Yonkers Builders Supply Co. v. Petro Luciano & Son, Inc.

Finch, J. These are actions to foreclose mechanics’ liens. The defendant Petro Luciano & Son, Inc., entered into a contract with the county of Westchester for the construction of a highway. It also entered into a contract with the State of New York for the construction of a highway. The. plaintiff-appellant, the Yonkers Builders Supply Company, furnished cement to the Luciano company for both contracts. On August 21, 1929, the plaintiff filed a notice of lien against the county contract for the sum of $24,000. The Luciano company thereupon obtained from the Globe Indemnity Company, the respondent herein, an undertaking discharging the lien. No attempt was made to enforce this lien, it being permitted to expire. Subsequently, more cement was furnished and, the contractor having failed to pay in accordance with the terms of the contract, a new lien was filed on September 10, 1929, for approximately $20,000. The verification of this lien proved to be defective and it was refiled on September 30, 1929. A lien against the State contract for more than $6,000 was filed on August 23, 1929. Both of these liens *174 were discharged by court order upon the filing of an undertaking by the respondent. In January, 1930, these suits were commenced to foreclose the hens. Jn the fall of 1930 the Luciano company obtained a new State contract and the plaintiff contracted to supply cement for the work. In the course of the negotiations the question of the last two hens, bonded and sued on as above, was raised and an adjustment was had. It was agreed that the actions were to be adjourned by stipulation and that Petro Luciano & Son, Inc., would give the plaintiff notes for the sum owed, indorsed by the Lucianos individually and secured by a mortgage on property owned by Petro Luciano. The stipulations were signed on November 8, 1930. The case was reached for trial on November 10th but was adjourned to the 12th, at the request of counsel for the plaintiff. On the 12th it was adjourned again in accordance with the stipulations. The Globe Indemnity Company did not object to the adjournment but it was not apprised of the execution of the notes or mortgage. The adjournment of the trial with the consent of the surety was from November until May. The time of payment of the notes was in February, but the notes were renewed regularly until the plaintiff insisted upon going to trial because of the failure to pay the notes. The Special Term granted judgments against Petro Luciano & Son, Inc., and the Globe Indemnity Company. The Appellate Division reversed on the law and the facts. The new findings of fact of the Appellate Division must first be considered. The Appellate Division found that the plaintiff was guilty of fraud and was not in court “ with clean hands.” These findings appear to be based upon a contention by the respondent Globe Indemnity Company that the plaintiff and his attorney entered into a scheme with the principal debtor and Petro Luciano and his wife, the indemnitors to the surety company, the purpose of which was to obtain satisfaction of the plaintiff’s claim from the surety company and to reheve the principal debtor and its indemnitors of that burden. *175 It would unduly lengthen this opinion to review the fact situation. Suffice it to say here that the record does not support the finding of fraud or of unclean hands or inequitable conduct on the part of the plaintiff, even assuming that fraud had been pleaded. It does contain evidence of a number of transactions between the attorney for the plaintiff, the Luciano company and the Lucianos individually, but these transactions took place after the stipulations were agreed to and at a time when the attorney who acted for the plaintiff was employed also by the Lucianos as their own counsel. It is clear that in all these transactions the plaintiff is not involved, the attorney acting solely in his position of counsel to the Lucianos. Furthermore, no fraud or defense of unclean hands was pleaded in the answer of the defendant surety, although the answer was amended at the trial to plead inequitable conduct. The Appellate Division also found that the plaintiff abandoned the claims upon which these actions are based. The main evidence to support this finding is testimony that the attorney who had originally acted for the plaintiff and thereafter for the contractor, was present when the contractor paid his original attorney for services rendered in connection with several matters, including the hen proceedings, and although it was stated that the latter proceedings were finished, the attorney who had originally acted for the plaintiff did not demur. This did not bind the plaintiff. Neither this nor the other findings referred to by the respondent are adequate to support a finding of abandonment by the plaintiff. Nor was the indebtedness represented by the hens paid or the hens discharged by the acceptance of the notes and mortgage by the plaintiff. (Rukeyser v. Fountain & Choate, Inc., 185 App. Div. 263.) The respondent further contends that although neither the Special Term nor the Appellate Division have found the plaintiff guilty of exaggerating the amount of the hens, the facts as found clearly show such exaggeration. No *176 such result follows. The facts found show that the first lien entered was for an amount $10,000 in excess of what was actually owed. This was the result of a mistaken belief on the part of the plaintiff that a check received by it as part payment was not good. Shortly afterward the plaintiff learned of its mistake but nevertheless did not correct the amount. On this ground the respondent rests its contention of exaggeration. This hen, however, was permitted to lapse and it is probable that the amount was not corrected because the plaintiff intended to and did permit the hen to lapse. Inaccuracy in amount of hen, if no exaggeration is intended, does not void a mechanic’s hen; willfulness also must be shown. (Goldberger-Raabin, Inc., v. 74 Second Ave. Corp., 252 N. Y. 336. See Aeschlimann v. Presbyterian Hospital, 165 N. Y. 296.) Willfulness on the part of the plaintiff has not been proven, nor does the claimed exaggeration involve a hen now being foreclosed. The remaining and vital question is whether the plaintiff, by entering into binding stipulations postponing the trial of the actions and taking notes and a mortgage in settlement if paid, discharged the respondent. What fohows is not in conflict with the general principle of law that in the ordinary case of suretyship an agreement on the part of the creditor which operates to extend the time of payment of the original debt and suspends the right of action against the principal, discharges the surety, unless he has acquiesced in such extension. (National Park Bank v. Koehler, 204 N. Y. 174.) This principle does not apply in the case at bar because of the nature of the undertaking here given. An undertaking given to discharge a lien differs in important particulars from that of the ordinary surety-ship. In the first place, it is a substitute, so far as the rights of the lienor are concerned, for the fund or property subject to the lien. In Harley v. Plant (210 N. Y. 405, at p. 410) this court said: “ The undertaking does not change the relation or rights of the parties otherwise than in substituting its obligations for the fund subject to the *177 lien, and it was not within the legislative purpose in permitting the substitution to deteriorate the lienor’s rights.” Similarly in Berger Mfg. Co. v. City of New York (205 N. Y. 24, 30) this court said: “ The undertaking does not change the relation and rights of the parties other than to substitute its provisions for the fund remaining due or to become due from the municipality to the contractor.” While in the ordinary case of guaranty or suretyship the creditor for his own benefit seeks and desires the additional security, in the case at bar the undertaking is given for the benefit of those owning the fund or property and against the will of the lienor, who does not desire the discharge of the hen and would prefer to keep the same. The effect and purpose of the undertaking in the case at bar was to release the funds to the defendant contractor and to reheve the pubhc official in the payment of this contractor from the effects of the plaintiff’s hen; The amount of the undertaking is determined by the court, and not by the henor, and where, as here, the undertaking is furnished by a surety company, the henor lacks the right to compel justification by the surety and is not even entitled to personal service of a copy of the undertaking. Wdien this surety furnished the undertaking herein, it must be presumed to have had knowledge of the precise nature and purpose of the undertaking and that it takes the place of the fund or property subject to the hen. It cannot be contended successfully that once a hen is filed the henor and the contractor cannot compromise, settle or adjust the claim, or extend the time of payment of the indebtedness between them without the consent of the owner, in the case of a private hen, or the custodian of the fund in the case of a pubhc hen. When an undertaking is substituted and the hen released, the rights of the henor are not less. (Harley v. Plant, supra.) It fohows that in each action the judgment of the Appellate Division should be reversed and that of the Special Term affirmed, with costs in this court and in the Appellate Division.