Bank of Northampton v. Town of Jackson

DeviN, J. Two parties claim the fund remaining in the hands of the town of Jackson after the completion of the contract for the installation of a water and sewerage system. One of those parties is the plaintiff Bank of Northampton, claiming by virtue of an assignment to it by the contractor of sums due and to become due under the contract, as security for a loan for the purpose of carrying out the contract, • made after notice to and with express consent of the town. The other party is the defendant Casualty Company, which claims by virtue of an agreement by the contractor to assign sums to become due under the contract, the agreement being contained in the original application by the contractor for the execution by the Casualty Company of its surety bond for the faithful performance of its contract. No notice of this agreement to assign was given to the town or the plaintiff. The contract has been fully performed and all claims thereunder have been paid, but it is contended the agreement to assign contained in the contractor’s application for bond covered not only any loss that might accrue under this contract, but also losses resulting from another contract of the contractor upon which the appellant was surety. The decision of the court is sought for the determination of the question as to which of these two parties is entitled to preference. The trial court ruled in favor of the plaintiff bank, and the appeal of the defendant Casualty Company brings this ruling here for review. The assignment to the defendant, as contained in the clause in the application for bond, provided, in terms, that, in the event of default or failure of the contractor to fulfill any obligation under the contract, or in the event of default in any other or subsequent bond executed by the Casualty Company for the contractor, all payments due or to become due under the contract should be paid to the company, and that this covenant should operate as an assignment. The principle is firmly established in this jurisdiction that, nnWs expressly prohibited by statute or in contravention of some principle of *586 public policy, all ordinary business contracts are assignable, and that a contract for money to become due in the future may be assigned. Chemical Co. v. McNair, 139 N. C., 326, 51 S. E., 949; Trust Co. v. Williams, 201 N. C., 464, 160 S. E., 484; Fertilizer Works v. Newbern, 210 N. C., 9, 185 S. E., 471. “The assignee of a part of a debt acquires in equity a right of action against the assignor.” Trust Co. v. Construction Co., 191 N. C., 664. Assuming that the agreement contained in the application made by the contractor to the Casualty Company to become surety on the contractor’s bond constituted an equitable assignment of sums thereafter to become due under the contract, this was without notice to the town. It further appears that thereafter the contractor executed an assignment of moneys due or to become due under the contract to the plaintiff bank as security for a loan for the purpose of securing money to carry out and complete the contract, and that this was done with notice to and by the express consent of the town. As affecting the right of priority between successive assignees, the question whether the fact that the subsequent assignee was the first to give notice of the assignment to the debtor entitles him to preference has been variously decided by the courts of other jurisdictions, and different results have been reached, in the application of conflicting equitable principles to the facts, in determining whether the assignee first in point of time is prior in point of right, or whether the assignment is to be considered as imperfect until consummated by notice to the debtor. In 4 Am. Jur., 313, it is said: “According to the weight of authority the assignee who first gives notice of his claim to the debtor is preferred, . . . unless he takes a later assignment with notice of the previous one.” In Graham Paper Co. v. Pembroke, 44 L. R. A., 632 (Cal.), authorities are cited in support of the general proposition that, as between successive assignees of a chose in action, he will have the preference who first gives notice to the debtor, even if he be a subsequent assignee, provided that at the time of taking it he had no notice of prior assignment. And in the note in 31 A. L. R., 876, it is said the weight of authority supports this view. In the annotations under Haverstick v. Sheirich, 76 A. L. R., 917, many authorities on the question of priorities between sureties on contractors’ bond and assignees of money to become due under the contract are assembled, and the holdings in different jurisdictions noted. It is not deemed necessary here to analyze or distinguish these conflicting decisions. While the exact question here presented does not appear to have been considered by this Court, it would seem from the holding and the authorities cited in Bank v. McCanless, 199 N. C., 360, 154 S. E., 621, *587 and Wallston v. Braswell, 54 N. C., 137, tbat effect would be given to the fact of notice to and acceptance of assignment by tbe debtor. However, each ease must be considered in the light of the facts upon which it is based, and measured by the terms of the contracts by which the parties have agreed to be bound. Eilis v. Amason, 17 N. C., 273; Ponton v. Griffin, 72 N. C., 362; Chemical Co. v. McNair, 139 N. C., 326, 51 S. E., 949. In this case, however, there are three outstanding facts which tend to support the judgment of the court below in holding the equity of the plaintiff superior to that of Casualty Company: 1. The contractor completed its contract with the town, and the Casualty Company, surety, has not and will not suffer any loss by reason of its suretyship on this contract. And the fund in suit is the surplus remaining in the hands of the town after payment of all claims thereunder. 