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First National Bank v. Maryland Casualty Co.

April 27, 1961


Author: Lumbard

Before LUMBARD, Chief Judge, and WATERMAN and MOORE, Circuit Judges.

LUMBARD, Chief Judge.

This case arises out of the breach by William Casey and Sons, Inc., of its contract to construct sewers in Bowery Bay for the City of New York. The City has been satisfied since The Maryland Casualty Company, appellee herein, completed the sewers pursuant to its bond guaranteeing Casey's performance. Involved in this appeal are the competing claims of the First National Bank in Yonkers, the Maryland Casualty Company and the Liberty Mutual Insurance Company to $47,133.90, held by the City, and attributable to work done by Casey and approved for payment by the City Engineer before Casey had been formally declared in default.

An action to recover $47,133.90 was brought in the Supreme Court of New York County by appellant, the First National Bank in Yonkers, which, prior to Casey's breach, had allegedly received an assignment of all money due or to become due under the contract. Joined as defendants were: the City, Casey, the Casualty Company, four individuals as trustees of the New York City Carpenters' Welfare & Pension Fund, the Liberty Mutual Insurance Company and the United States of America.*fn1 The case was removed to the district court by the United States acting pursuant to 28 U.S.C. § 1444 and § 2410.

Casey made no answer to the complaint and the trustees, who held an unsatisfied judgment against Casey for welfare and pension contributions, moved to dismiss the complaint. The United States, the Casualty Company and Liberty Mutual filed cross-claims against the City in which they demanded the $47,133.90 or some portion of it. The United States alleged that the money was owing to Casey but that Casey, in turn, was liable to it for $110,390.83 in taxes withheld from wages paid at the construction project. Liberty Mutual, asserting that it was entitled to be paid $39,903.24 owed it by Casey in premiums for workman's compensation insurance at the project, claimed that the Casualty Company had a cause of action for the money but in turn was liable to it upon the surety bond that guaranteed Casey's payment for "services rendered." The Casualty Company, which also sought certain other funds in the City's possession,*fn2 contended that it was entitled to the fund by reason of the $682,637.52 loss it sustained in completing the contract. The City admitted that it held the money but stated that it knew not who was entitled to it.

After their answers, the United States and the Casualty Company moved with supporting affidavits for summary judgment. The motion of the Casualty Company was granted and that of the United States denied. From these rulings, the Bank, Liberty Mutual and the United States appealed but thereafter the United States abandoned its appeal and agreed to its dismissal.


The construction contract between Casey and the City and the Casualty Company's surety contract guaranteeing Casey's performance were entered into in October of 1955. On February 7, 1956, after working on the project for at least two months, Casey assigned to the Yonkers Bank "all money * * * due or to become due" under the contract in exchange for "$1 and other valuable considerations." The Yonkers Bank made continual advances to Casey of which it has not been repaid $50,000, owing since May 10, 1956.

Sometime during the middle of May, Casey met with financial difficulties which the Casualty Company attempted to alleviate by advancing funds, allegedly $57,993.91, to cover Casey's payroll and purchase of necessary materials. The Casualty Company's aid, however, was apparently not sufficient because Casey suspended operations at the project sometime before June 4, 1956. Two days later, on June 6, the Commissioner of the City's Department of Public Works demanded that Casey show cause why it should not be held in default. Pursuant to this notice, hearings were held on June 11 and June 13, and on the latter occasion, the Commissioner formally declared Casey to be in default. The district court held, however, that Casey's rights to further payment ceased on June 6, 1956, when he was "legally" in default and that the City was entitled to retain the $47,133.90, since under no theory had the $47,133.90 become payable to Casey by June 6, and granted summary judgment to the Casualty Company which was subrogated to the City's rights by virtue of having completed the contract at a loss.*fn3 Scarsdale National Bank & Trust Co. v. United States Fidelity & Guaranty Co., 1934, 264 N.Y. 159, 190 N.E. 330.*fn4 In so holding the trial court was in error.

An analysis of the contractual provisions and the documentary evidence leads us to the conclusion that the sixth progress payment was payable to Casey and, hence, to the Yonkers Bank by assignment before the City acquired any right of retention. We hold that the City had no power to retain funds on account of Casey's default, and that the $47,133.90 had become due to Casey before it received notice of the default declaration. Finally, we hold that if the assignment by Casey to the Yonkers Bank was valid, the City had no power under Article 48 of the construction contract - which gave the City the power, after the contractor's default, to retain "such monies as would have been payable to the contractor if he had completed the work * * *" - or otherwise to withhold from the Yonkers Bank money that was payable to Casey before the default declaration. Since the Bank had advanced $50,000 to Casey which was unpaid, we remand the case with directions to enter judgment for the Bank in the sum of $47,133.90.


We must deal first with the preliminary question of whether Casey's failure to file a statement required by Article 41 of the contract setting forth the wages owing to his laborers freed the City from any obligation to pay the progress payments. We hold that it did not. Though it is conceded that Casey failed to file such a statement, the City never demanded that Casey do so.*fn5 Therefore, we agree with the Bank that since the City had ample time to demand the statement, its failure to do so constituted a waiver of its right to withhold payment until such a statement was furnished.


We now turn to our conclusion that the sixth progress payment of $47,133.90 had become payable to Casey before ...

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