000. It secured payment of this debt by giving the federal agency a mortgage on its real estate and a security interest in all of its then present and after-acquired inventory and accounts receivable. Some $12,000 to $13,000 of the mortgage proceeds were used to reduce the debt owed National. The fiscal relief afforded by S.B.A. was temporary and Elhatton began its slow steady slide into insolvency.
In March, 1968, National insisted that Elhatton's officers personally guarantee payment of the corporation's account. Such a guarantee was signed. Things continued to worsen. At the end of June, 1968, Elhatton owed National about $50,000. Of this amount, $10,000 represented plumbing equipment furnished to the graduate center. The Brown project was in its final stages. All that was needed to complete Elhatton's subcontract was the installation of such basic but necessary fixtures as toilets, washbasins and towel bars.
At this juncture, National informed Elhatton that it would not furnish any more fixtures unless the insolvent assigned to National all its rights to the retainage being held by Turgeon. On July 3, 1968, the vice-president of Elhatton executed an assignment to National of 'all monies now due or which will be due as retainer' on the plumbing subcontract and authorized Turgeon to pay the retainage to National. National did not file with the office of the Secretary of State a financing statement showing the assignment. The plumbing work was completed.
In January, 1969, Elhatton was adjudged to be insolvent and a receiver was appointed to liquidate its assets. Two months later, Turgeon filed its interpleader complaint.
After this action had commenced, S.B.A. intervened and presented proof that it held a perfected security interest in all of Elhatton's accounts receivable. An order was entered authorizing the clerk to pay $10,514 1 to S.B.A. The deduction of this sum and other costs have reduced the amount of the retainage presently available to the receiver, or National, to $9,794 plus interest. 2
As we proceed to consider this appeal, it should be kept in mind that, pursuant to the appropriate provisions of the Uniform Commercial Code, a security interest is subordinate to the rights of a person who becomes a lien creditor without knowledge of the security interest before it is perfected and a receiver ordinarily has the status of a lien creditor. General Laws 1956 (1969 Reenactment) § 6A-9-301(1)(b) and 301(3). The code defines a security interest as an interest in personal property or fixtures which secures payment or performance of an obligation. Section 6A-1-201(37). A security interest in the retainage would be perfected by the filing of a financing statement in the office of the Secretary of State unless the transaction is within one of several exceptions found in § 6A-9-302(1).
National offers a twofold excuse for its failure to file the assignment with the Secretary of State. First, it espouses the view expressed by the trial justice when he ruled that the July 3, 1968 assignment had been accepted, at least partially in satisfaction of National's claim against Elhatton, and thus was an absolute assignment rather than a security interest. Alternatively, National argues, as it did in the trial court, that there was no necessity of filing a financing statement because of the exclusionary provisions of § 6A-9-302(1)(e).
Initially, we must point out that though the trial justice reached the right result, his reasoning was wrong. Lancia v. Grossman's of R.I., Inc., 100 R.I. 407, 216 A.2d 517 (1966).
The trial court, in ruling that the July, 1968 document constituted an absolute assignment rather than a secured transaction, relied on the holding made in Spurlin v. Sloan, 368 S.W.2d 314 (Ky.Ct.App.1963). There, the Kentucky Court of Appeals said that an unrecorded assignment of moneys then due and owing to a road builder on a completed contract had a priority over the lien of an attachment creditor. The Kentucky court, in observing that the assignment concerned an 'account' rather than a 'contract right,' then declared that the code did not apply because the assignment was given as payment for a past-due obligation and not as a security transaction. We believe that Spurlin is inapposite to the case at bar.
Within the past two years, it was demonstrated that § 6A-9-106 differentiates an 'account' from a 'contract right' in that an 'account' is a right to payment that has been earned by performance while a 'contract right' is a right to payment to be earned in the future. Matthews v. Arctic Tire, Inc., 106 R.I. 691, 262 A.2d 831 (1970). Once the right to payment has been earned, the contract right is extinguished and an account arises. While the distinction between an account and a contract right might have little significance, ...
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