Fidelity & Casualty Co. v. Livingston , 234 Mich. 375 ( 1926 )

This is an appeal from a decree dismissing the plaintiff's bill which was filed for an accounting with the city of Detroit and the First National Bank of Pontiac, and for an injunction restraining the city from paying the bank any money on an assignment from defendant Livingston, and for the subrogation of the plaintiff to the rights of Livingston in a construction contract which he had with the city. On September 27, 1921, the city of Detroit entered into a contract with defendant Livingston for the construction of a sewer for the sum of $38,068. Livingston gave the customary statutory bond and a faithful performance bond with the plaintiff as surety. The contract called for the construction of 10,880 feet of sewer. After Livingston had completed 10,000 feet he abandoned the contract. The plaintiff took over the work and completed it at a loss of $6,152.19. While Livingston was in charge of the work he borrowed $5,000 from the defendant bank, and gave it an assignment for that amount of money due on the contract. Livingston's contract with the city provided that no assignment of any money payable thereunder should be effective without the consent of the commissioner of public works. The assignment to the bank was consented to in writing by the commissioner, as follows:

"Approved, except as to labor claims and claims for material for this work."

The assignment was made on December 12, 1921, and on December 16, 1921, the city gave its check for $4,667.44 on account thereof, payable to the joint order of Livingston and the bank. This check, properly indorsed, was deposited in Livingston's commercial account at the bank. One thousand dollars of the money was paid by him on his indebtedness to the bank, and the balance was used in payment for construction work on the sewer. After this suit was started the city paid the plaintiff $15,182.81, that amount being the balance due on completion of the work. So that the only issue now involved relates to the $4,667.44 which the city paid on the assignment. It is the claim of the plaintiff that its right to this money is superior to that of the bank, and that legally and equitably it is entitled to have it applied in payment of its loss. On the hearing the court entered a decree granting relief as to defendant Livingston, but dismissing the bill as to the bank. The plaintiff has appealed.

Under the theory that an assignee takes no greater right or interest than that possessed by his assignor, the plaintiff argues that inasmuch as Livingston owed $11,619.67 for materials at the time of the assignment, he was not entitled to the payment of the $4,667.44, that the city should have retained that amount, or would have retained it if it had known the facts, to protect the materialmen whose claims the plaintiff, as surety, was subsequently required to pay; and that, therefore, the bank's interest in the fund assigned is subject to the amount then due the materialmen.

By the terms of the contract between the city and Livingston, it was the duty of the city to retain out of each estimate 10 per cent. of the amount and value of the work done by the contractor, and 20 per cent. of the value of materials delivered. It seems to be conceded that when the estimate of $4,667.44 was made and paid, the city retained the 10 per cent. and 20 per cent. required by the contract. The city could retain no greater amount, except in case the materialmen had filed sworn statements of amounts due and unpaid for material, in which event it could withhold sufficient money to pay their claims. The contract so provided. But as no such statements were filed the contractor had a right to insist on the payment of the $4,667.44, and the city had a right to pay it. The city had no greater rights or duties than those authorized by the contract. So that when the commissioner wrote on the assignment the city's approval, except as to labor claims and claims for material for this work," he had reference only to such claims as materialmen might establish by filing sworn statements as provided by the contract, and to the 10 per cent. and 20 per cent. amounts which it was required to retain. As no such statements had been filed, and as the city had retained the amounts which it was authorized to retain under the contract, the exception to the approval was without effect upon the assignment. In this connection it is urged by counsel that it was the practice of the city to withhold sufficient money to pay labor and material claims. The contract and not the practice controls and fixes the rights of the parties. We think that, under the circumstances of this case, the contractor had a right to make the assignment, to insist on the payment of the money, and that the city would not have been warranted in refusing to pay. If it were money that should have been retained or which was in the hands of the city at the time plaintiff's liability arose, there would be no question as to the superior rights of the surety and its right to follow the funds in possession of the bank. Board of County Road Com'rs ofCalhoun Co. v. Surety Co., 216 Mich. 528.

But this money was paid on an estimate in which all that the city could retain under the contract was retained. It was paid during the progress of the work, and therefore before plaintiff's liability accrued. To the extent that it was used in the construction of the work, the surety company benefited. It is clear from the evidence that the money went into the contractor's bank account, that he used $3,667.44 of it in payment for work and materials on the construction, and gave the bank the balance as part payment of a loan for money which also went into the construction work. It thus appears that the plaintiff surety did not suffer any loss by the assignment and the payment of this money to the bank. It cannot complain that the city paid out money to the contractor or his assignee according to contract, as the work progressed. It could not ask that the city retain any of this money. Its only right was to have the city retain such amounts as the contract required it to retain and to hold what remained in its hands when the surety became liable and was compelled to complete the work. We think that the circuit judge made an equitable disposition of the matter in issue.

The decree should be affirmed, with costs to the defendants.

BIRD, C.J., concurred with McDONALD, J.