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HARTFORD ACCIDENT & INDEMNITY CO. v. VILLAGE OF MILAN

August 6, 1959

HARTFORD ACCIDENT AND INDEMNITY COMPANY, A CORPORATION, PLAINTIFF,
v.
VILLAGE OF MILAN, A MUNICIPAL CORPORATION, DEFENDANT



The opinion of the court was delivered by: Mercer, Chief Judge.

Plaintiff, Hartford, filed its complaint against defendant, Village of Milan, claiming a sum of money allegedly due to plaintiff from defendant. Defendant filed a disjointed document which it entitled as an answer and counterclaim, a principal feature of which is thirteen single paragraphs, each of which is designated as a separate affirmative defense. It is logically debatable whether defendant, in its efforts, actually answered the complaint filed but for present purposes the court will assume that it has done so.

The cause is now before the court for decision of two matters, viz., plaintiff's motion to strike the First, Second, Eighth, Ninth, Eleventh and Twelfth affirmative defenses and plaintiff's objections to certain of the interrogatories propounded by defendant.

The pertinent background of this litigation as shown by the pleadings is the following. On August 23, 1954, defendant entered into a contract with Frederick N. Frank, Inc., hereinafter referred to as contractor, whereby contractor undertook to construct certain water and sewer improvements for defendant. Prior to execution of that contract, plaintiff, upon contractor's application, issued a performance bond in favor of the defendant conditioned for the faithful performance by contractor of the construction contract. Contractor's application for the bond contained, inter alia, a provision assigning to plaintiff all moneys which should become due to contractor from defendant from time to time under the contract. On December 8, 1954, plaintiff, invoking the general assignment contained in contractor's bond application, gave defendant written notice that it should make no further payments to contractor except such as might be authorized by plaintiff through its home office or its designated Chicago agent. On December 22, 1954, defendant paid to contractor the sum of $19,275.40 as a progress payment under the construction contract. On February 4, 1955, defendant terminated the construction contract because of the alleged default of contract. Thereafter, on October 3, 1955, plaintiff and defendant entered into an agreement which provided that defendant would employ a new contractor to complete the construction work and plaintiff would pay to defendant such sums as defendant might be required to expend for completion of the construction over and above the original contract price for the work. The latter contract provided, inter alia, an established formula for determination of amounts to be paid by plaintiff for completion of the work and a stipulation that plaintiff reserved all rights which it might have against defendant arising out of the December 22, 1954 progress payment to contractor. Thereafter, on October 24, 1955, plaintiff paid to defendant the sum of $69,558.85, pursuant to the provisions of the October 3d contract.

Plaintiff contends that defendant is liable to it for the sum paid to contractor on December 22, 1954, after defendant's receipt of notice of plaintiff's claim as assignee of contractor. The complaint prays judgment against defendant in the amount of $19,275.40, plus accrued interest.

A principal question presented by plaintiff's motion to strike, namely, whether the alleged assignment to plaintiff of funds due to contractor is valid against defendant, controls disposition of that motion as to the First and Second defenses and bears some relationship to other challenged defenses. The construction contract provided that neither the contract nor any part thereof could be assigned by contractor without the written consent of defendant. Defendant pleads that provision as its First defense, contending that the purported assignment to plaintiff is void and of no effect. In its related second defense, defendant contends that the construction contract must be considered as an inseparable contract and that no part thereof was assignable without defendant's written consent.

I am of the opinion that neither the First nor Second defenses constitute a defense to plaintiff's claim. We are not here confronted with an attempted assignment of the contract itself which would collide squarely with the prohibition against assignment. What we are concerned with is an assignment of moneys due or to become due to contractor thereunder.

