114 F. 529 | 9th Cir. | 1902
Lead Opinion
after stating the case as above, delivered the opinion of the court.
The appellant earnestly contends that its bill of intervention presents ground for equitable relief at least as to $2,747, or 70 per cent, of $3,924.31, the amount which the city admitted to have been the value of the work done by the contractors at the time when they abandoned their contract; and it insists that the sum of $2,747 *s beyond any doubt payable to it under its assignment; that that sum was earned by the contractors by work done in a public improve
The doctrine announced in Prairie State Nat. Bank v. U. S., 164 U. S. 227, 17 Sup. Ct. 142, 41 L. Ed. 412, must control the decision of these questions. The controversy in that case was between a bank which had advanced money to Sundberg & Co., the contractors who had undertaken to erect a custom house for the United States, and Hitchcock, the surety on the contractors’ bond, and it concerned the 10 per cent, of the contract price, which, by the terms of the contract, had been reserved by the government from the current payments until after the completion of the contract. The bank based its claim to the fund upon advances which it had made to the contractors in consideration of a power of attorney from the latter authorizing it to receive from the United States the final payment. Some three months after the execution of this power of attorney, the contractors defaulted, and Hitchcock, the surety, thereupon completed the contract, and disbursed therein about $15,000 in excess of the current payments from the government. The bank asserted an equitable lien upon the deferred payment, which it claimed was prior and paramount to the lien of the surety, since the claim of the latter arose only at the date when he undertook the completion of the contract. The court held, however, that the claim and equity of the surety arose when he entered into the contract of suretyship, and that his right to the reserve fund was prior and paramount to that of the bank, and said that the stipulation in the building contract for the retention until the completion of the work of a certain portion of the consideration “is as much for the indemnity of him w'ho may be guarantor of the performance of the work as for him for whom the work is to be performed; that it raises an equity in the surety in the fund to be created.” The court further said:
“If the United States had been compelled to complete the work, its right to forfeit the 10 per cent, and apply the accumulation in reduction of the damage sustained remained. The right of Hitchcock to subrogation, therefore, would clearly entitle him when, as surety, he fulfilled the obligation of Sundberg & Co., to the government to be substituted to the rights which the United States might have asserted against the fund.”
In so ruling, the controlling consideration was, not that the deferred payment had been, by the words of the contract, reserved, but that the money in controversy was still in the hands of the gov
Applying these principles to the present case, it is clear that the lien of the surety company upon all funds now retained. in the possession of the city, and applicable upon the contract, had its inception at the time when it entered into the contract of • suretyship, and that subsequent to that date the contractors, McCauley & Delaney, had no power to create a lien upon the payments to be made by the city, and make it paramount to the lien of the surety. That the right of the bank in this instance is subsequent to the surety’s lien is not to be questioned. The arrangement which is said to have been made between the bank and the contractors just prior to the execution of the bond cannot affect the rights of the surety. That arrangement, so far as the pleadings inform us, was not in the form of a binding agreement, and was not obligatory upon either party thereto; and, if it were, it could' not take precedence of the lien of the surety by virtue of the bond which it entered into simultaneously with the execution of the contract, unless it was known and assented to by the surety. There is no intimation that the surety assented to or had notice of such an agreement. One who becomes a surety for the principal upon such a contract as is disclosed in this case may not be deprived of his lien by the secret contract or agreement into which his principal may have entered. By abandoning the contract the contractors lost the right to compel the city to pay them any sum whatever on account of the work which they had done. Their as-signee, the bank, stood in no better position than they. The city undoubtedly had the right to declare the contract and all unpaid sums which it had promised to pay thereunder forfeited.. That it had this right is not disputed, but it is said that the city has not exercised it, and that, therefore, the right cannot avail the surety. But the true inquiry is, not what has the city done, but what had it the right to do? It had the right, if it had itself assumed the completion of the abandoned work, to retain for its own protection not only the stipulated 30 per cent., but all sums then due or earned under the contract, and no assignment by the contractors could defeat that right. Among the obligations of the contractors was included the duty to pay all claims for work, labor, and material. The surety, by the terms of its bond, had guarantied that the contractors would pay “all just claims for work, labor, or material furnished in the execution of the contract.” The surety’s obligation to pay liens and claims outstanding when the contract was abandoned was not limited in extent to the reserved 30 per cent, of the money then earned by the contractors, but it included the full sum of the unpaid claims, amounting to $3,161.38. In the Prairie State Nat. Bank Case 'the court expressly declared that the right of Hitchcock, the surety, was not limited to the 10 per cent, reserved, but that it was a right to “resort to the securities and remedies which the creditor, the United States, was capable of asserting against the debtor, Sundberg & Co.” So, in the case before the court, when the surety assumed the burden of the contract, it stood in the position of the city, so far as the unpaid stipulated sums under the contract were concerned, and it
Counsel for the appellant cite and rely upon the decision of the supreme court of the state of Washington in Dowling v. City of Seattle, 22 Wash. 592, 61 Pac. 709,—a decision which it may be conceded announces a doctrine directly at variance with that of Prairie State Nat. Bank v. U. S. In the Dowling Case it was held that orders drawn by a contractor on sums to become due on a contract with the city carried an equitable assignment of the fund, and, being valid when made, they were not rendered invalid by the default of the contractor, or by the assumption of the contract by the surety. The argument of the court was that, inasmuch as the city asserted no claim of right in the fund, there existed no right to which the
The decree will be affirmed.
Dissenting Opinion
(dissenting). I am unable to concur in the conclusion of the court. I think the bill of intervention states a cause of action for at least $2,747. There was due the contractors, McCauley & Delaney, when they abandoned their contract, the sum of $3,924.31. Thirty per cent, of that sum the city had a right to retain, and to that 30 per cent, only — to the rights of the city in that 30 per cent. — was the surety company subrogated. Seventy per cent, of the sum was a vested substantive right of the contractors, and passed by their assignment to the bank. This view is sustained, in my opinion, not opposed, by the case of Prairie State Nat. Bank v. U. S., 164 U. S. 227, 17 Sup. Ct. 142, 41 L. Ed. 412. In that case, as in this, the controversy was between assignees of a contractor and a surety on the bond of such contractor, and the surety prevailed. But the assignment in that case was void because given in violation of section 3477 of the Revised Statutes of the United States. In the case at bar the assignment was and is valid. In that case, therefore, the rights of the parties were held to be equitable only, and that of the surety was held to be the superior. What was the equity of the •surety? A right to the xo per cent, in subrogation to the rights of the United States in that percentage. In the case at bar the surety company is not only subrogated to the right of the city to the 30 per cent, which the city had a right to reserve, but to the 70 per cent, of the sums due which the city had no right to reserve, and which could be and was legally assigned.
The demurrer to the bill of complaint should have been overruled.