[136 NJSuper Page 462] The question presented in this matter appears to be one of first impression and reaches the court on the return date of an order to show cause and cross-motions for summary judgment. The issue is whether the interest created by the filing of a security agreement and financing statement in accordance with the Uniform Commercial Code by the assignee of the accounts receivable of a general contractor is superior to the rights of sureties on performance and/or labor and material bonds, which sureties
have undertaken or guaranteed completion of the work of a defaulting contractor.
The facts, as distilled from the pleadings, affidavits and statements of counsel made on the record, are undisputed. On March 13, 1973 Dean Electric Co., Inc. (Dean) entered into an arrangement with plaintiff for the factoring of all of its accounts receivable and contract rights in conjunction therewith. At the same time Dean executed and delivered a security agreement and financing statement which were duly filed on March 19, 1973 in the office of the Secretary of State of New Jersey, as required by the Uniform Commercial Code. Pursuant to the provisions of the security agreement, plaintiff advanced to Dean hundreds of thousands of dollars. As of April 1, 1975 there remained due and unpaid to plaintiff the aggregate sum of $600,092.06 representing unpaid advances made in accordance with the aforesaid agreement. At various times between 1972 and 1974 defendant State of New Jersey awarded contracts to Dean for electrical work on State projects pursuant to the public bidding laws. As required by statute, Dean filed with the State a series of surety bonds to secure the payment of materialmen and laborers and to insure the performance of its various contracts. Two of the aforementioned jobs were bonded by defendant Reliance Insurance Co. (Reliance) and the remainder were bonded by defendant United States Fidelity and Guaranty Company (U.S.F. & G.) In accordance with the contract terms, the State paid out 90% of the monies earned on monthly billings, withholding the balance as per its agreement that the same would be paid upon the completion and acceptance of each job. The aggregate amount of monies still retained by the State on these jobs is $94,878.
The bonds of Reliance predate the filing of the financing agreement, while those of U.S.F. & G. are subsequent thereto. In conjunction with the issuance of the several bonds, each surety procured an assignment from Dean of all
monies due or to become due under the respective jobs each had bonded. Defendant bonding companies never filed financing statements with the Secretary of State of New Jersey.
On April 4, 1975 Dean made an assignment for the benefit of creditors of its entire estate, ceased performance of its work and did breach and default under the terms and conditions of the security agreement with plaintiff. Plaintiff made demand upon the State on April 1, 1975 for all monies due and owing from the State to Dean. Of the 13 contracts awarded to Dean, six were totally completed as of April 4, 1975. The remaining seven contracts were uncompleted, and the Division of Building and Construction of the State declared Dean to be in default by reason of the breach resulting from this assignment. The Division notified codefendant sureties to complete the work under the terms of the performance and payment bonds. As an alternative, the notice advised that the State would complete the contracts and back-charge the costs thereof to the sureties. Thereafter, agreements were reached whereby the sureties undertook to complete three projects and to have the remaining four completed by other electrical contractors. In all seven cases the State agreed to apply all unpaid contract balances and retainages in its hands to the completion of the work, and the sureties agreed to contribute the difference between such balances and the total costs of completion. As a result, no monies will remain in the hands of the State.
Plaintiff contends that it, and not defendant State, the codefendant sureties or the completing contractors or suppliers, is entitled to all monies deducted and retained by the State out of the various approved billings submitted by Dean for payment for work, labor and materials furnished prior to default. Plaintiff relies upon the fact that neither surety filed a financing statement pursuant to the Uniform
Commercial Code and concludes that defendants have thus failed to qualify as secured creditors under the Code.
Defendant sureties contend that the right to retainage of a surety who completes performance of a public construction contract is superior to the right of an assignee of the contractor notwithstanding the filing by the assignee ...