Albert Saggese, Inc. v. Town of Hempstead, 64 N.Y.2d 908 (1985)
A surety who pays mechanic’s lienors on behalf of a contractor is entitled to funds due from the town to the contractor, taking precedence over the contractor’s claim.
Summary
This case concerns a dispute over funds owed by the Town of Hempstead for a construction project undertaken by a joint venture, Albert Saggese, Inc. and Anthony Rivara Construction Co., Inc. The joint venture sued the Town for extra costs, while the Town counterclaimed. Royal Indemnity Company, the surety, was brought in due to its role in paying mechanic’s liens on behalf of the joint venture. The Court of Appeals modified the Appellate Division’s order, holding that Royal, as the surety who paid the lienors, was entitled to $54,060 owed by the Town, which would then extinguish the Town’s obligation to the joint venture in that reduced amount.
Facts
Albert Saggese, Inc. and Anthony Rivara Construction Co., Inc., formed a joint venture to perform construction work for the Town of Hempstead.
The joint venture claimed additional costs (extras) beyond the original contract price.
Royal Indemnity Company served as the surety for the joint venture, guaranteeing performance.
Royal Indemnity Company paid mechanic’s lienors who had claims against the joint venture for unpaid work and materials.
The joint venture sued the Town for the claimed extras.
Procedural History
The joint venture sued the Town of Hempstead.
The Town brought a third-party claim against Royal Indemnity Company.
Royal Indemnity Company, in turn, brought a fourth-party claim against the joint venture.
The Appellate Division made a ruling on the various claims.
The Court of Appeals reviewed the Appellate Division’s order.
Issue(s)
Whether the surety, Royal Indemnity Company, as assignee of mechanic’s lienors paid on the joint venture’s behalf, is entitled to funds owed by the Town of Hempstead for work performed, taking priority over the joint venture’s direct claim for those same funds.
Holding
Yes, because the surety, having paid the mechanic’s lienors, has a superior claim to the funds due from the Town, stepping into the shoes of those lienors.
Court’s Reasoning
The Court of Appeals determined that the weight of evidence supported the conclusion that most of the claimed extras were not the Town’s responsibility, arising instead from the joint venture’s inadequate cost assessment or changes made at their request. However, the critical point was the surety’s right to funds due from the Town due to its payment of the mechanic’s lienors. The Court emphasized that Royal, “as assignee of mechanic’s lienors paid by it on plaintiff’s behalf, rather than the plaintiff, is entitled to such moneys as may be due from the town.” This reflects the established principle that a surety who fulfills the obligations of a contractor by paying debts like mechanic’s liens acquires the rights of those creditors. This is rooted in equitable subrogation, preventing unjust enrichment of the contractor who would otherwise receive funds without satisfying their underlying obligations to subcontractors and suppliers. The decision underscores the practical importance of surety bonds in construction projects, ensuring that subcontractors and suppliers are paid, and providing the surety with recourse against the project owner for amounts owed to the contractor, but rightfully belonging to those who provided labor and materials.