On Dеcember 17, 1936, Joyce and Company, a copartnership, hereinafter called Joyce, entered into a contraсt with the Highway Commission of Oklahoma, hereinafter called the Commission, for the construction of Highway Project 537-B in Latimer County, Oklahoma. Thе contract in part provided:
“No moneys, payable under contract, or any part thereof, except the estimatе for the first month or period, shall become due and payable if the Commission so elects, until the Contractor shall satisfy the said Commissiоn that he has fully settled or paid for all materials and equipment used in or upon the work and labor done in connection therewith, and the Commission, if it so elects, may pay any or all such bills, wholly or in part and deduct the amount or amounts so paid from any monthly or final еstimate, excepting the first estimate.”
Joyce, as principal, and Standard Accident Insurance Company of Detroit, Michigan, hereinafter called Standard, as surety, executed two bonds conditioned that Joyce would faithfully perform the terms of the construсtion contract and would pay for all labor and materials. By the provisions of ¡he application for the bonds Joyce agreed that Standard, as surety, should be subrogated to all the rights, privileges and properties of Joyce, as principal, in the cоnstruction contract, and assigned, transferred, and conveyed to Standard all the deferred payments and retained percеntages, and all moneys and properties that might be due and payable to Joyce at the time of a breach or default by Jоyce, or that might thereafter become due and payable on account of the contract. The application for the bonds stated that payments were to be made on monthly estimates, 90 per cent thereof to be paid and 10 per cеnt retained.
*694 Joyce entered into the performance of the contract. The Federal National Bank of Shawnee, Oklahoma, hereinafter called the Bank, advanced moneys to Joyce and as security therefor, on May 18, 1937, took an assignment from Joyce of Estimate No. 1. Estimate No. 1 amounted to $1,776.51. *
On July 27, 1937, the Commission declared Joyce in default in performance of the cоntract. At the time of the default, Joyce owed labor and material bills aggregating $2,707.85. Standard completed the performance of the contract at a cost of $8,500. It also paid the bills for labor and materials and took assignments thereof. The estimates оther than the first were paid to Standard. It suffered a net loss of $1,-783.07 in carrying out the contract. Standard brought this action against Joyce, the Commission, the Bank, and others claiming subrogation to the funds in the hands of the Commission covering Estimate No. 1. The Bank set up its assignment and allegеd that it was filed with the Commission and accepted by it on June 21, 1937.
From a judgment denying Standard’s claim of subrogation and awarding the Bank judgment against the Commission for $1,776.51, Standard has appealed.
To constitute a novation the creditor must unconditionally release the original debtor and accept a third person in his stead. 1 Clearly, the assignment did not effect a novation. It was taken as collateral security and the Bank did not discharge Joyce from its obligation to pay the loan.
On completion of the construction contract and the payment of claims for labor and materials by Standard, it was subrogated to all the securities and remedies which the Commission wаs capable of asserting against Joyce. 2
Where a surety of a construction' contractor, upon the contractоr’s default, completes the contract, and the contractee has funds in his hands earned by the contractor, the surety is entitled tо be subrogated to the rights which the contractee, upon the contractor’s default, could assert against such funds, to the extent nеcessary to reimburse the surety for the outlay made to complete the contract. This right to the funds embraces not only retained percentages, 3 but other funds earned by the contractor remaining in the hands of the contractee. 4 It extends to any earned funds *695 held by the contractee because, on default by the contractor, the contractee upon completion of the contract itself, сould recoup its loss from any funds in its hands earned by the contractor. 5
While the breach by Joyce was subsequent to the assignment to the Bаnk and notice thereof to the Commission, the right to claim damages for breach of the contract existed at the time the contract was made and the Commission would have been entitled, as against the Bank, to withhold the funds in its hands, earned by Joyce, to recoup the state’s loss. 6
While this right of subrogation accrued when Standard fully performed the construction contract, it related back to thе date it entered into the contract-of surety-ship. 7 Hence, it was prior in time and right to the rights of the Bank under its assignment, and it could not be cut off by an intermediate assignment of Joyce to the Bank. 8
The equities of Standard are superior to the Bank’s not only because Standard’s right to subrogation is prior in time, but' also because it acted under compulsion of its contractual obligations and the Bank acted voluntarily in advancing the funds, 9 and notice of the suretyship contract was imputed to the Bank. It is charged with knowledge that public contractors are required to give bond conditioned for the performance of their contracts by § 10095, O.S.1931, 69 Okl.St.Ann. § 48. 10
This right to subrogation is not depеndent upon the contractual provisions found in the application for the bond. It arises independently of contract by oрeration ol law under familiar principles of equity. 11
It follows that the rights of Standard are superior to those of the Bank and it *696 was entitlеd to the funds retained by th Commission covering Estimate No. 1.