2. The money loaned the contractor by the bank, secured by assignment of funds due and to become due by the town under the contract, was for the purpose of enabling the contractor to complete the contract, thus to that extent inuring to the benefit of the surety on the contractors’ bond. 3. The claim now made for the fund by the Casualty Company is based upon a loss, undetermined in amount, sustained by it by reason of its suretyship on a contract in the State of Florida, which occurred more than six months after the assignment to the plaintiff by the contractor in order to secure a loan for the purpose of enabling it to complete its contract with the town of Jackson. The plaintiff exercised proper caution and acted after full inquiry in taking the assignment from the contractor, and neither at that time nor at any time thereafter was there default on this contract, or any liability imposed on the surety therefor, and the fact that six months therefrom the Casualty Company suffered a loss on another contract in Florida ought not to deprive the plaintiff of its right to this fund. The fact that the surety company was not given notice of the assignment to the plaintiff should not be held determinative, under the facts of this case, since neither the right of subrogation (Mfg. Co. v. Blaylock, 192 N. C., 407, 135 S. E., 136; Prairie State National Bank v. U. S., 164 U. S., 227), nor claim on account of default and loss, could accrue to the surety upon a contract completed by the contractor without loss or liability. The construction regulations of the Public Works Administration relative to notice to the surety were not incorporated in the contract and that Federal agency has now no interest in the disposition of the surplus fund. *588 In further support of the view that under the facts agreed the plaintiff was entitled to priority, it may be noted that in the contract between the Construction Company and the town of Jackson, under the caption, “Contract Not to Be Transferred,” it was provided, among other things, “No right, under this contract, to any money or orders due or to become due hereunder, shall be asserted against the city or any department, officer or officers thereof, by reason of any so-called assignment, in law or equity, of this contract or any part thereof, of any money or orders payable thereunder unless such assignment shall have been authorized by the written consent of the city.” While appellant construes this section to refer only to an assignment of the operative features of the contract, we think a fair construction of the phraseology employed makes it apply also to an assignment of the proceeds of the contract as distinguished from the assignment of portions thereof for purposes of subcontracting. So that it would seem that any previous agreement between the Construction Company and defendant Casualty Company in the application for bond must be subordinated to the terms of the contract between the Construction Company and the town of Jackson which brought into being any rights which the Construction Company might have, and that these rights were necessarily impressed with whatever quality or condition was given to them in the contract concurrently with their creation. The appellant relies upon Lacy v. Casualty Co., 32 Fed. (2nd), 48, where upon facts somewhat similar a different result was reached. There the surety on two contracts for state highway construction, upon the insolvency of the contractor, took over the contracts and completed one project at a loss and the other at a profit. It was held that the rights of the surety were superior to those of the contractor's assignee, in the one instance on the principle of subrogation, and in the other by reason of prior assignment to the surety. The decision in the Lacy case, supra, followed the ruling in Salem Trust Co. v. Manufacturers Finance Co., 264 U. S., 182. In the last named case as between two assignees, where the later had made no inquiry of the debtor until after taking its assignment, it was held, as a matter of general law, that the first assignee should be preferred, under the maxim, “He who is first in time is best in right,” the Court declining to follow the English rule. There it was said: “While there are contingencies which entitle the second to prevail over the first assignee, we hold that.mere priority of notice to the debtor by a second assignee who lent his money to the assignor, without making any inquiry of the debtor, is not sufficient to subordinate the first assignment to the second.” Also, the case of Bank v. U. S. Fidelity & Guaranty Co., 9 Fed. (2nd), 326, cited by appellant, *589 tends to support its view as to the effect of the failure to give notice of plaintiff’s assignment to the surety, based upon the facts recited in that ease. However, we are not inclined to apply the doctrine of those and other similar cases to the facts in this case, but rather to adhere to the principle stated in the cited decisions of this Court, in accord with the English rule stated in Dearle v. Hall, 10 Eng. Rul. Gas., 478, as affording a better reasoned approach to a just and equitable disposition of the fund here in litigation. The recent case of In re Wallace: Jennings v. Howard, 212 N. C., 490, related to the assignment of a judgment by a judgment creditor to successive assignees, and it was there decided that it was not necessary to the validity of an assignment of the judgment that the assignment be recorded on the judgment docket. A careful consideration of all the facts agreed to by the parties leads us to the conclusion that they fully support the ruling of the court below, and that the judgment must be affirmed. Judgment affirmed.