Church E. Gates & Co. v. John F. Stevens Construction Co.

The Jno. F. Stevens Construction Company in 1912 entered into a contract with the city of New York for the construction of a part of the subway known as the Southern Boulevard and Westchester Avenue Rapid Transit Railroad. It proceeded with the performance of its contract; but on August 11, 1913, before completing the same, filed in the District Court of the United States for the Southern District of New York, a voluntary petition in bankruptcy. It was on that day adjudged a bankrupt, and receivers were appointed. The appellant was subsequently elected and qualified as trustee. At the time when it was adjudged a bankrupt the company had so far completed its contract as to be entitled to a payment from the city of New York of $56,504.59. Subsequent to the adjudication in bankruptcy several mechanics' liens were filed. By an agreement between the lienors and the trustee the liens were canceled and the $56,504.59 was paid to the trustee under an agreement in regard to continuing the liens upon the money so transferred to the trustee, the details of which it is not necessary to specify for the purposes of this opinion. As provided by the agreement the amount so paid over to the trustee or a large part thereof awaits the result of the actions to foreclose the liens. The facts affecting the several liens are stated quite fully in the opinion of the Appellate Division (Gates Co. v. Stevens Construction Co., 169 App. Div. 221), and so far as there stated will not be repeated in this opinion. The trustee in bankruptcy is the only appellant. He urges but three reasons why the judgment should be reversed. As stated by him, they are in substance as follows:

1. That the lien of the American Bridge Company was improperly sustained for steel sold and delivered within the state of New Jersey and not "furnished" within the meaning of the Lien Law.

2. That the lumber and other supplies purchased by the contractor and which were not actually incorporated into and became a part of the permanent improvement, were not "materials" within the meaning of the Lien Law.

3. That the liens having all been filed after the filing of the petition in bankruptcy, were subject to the prior lien acquired by the trustee in the bankruptcy proceeding.

The contract made between the construction company and the American Bridge Company for furnishing structural steel provided that the steel should be delivered to the construction company "f.o.b. New York City within free lighterage limits." The bridge company actually performed its contract with the construction company. The only objection to sustaining the lien filed by it for the amount unpaid on its contract at the time of the bankruptcy of the construction company is that steel of a value equal to the balance then remaining due to it had not at that time been actually delivered within the state of New York. At the time of the bankruptcy the steel in question was stored in Greenville, N.J., pursuant to a supplementary arrangement in regard to its delivery as shown by the final letter in a correspondence between the construction company and the bridge company from which we quote: "You say in your letter that it is understood that material stored at Greenville will be considered as completely delivered under your contracts and payments made accordingly. I presume you mean by this the receipt of the material, but that it is also understood in accordance with our contract that this material is really not delivered to us until we take it at some dock on the East River or the Harlem River within free lighterage limits."

The trial court found "That said delivery to said Jno. F. Stevens Construction Company was a temporary delivery and at the request and for the convenience of said construction company and that thereafter and prior to the 20th day of October, 1914, said material was delivered by the defendant American Bridge Company of New York at the city of New York to the Richard Carvel Company, successor in interest to said Jno. F. Stevens Construction Company."

It is not disputed that the structural steel so furnished by the bridge company was actually sold by the trustee in bankruptcy to the Richard Carvel Company, Inc., in connection with an assignment of the contract of the construction company with the city of New York to said Carvel Company and has actually been used in carrying out said contract with the city of New York. The contract with the bridge company was made in the state of New York, by New York corporations for steel to be furnished and which was actually furnished in this state. The fact that the steel although conditionally accepted by the construction company was temporarily stored in the state of New Jersey at the time of the bankruptcy does not under the circumstances disclosed prevent the enforcement of the lien.

The statute (Lien Law, Cons. Laws, ch. 33, section 5) provides: "A person performing labor for or furnishing materials to a contractor * * * for the construction of a public improvement pursuant to a contract by such contractor with the state or municipal corporation, shall have a lien for the principal and interest of the value or agreed price of such labor or material upon the moneys of the state or such corporation applicable to the construction of such improvement, to the extent of the amount due or to become due upon such contract, upon filing a notice of lien as prescribed in this article."

An "improvement" is defined (Lien Law, section 2) as including "the erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property, or materials furnished for its permanent improvement."