The judgment is reversed and the caus is remanded with instructions to enter judgment adjudging that Standard's dаt to Estimate No. 1 is prior and superior t the Bank's claim under its assignment, an awarding Standard its costs against th Bank. The costs in this court will be as sessed against the Bank.
Reversed and remanded.
Notes
Tile assignment was duly filed with the Commission. On June 21, 1937, it placed the following notation thereon: “This is to certify that the above de-. sсribed claim has been audited, approved and allowed by the Oklahoma State Highway Commission. Warrant, when payable, will be issued direct to Assignee.” Estimate No. 1 has not been paid.
Standard Sanitary Mfg. Co. v. Aird,
Montgomery Bank & Trust Co. v. Jackson,
Mills v. McMillan,
Eastern States Refrigerating Co. v. J. W. Teasdale & Co., Mo.App.,
Cohen v. P. E. Harding Const. Co.,
Kirkman v. Farmers’ Sav. Bank, 8 Cir.,
Williams v. Otis,
Tulsa Ice Co. v. Liley, 157 Oil. 86,
Prairie State Nat. Bank v. United States,
Prairie State Nat. Bank v.. United States, supra, 164 U.S. at pages 228,, 232-240,
Southern Surety Co. v. J. R. Holden Land & Lumber Co., 8 Cir.,
Maryland Casualty Co. v. Board of Water Com’rs, 2 Cir.,
Exchange State Bank v. Federal Surety Co., 8 Cir.,
Claiborne Parish School Board v. Fidelity & Deposit Co., 5 Cir.,
Riverview State Bank v. Wentz, 8 Cir.,
Hardaway v. National Surety Company,
First Nat. Bank in Winfield v. Fidelity & Deposit Co., 10 Cir.,
Note,
Lacy v. Maryland Casualty Co., 4 Cir.,
Farmers’ Bank v. Hayes, 6 Cir., 58. F.2d 34, 37;
State v. Schlesinger,
Hartford Acc. & Ind. Co. v. Coggin, 4 Cir.,
' First Nat. Bank of Seattle v. City Trust, Safe Deposit & Surety Co., 9 Cir.,
Henningsen v. United States Fidelity & Guaranty Co.,
*695
Southern Ry. Co. v. Brelz,
O’Neil Engineering Co. v. First Nat. Bank, Tex.Com.App.,
Barrett Bros. Co. v. St. Louis County,
Philadelphia Nat. Bank v. McKinlay,
Morgenthau v. Fidelity & Deposit Co.,
Moran v. Guardian Casualty Co.,
Lacy v. Maryland Casualty Co., supra, 4 Cir.,
First Nat. Bank of Seattle v. City Trust, Safe Deposit & Surety Co., supra, 9 Cir., 114 F. at pages 532, 553;
Southern Ry. Co. v. Bretz, supra, 181 Tnd. 504,
American Bridge Co. of New York
v.
City of Boston,
Stern v. Sunset Road Oil Oo.,
American Bridge Co. of New York v. City of Boston, supra,
O’Neil Engineering Co. v. First Nat. Bank, supra, Tex.Com.App.,
57 C.J. p. 487, § 155;
4 Am.Jur. p. 307, § 97.
Southern Surety Co. v. J. R. Holden Land & Lumber Co., supra, 8 Cir.,
Exchange State Bank v. Federal Surety Co., supra, 8 Cir.,
Claiborne Parish School Board v. Fidelity & Deposit Co., supra, 5 Cir.,
Farmers’ Bank v. Hayes, supra, 6 Cir.,
State v. Schlesinger, supra,
Prairie State Nat. Bank v. United States, supra, 164 U.S. at. page 232,
Henningsen v. United States Fidelity & Guaranty Co., supra.
Barrett Bros. Co. v. St. Louis County, supra,
Labbe v. Bernard,
Schiska v. Schramm,
Fidelity & Deposit Co. v. Union State Bank, D.C.Minn.,
Maryland Casualty Co. v. Dulaney Lumber Co., 5 Cir.,
See cases cited in notes 3 and 4.
Southern Surety Co. v. J. R. Holden Land & Lumber Co., supra, 8 Cir.,
Riverview State Bank v. Wentz, supra, 8 Cir.,
Henningsen v. United States Fidelity & Guaranty Co., supra.
Maryland Casualty Co. v. Dulaney Lumber Co., supra, 5 Cir.,
Derby v. United States Fidelity & Guaranty Co.,
Exchange State Bank v. Federal Surety Co., supra, 8 Cir.,
*696
Lacy v. Maryland Casualty Co., supra, 4 Cir.,
Hartford Acc.. & lad., Co. v. Coggin, supra, 4 pin,.
City of Detroit v. Fidelity & Deposit Co.,