The opinion of the court was delivered by: DIMOCK
Fidelity and Deposit Company of Maryland, surety on the bond of Caruso-Sturcey Corporation, a building contractor, brings this action to recover the sum of $ 46,392.51 from defendant New York City Housing Authority, hereinafter referred to as the owner. That sum is an amount equal to the unpaid balance of the contract price for heating and ventilating work that the contractor agreed to do at Ravenswood Houses. By its agreement with the owner, the building contractor had engaged not only to do the required construction but also to pay its laborers and materialmen. However, while it completed the construction, it failed to pay all the laborers and materialmen. Because of this default, the owner withheld final payment pursuant to a requirement of the contract. The surety on the contract, pursuant to the obligation of its bond, paid the laborers and materialmen. The surety seeks reimbursement of the amount it paid to them.
Defendant United States of America asserts a claim to the withheld funds because of tax liens against the property of the contractor.
Granting recovery to either the surety or the Government will exhaust the withheld funds. Since the owner must not be required to pay twice, the question here presented is as to the relative superiority of the respective claims of the surety and the Government against the owner.
The Government's right to a lien is created by section 3670 of the 1939 Internal Revenue Code, 26 U.S.C. § 3670, which reads as follows:
' § 3670. Property subject to lien.
'If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.'
The period of the Government's lien is fixed by section 3671, 26 U.S.C. § 3671, which reads as follows:
'Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.'
Section 3672(a), 26 U.S.C. § 3672(a), makes the Government's lien invalid against a subsequent mortgagee, pledgee, purchaser, or judgment creditor unless notice thereof has been filed by the collector. It reads:
' § 3672. Validity against mortgagees, pledgees, purchasers, and judgment creditors
'(a) Invalidity of lien without notice. Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector * * *.'
The chronology is as follows:
The contract and the surety bond were executed before any payments by the surety to the contractor's laborers and materialmen and before any of the Government's liens accrued. The surety's payments to the contractor's laborers and materialmen were made during the period from December 11, 1950, to November 13, 1951. The Government's liens accrued during the period from April 4, 1950, to September 12, 1951. It thus appears that, if the relative rights of the surety and the Government depend upon the chronology of the surety's payments to the laborers and materialmen and of the accrual of the liens of the Government, the method of determining the respective amounts due would be to arrange the payments of laborers and materialmen and of tax liens in a ...