A "public improvement" is defined as meaning "An improvement upon any real property belonging to the state or municipal corporation." The contract of the Stevens Company with the city of New York for the construction of a part of a rapid transit railroad with its appurtenances included a provision as follows: "It will be necessary to take up and relay the sidewalk pavement or other surface material, and to lay and maintain a temporary pavement in the roadways, to protect, support and maintain during construction all buildings and other structures, including their foundations, and all surface, sub-surface and elevated railroads, water mains, gas pipes, electric subways, poles and wires, vaults, including vaults of abutting property, and other surface, sub-surface and overhead structures, together with their necessary connections, as the same may be met with along the route; to build sewers both along the route and other streets; to make or remake the necessary manholes, catch basins and other sewer connections therewith; to move, alter, readjust or rebuild water mains, gas pipes, electric subways, vaults, including vaults of abutting property, and other sub-surface structures, together with their necessary connections; and to do all such additional and incidental work as may be necessary for the completion of the Railroad and the reconstruction and restoration of the street pavements or other surfaces (except as herein provided in respect of temporary pavements for roadways) adjacent to the route of the Railroad and which may have been directly or indirectly disturbed or injured by the Contractor in the progress of the work of construction, to as useful and good a condition as existed before construction shall have been begun. All such work of every description including underpinning wherever necessary of all buildings or structures of whatsoever nature, monuments and surface, sub-surface and elevated railroads affected by or interfered with during the construction of the Railroad, is part of the work which is included in this contract and which the Contractor agrees to perform for the prices herein agreed upon."

The contract provided for payment of the construction company by unit prices and such prices include the work and material for maintaining a temporary pavement in the public streets and the protection and maintenance for public use of water mains, gas pipes, electric subways, poles, wires, vaults, etc., for all of which special provision in detail is included in the contract with the city of New York. The maintenance of the temporary pavements, mains, pipes, wires, vaults, etc., are public improvements within the contract made by the construction company with the city as much as the rapid transit railroad which is the ultimate end and purpose of the contract. If a contractor had taken a contract for the maintenance of the surface of the street for public travel, and the mains, pipes, wires, vaults, etc., for public use, and another contractor had taken a contract to install the rapid transit road after all the excavations and other work had been made and performed, the employees of the first contractor and those furnishing materials to him would not have been deprived of all right to a lien for labor and materials so furnished under his contract.

The words "permanent improvement," as used in section 2 of the Lien Law, are intended to differentiate the labor and materials which are consumed in or constitute the public improvement as distinguished from the labor or materials which enter into and become a part of the plant of the contractor owned and used by him in the performance of his work.

The labor and materials that enter into and become a part of the improvement required by a contract or are necessarily and exclusively used, not as tools and equipment, but in the performance of the particular contract, are labor and materials within the meaning of the statute. (Schaghticoke Powder Co. v.G. J.R. Co., 183 N.Y. 306; Troy Public Works Co. v. Cityof Yonkers, 207 N.Y. 81; Shultz v. Quereau Co., 210 N.Y. 257. )

We do not think that the Appellate Division erred in sustaining the liens as stated by it in the judgment from which this appeal is taken.

A general assignee for the benefit of creditors takes his title subject to liens filed by laborers, mechanics, material men or subcontractors subsequent to the assignment but within the time prescribed by statute. (John P. Kane Co. v. Kinney, 174 N.Y. 69. )

Judge HISCOCK, when a member of the Appellate Division and writing for the court in Crane Co. v. Pneumatic Signal Co. (94 App. Div. 53, 56), said: "We do not agree with the counsel * * * that the voluntary proceedings by the bankrupts in this case were broader and more effective as against the rights of the material man than was the general assignment in the Kane case, or that the trustee occupies any different or higher position than did the general assignee. We do not think that it was the intention of the provisions of the bankruptcy law in a case like this to invest the trustee in bankruptcy with any greater or broader rights than the bankrupt himself held or to affect any lien inchoate or otherwise which was effective against the bankrupts."

The Bankruptcy Law was amended in 1910, section 47a (2). As so amended it reads: "And such trustees as to all property in the custody or coming into the custody of the bankruptcy court shall be deemed vested with all the rights, remedies and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also as to all property not in the custody of the bankruptcy court shall be deemed vested with all the rights, remedies and powers of a judgment creditor holding an execution duly returned unsatisfied."

The amendment of the Bankruptcy Law was not intended to enlarge the rights of a trustee as against lienors under our statute but to enable the trustee to avoid secret and unrecorded liens created by act of the bankrupt. (Hildreth Granite Co. v. Cityof Watervliet, 161 App. Div. 420; Remington on Bankruptcy [2d ed.], vol. 2, §§ 1255, 1154; Collier on Bankruptcy [8th ed.], 541, 542.)

The judgment of the Appellate Division should be affirmed, with costs.

HISCOCK, Ch. J., COLLIN, CUDDEBACK, HOGAN, CARDOZO and POUND, JJ., concur.

Judgment affirmed.