Court Opinion

ID: 6886100
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:28:42.527643+00
Date Added: 2024-06-11T16:05:43.081586
License: Public Domain

HUTCHESON, Circuit Judge
(dissenting).
When this cause was here before, the majority opinion correctly stated, “We recognize, however, that a bank acquires no subrogation to claims for labor or material by the mere application of its money to them, because a voluntary lender is never subrogated, as was held in Prairie State Bank v. United States, supra [164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412], * * * It is the assignment of the June estimate that gives the Bank standing” [110 F.2d 278, 281, 134 A.L.R. 727]. It incorrectly held, however, that “The payment to the Bank was good as against the surety”. From that holding, I dissented, pointing out that under general law, and particularly under Florida law, Union Indemnity Co. v. City of New Smyrna, 100 Fla. 980, 130 So. 453, the bank could not claim against any balance in the owner’s hands when the surety takes over until the surety is fully exonerated, that is, has been repaid all the sums it has to pay out to finish the work.
On this appeal, the majority concedes that the bank took nothing by the assignment. Upon a theory of subrogation for which Federal Land Bank of Columbia v. Godwin, 107 Fla. 537, 136 So. 513, 145 So. 883, 885 and Federal Land Bank of Columbia v. Dekle, 108 Fla. 555, 148 So. 756 are cited in support, it again sustains the action of the town in preferring the bank to the surety, in respect of funds in the town’s-hands when the contractor defaulted and the surety took over. The result is a loss to the surety of the amount by which the bank was preferred. With deference, the Florida decisions the majority relies on are without application, and there are Florida decisions deciding exactly contrary to the way the majority has decided it, the express point at issue here. The Florida decisions the majority cites apply to an implied agreement for subrogation to a first mortgage, the generally accepted doctrine, that a lender will be subrogated to a first mortgage which his money has discharged when it was expressly agreed that he should be. They properly, I think, held that the lender was not a volunteer because in connection with a loan of money on security he had so acted as to keep alive for his protection the first mortgage his money had discharged. Here the contractor, to whose rights alone by taking an assignment of the June payment the bank undertook to succeed, had no right to the payment he sought to assign because in the state of his accounts that payment was not, and never would become, due. It is settled in Florida beyond any question that neither the taking of such an assignment nor the fact that the money the contractor secured by the assignment was used to pay claims against the job will permit the bank to be preferred to the surety as to monies the owner has on hand when the surety takes over. The Union Indemnity case, supra [100 Fla. 980, 130 So. 454], is on all fours with this one on its facts. There the contractor had failed to perform its contract, and the Indemnity Company, to satisfy the condition of its bond, undertook to complete the contract. At the time it took over, the city owed the company $18,703.82, and it cost the surety $21,162 to complete the work. As here, the State Bank and Trust Company made demand on the city for the payment of monies advanced to the contractor upon an assignment made by it in June of payments due him out of amounts then in the city’s hands. As here, the amount so “paid by the [bank] to the [contractor] was paid for labor and services of employees engaged in the performance of the contract”. The surety urging that no money was due to the contractor under the June estimate, that the assignment was inefficacious, and that the fact that the money was paid for labor and services was immaterial, prevailed. The court cited as authority the Florida East Coast Railway Co. v. Eno, 99 Fla. 887, 128 So. 622, 70 A.L.R. 506 and State v. Schlesinger, 114 Ohio St. 323, 151 N.E. 177, 45 A.L.R. 371, and from the opinion in the latter case it quoted the following with approval: “A surety on the bond of a contractor for public work, who completes the work after abandonment by the contractor, is subrogated to all the rights of the state in the fund remaining at the time of declaration of forfeiture, and entitled to priority of payment of the balance of said fund as against the assignee of such contractor, to whom the balance of said fund had been assigned to secure loans received by him, the proceeds of which were used in making payment of the claims of laborers and materialmen, even though the surety on such bond was obligated to all claims* lof laborers and materialmen, and even though such money was loaned and such claims paid before declaration of.” (Emphasis supplied.)
The Supreme Court of Florida then concludes : “In this case the surety was bound to pay the claims for labor and material *61furnished in the construction contracted for. When the surety undertook the completion of the construction, it became subrogated, to the extent necessary to protect it from loss, to all the rights which the city might have asserted as against the funds in its hands. Such right attached at the time the contract of surety was made, and is one of the valuable rights which accrued to the surety upon its becoming obligated as such, and these rights could not be defeated by an assignment of the fund in the hands of the owner to secure a loan of money. The assignee of the contractor could acquire no greater right by reason of an assignment than that which the contractor himself might assert against the owner.” 130 So. at page 456. (Emphasis supplied.)
In the Florida East Coast case, supra [990 Fla. 887, 128 So. 626, 70 A.L.R. 506], the court said of a bank which, as here, had taken an assignment from the contractor: “The bank, as Eno’s assignee, occupies the same position as did Eno with respect to the moneys, having the same rights, and being subject to the same equities, conditions, and defenses, the assignment not being a negotiable instrument. The mere assignment ‘of all sums due and to become due the contractor’ in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.”
The majority opinion on this appeal, while expressly declaring that it recognizes that this is so, yet because the contractor paid claimants off with funds loaned the contractor by the bank, gives the bank a better position than the contractor itself would have been in if it had made the payments out of its own funds. If the contractor were here claiming the monies in question for itself on the ground that it had used the money to pay off material claims which the surety would have had to pay if the contractor had not paid them, it would have no standing to do this for it was bound to indemnify the surety against loss and it cannot claim against any balance in the owner’s hands as against the surety until the surety is fully exonerated. Since the contractor cannot do this for itself how can it by borrowing funds and then paying off material claims with them enable its lender to take a better position than the contractor could have taken if it had not borrowed the money but had paid these claimants with its own funds. The fallacy of the majority opinion is, I think, well pointed out in State v. Schlesinger, supra [114 Ohio St. 323, 151 N.E. 179, 45 A.L.R. 371], where it is declared “that the right of subrogation in the surety operates as an equitable assignment, and that, inasmuch as the surety is a party to the original contract, such equitable assignment takes priority over any assignment, legal or equitable, which may be given by the contractor to any third party who enters the transaction after its inception. * * * Laborers and materialmen who were paid by the money loaned by the bank to the contractor had no liens and the bank cannot therefore be said to have acquired existing and vested liens” by lending the contractor money to pay for labor and material. Illinois Surety Co. v. Galion, D.C., 211 F. 161, is to the same effect. The judgment should be affirmed. I respectfully dissent from its reversal.
Rehearing denied; HUTCHESON, C. J., dissenting.