Request By:
Mr. Wilburn J. Pratt
Commissioner
Department for Local Government
909 Leawood Drive
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Department for Local Government administers the "Old Coal Fund" (KRS 42.300, Coal Producing County Development Fund) pursuant to 200 KAR 4:010. Under the procedures, DLG approves a project and the county administers the work. Bills on a contract are examined by fiscal court. And when fiscal court approves them, they are sent to DLG, which forwards them to Finance for payment. The check is made out to each individual contractor and sent to the county judge/executive for delivery.
In Letcher County, Project #23-11 (Jenkins Athletic Field), this procedure was followed. After the fiscal court approved payment, a check in the amount of $17,000 made out to the contractor was sent to the county judge/executive, Collins, who delivered it to the contractor, "custom paving", who cashed it. Thereafter, a dispute developed concerning payment of a subcontractor, and Judge Executive Collins sent a letter to the state treasury requesting that payment be stopped on the check, and it was done.
The question is whether or not the state treasurer is obligated to honor the check which was negotiated and is now in the hands of the bank which made payment in good faith. The answer is "yes".
Since the payee-contractor cashed the check with a Greenup County bank, such transferee bank apparently became a holder in due course. Such holder, we assume, took the instrument for value, and in good faith and without notice of any defense against or claim to it on the part of any person. KRS 355.3-302. See
Bank of Commerce of Louisville v. Abell, 298 Ky. 736, 184 S.W.2d 86 (1944) 89.
Under the regulations, 200 KAR 4:010, the fiscal court had the responsibility for the proper administration of the contract. It approved the payment of the $17,000 to the contractor on the basis of an invoice submitted, as required. The Department of Finance had a warrant prepared, and the Kentucky Treasurer's check for $17,000 was issued accordingly. The check was delivered to the contractor, who cashed it in a Greenup County bank.
If the subcontractor filed a lien pursuant to KRS 376.210, et seq., the DLG has no knowledge of it at all. In any event, DLG had no knowledge of any such lien (if any exists) prior to the delivery of the check to the contractor. Thus there is "no balance due" the contractor, as relates to the $17,000. The contractor got his money. And there is this intervening holder in due course, the Greenup bank, which can proceed to collect the $17,000 against the state.
For the above and compelling reasons, it is our opinion under the facts given and assumptions made that the Kentucky State Treasurer should remove this stop order and allow the check to clear through the state's depository, the Farmers Bank of Frankfort. Under the facts given, the subcontractor's claim, whatever it is, is against the contractor.