The assignment of moneys due, or to become due, under a public works contract does not violate a provision that the contract is not assignable without the consent of the public body. Portuguese-American Bank v. Welles, 242 U.S. 7, 37 S.Ct. 3, 61 L.Ed. 116; 63 C.J.S. Municipal Corporations § 1015; 4 Am.Jur., Assignments, Sec. 14; 43 Am.Jur., Pub. Works & Contracts, Sec. 22. The latter authority states the principle in pertinent part, as follows:

    "* * * unless restricted by statute or by his
  contract, a contractor for public works may assign
  moneys due or to become due him in the performance of
  the work, particularly when he does so as a means of
  financing the undertaking and paying for labor and
  materials, provided such assignment does not involve
  any of the obligations to perform the work and the
  public body retains the personal obligations of the
  contractor and his sureties for the faithful
  performance of the contract, for it is generally
  recognized that the right to receive money due or to
  become due under a contract may be assigned even
  though the contract itself is not assignable.
  Statutory provisions and ordinances prohibiting
  assignments without the consent of public authorities
  are generally construed to refer to the contract
  itself and not to the proceeds thereof, unless an
  intention to forbid the assignment of proceeds is
  clearly manifest." 43 Am.Jur., at pp. 763-4.

In Portuguese-American Bank v. Welles, 242 U.S. 7, 37 S.Ct. 3, 61 L.Ed. 116, the Court rejected the contention that an assignment of one of several progress payments under a public works contract was void because a contract clause prohibited assignment of the contract without written consent of the municipality. In so holding, the Court reasoned that a debt incurred under the contract was property in the hands of the contractor which he could alienate or deal with as he pleased so long as his action did not impair the rights of the municipality to have the work done by him in accordance with the contract provisions.

I have found no Illinois case directly in point. Illinois has approved the assignability of moneys due or to become due under public works contracts in Hibernian Banking Ass'n v. City of Chicago, 178 Ill. App. 138. It is not clear from that opinion whether or not the contract involved contained a provision prohibiting assignment. In the somewhat analogous situation, the Illinois courts have sustained the right of an employee to assign wages due and to become due from his employer notwithstanding a restrictive provision of his employment contract and notice to his assignee. State Street Furniture Co. v. Armour & Co., 345 Ill. 160, 177 N.E. 702, 76 A.L.R. 1298. State sued as assignee of the wages of an Armour employee. Armour pleaded as a defense an employment contract with the employee involved which provided that wages accrued or to accrue to the employee under the contract could not be assigned without the consent of Armour, and a notice mailed by Armour to State, among others, prior to the assignment in litigation, that any wage assignment by an Armour employee would not be honored. The defense was stricken by the trial court, and a judgment for State was affirmed. In so holding, the court said, in pertinent part:

    "Where the assignment is of the entire claim, the
  consent of the debtor is not required, as it is no
  concern to the defendant in whose name the suit for
  wages due the employee is instituted. * * * When one
  has incurred a debt, which is property in the hands
  of the creditor, the debtor cannot restrain its
  alienation as between the creditor and a third person
  any more than he can forbid the sale or pledge of
  other chattels. A debt is property, which may be sold
  or assigned, subject to the ordinary rules of the
  common law in determining the rights of the assignee,
  and, when untainted by fraud, its sale offers no
  ground of complaint by the debtor. Portuguese Bank v.
  Welles, 242 U.S. 7, 37 S.Ct. 3, 61 L.Ed. 116; Bank of
  Harlem v. City of Bayonne, [48 N.J. Eq. 246,
  21 A. 478]." 345 Ill. 165-166, 177 N.E. 702, 704.

There is also one other factor present in the case at bar which must influence a decision as to the validity of the claimed assignment. Plaintiff asserts an assignment of moneys due under the contract which was given to it as a part of the consideration for the performance bond which was, in turn, a condition precedent to the very existence of the contract itself. Defendant's rights could not be prejudiced by the assignment. It did not impair the basic responsibility of contractor to perform the work or the obligation of plaintiff, as surety, to guarantee the faithful performance thereof by contractor. Plaintiff's obligation in that regard extended to the protection of defendant against liens claimed by laborers, materialmen, and subcontractors, I.R.S. 1953, c. 29, § 16, and defendant's position could not have been jeopardized by the assignment on that account.

Plaintiff asserts an assignment of the whole obligation under a specific contract, the amount of which was known or could be readily ascertained by applying the contract provisions. I hold the assignment to plaintiff to be valid, and, therefore, neither the ...


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