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The New Mexico State Highway and Transportation Department v. Gulf Insurance Co.8/9/1999
{1} Having considered Gulf Insurance Company's motion for rehearing of our opinion filed June 24, 1999, we deny such motion. In doing so, we withdraw our original opinion and substitute the following.
{2} This case requires us to address an issue of first impression in New Mexico: whether a surety that issues performance and payment bonds and then satisfies claims against the contractor by paying laborers and materialmen has superior rights as against the contractor's secured creditors to final progress payments and retainage funds held by the project owner. On a motion for summary judgment, the district court apportioned the interpleaded funds between Gulf Insurance Company (Gulf), the surety, and First State Bank of Socorro (First State), the contractor's creditor. Gulf appeals the district court's judgment arguing that it has superior rights to the interpleaded funds under the doctrine of subrogation. We agree and reverse and remand to the district court for entry of an amended judgment.
I. FACTS
{3} In 1994, Leburt Saulsberry, doing business as Saulsberry Construction (Saulsberry), bid fence construction projects for the New Mexico State Highway and Transportation Department (State) and was awarded two projects as the successful bidder. Gulf issued performance and payment bonds on behalf of Saulsberry pursuant to the New Mexico Little Miller Act, NMSA 1978, §§ 13-4-18 to -20 (1923, as amended through 1987). Thereafter, First State made loans to Saulsberry under three separate promissory notes, totaling $57,193.04. The loans were secured by a security agreement, under which First State took an assignment of the "contract proceeds" on the State's projects. First State perfected its security interest by filing under the Uniform Commercial Code (U.C.C.), NMSA 1978, §§ 55-9-101 to -507 (1961, as amended through 1997).
{4} Later that year, Gulf received notice that Saulsberry's creditors, including laborers, materialmen, and subcontractors, had not been paid for the labor, goods, and materials they had used on the projects. Saulsberry was in fact unable to pay its creditors and thus defaulted under its obligations with the State. Gulf investigated the claims submitted by Saulsberry's creditors and determined them to be valid and within the scope of the Little Miller Act. Gulf's bonding company satisfied the claims of Saulsberry's creditors and lien claimants by paying claims totaling $80,278.73 for both projects.
{5} After the projects were completed, the State owed a total of $86,522.07 by way of final progress payments and retainage for the two projects. Gulf and First State both made demands on the State for the funds. The State filed an interpleader action against Gulf, First State, and Saulsberry, interpleading the total sum of $86,522.07 into the court registry. The district court dismissed the State from the action and ordered any parties having an interest in the funds to interplead in the action.
{6} First State then filed a Complaint to Foreclose Lien against Saulsberry and Gulf. Gulf filed a cross-claim against First State and Saulsberry and a third-party complaint against Linda Saulsberry, Leburt Saulsberry's wife. Before the merits of the interpleader action were decided, the district court entered default judgments in favor of Gulf against Saulsberry and against third-party defendant Linda Saulsberry on the Complaint to Foreclose Lien.
{7} Gulf filed a motion for summary judgment against First State, claiming priority to the interpleaded funds. Gulf and First State submitted a pretrial order in which they stipulated to certain facts. The parties' stipulation of facts was adopted by the district court, an
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