Court Opinion

ID: 6886099
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:28:42.52563+00
Date Added: 2024-06-11T16:05:43.080108
License: Public Domain

SIBLEY, Circuit Judge.
This case was reversed for further proceedings in Town of River Junction v. Maryland Casualty Co., 5 Cir., 110 F.2d 278, 134 A.L.R. 727, where its nature is fully set forth. Thereafter the portions of the answers erroneously stricken were reinstated, and pursuant to an order of the court the Town of River Junction and Gadsden County State Bank each filed similar bills of particulars as to the disbursement of the money loaned by the bank to the contractor, upon the assignment of the June, 1937, check due him by the town, tending to show their application to claims for which Maryland Casualty Company, as the contractor’s surety, was bound; and averring that the money was loaned for and intended to be applied only to such claims. Certain facts were admitted, and on a pretrial conference the court held there were two issues to be tried: (a) Whether the contractor was in a state of default under his contract when the bank loaned $4,000 on June 28, 1937,’and took its assignment of the June check, by reason of not having paid by June 20, 90 percent of the cost of all materials, tools, and expendible equipment delivered to the project prior to the month of June; the burden being on the town and bank to show no default, (b) Whether the proceeds of this loan of $4,000, and those of $400 and $400 made in July also on the faith of the assignment, were actually used to pay claims for which the surety would have been liable; the burden being upon town and bank to show such use. Evidence was taken and the court found against the town and bank on both issues, and decreed that the surety recover from the town and bank $5,105.77 which the town had paid to the bank pursuant to the assignment. This appeal followed.
The court properly defined the fact issues to be tried. It properly placed the burden of proof as to each. In so far as the bank and town relied on the assignment to justify the payment to the bank of the $5,105.77 they had to sustain its validity. In this case the contractor under his contract was not entitled to any June check unless he had paid off 90 percent of the cost of all material, tools, and expendible equipment delivered to the project in the preceding months. The right he was assigning was not a negotiable right, and the assignee could acquire no better right than the assignor had, no matter what his belief or good faith may have been. The burden of showing the state of the contractor’s accounts is hard for others to carry, the contractor having failed and his books having disappeared, but it is an essential part of establishing the assignment. So also, the assignment failing, the burden of showing an equity arising from the application of the money is on the town and bank who assert it.
As to issue (a) the evidence is not clear as to what the cost of material, tools, and equipment,delivered to the project before June was, and what percent of it remained unpaid. It is plain that relatively little was furnished in June and afterwards, but that some $8,000 of material bills were outstanding and had to be paid by the surety when it took over the work in August. The entire sum to be paid for the work was about $82,000, and only a fraction of that would be material, tools, and expendible equipment. The probabilities are all in favor of more than ten percent having been unpaid before June. Wherever the burden be placed, the conclusion under the evidence ought to be that the contractor had not performed this condition precedent to his collecting further progress payments. His certificate to the town that he had paid in full, made on June 2 to the town to get the May check, does not estop the surety, seeing that the town did not act on it in paying to the bank the money now in controversy. Besides, if that certificate was binding on the surety, it covered only April costs and did not mean that the May *59check, not yet received, had been duly applied. The assignment of the June check has thus not been shown to be valid.
We think the decision of issue (b) is in part clearly erroneous. Although the assignment of the June check be void in law, it operates to prevent the bank from being a mere volunteer or intermeddler and entitled to no consideration in equity, When a person, though having no interest to protect, is induced to lend money for the very purpose of removing a charge or incumbrance, taking security believed to be good against the thing incumbered, which security proves ineffectual, but the loaned money is actually used to remove the charge or incumbrance, equity as against persons benefitted will subrogate the lender to the charge or incumbrance so removed. The lender is not a volunteer but a victim. This of course is not conventional subrogation, nor the usual cquitable subrogation in which equity aids one who was bound and has paid for his own protection, but it is an instance in which equity uses subrogation to accomplish that which is plainly just and right. Not all courts have applied it as stated above, but the Florida court has. Brannon v. Hills, 111 Fla. 491, 149 So. 556. We apply it here. The surety was bound to see that all labor and material claims were paid, and to carry the job to completion. The claims of laborers and materialmen were a charge or incumbrance on the money due the contractor by the town, and against the surety’s own bond. The contractor, embarrassed by delays in paying monthly estimates, and as now appears, by a probable loss in the job, went to the bank to get cash to carry on instead of going to the surety. The bank refused to make general loans, but did make these advances to be used solely to pay labor and materials, and on the security of a payment believed to be due. The money was used in the main for the purposes intended, but the security has failed. The surety has gotten its obligations discharged by the money furnished by the bank, with the cooperation of the town. The surety has no moral or equitable right to have the bank pay back or the town to pay again. The surety has chosen an equitable forum. In the original complaint, he asserts his claim against the bank for the $5,105.77 paid it by the town thus: “that in equity and good conscience the said Gadsden County State Bank now holds said sum of money in trust for the benefit of your orator.” We think equity and good conscience entirely the other way. Whether or not the bank could actively enforce a subrogation against the surety of the claims its money Paid> * can at lcast Prevent a recovelT m equity by the surety,
As to the use made of the borrowed money> the original checks are available, and the memory of those who used them. One check for $2,556.01 went to a subcontractor who admittedly the surety would otherwise have had to pay. Several other checks payable to Henry L. Wheeler or to cash and indorsed by Wheeler, are proven by him to have been for cash for payrolls, and some small freight charges, for all of which the surety would have been liable, Since the contractor’s failure, the surety audited Wheeler’s transactions and paid him $20 advanced by him, showing content with his handling of funds. These checks aggregated $1,871.48. Another check, $22.-80, went to a subcontractor. These, totalling $4,450.29, clearly were used to relieve the surety. Three checks, amounting to $178.80, were to H. D. Driscoll for salary-He was the contractor’s president, and also worked on the job. The surety was not liable for an executive’s salary, and the evidence does not show any separate service for which the surety would, be liable to him, so these checks are not shown to have relieved the surety. Some other checks were sent to repay advances made by an-other job; as to which no clear benefit to the surety appears. Two large checks were certified by the bank, which, if they had been used, would have been diversions of the borrowed funds. They were not used, but were redeposited, and while they con-fuse the account on the bank’s books they really amount to nothing in this tracing, The $5,105.77 was made up of $4,800 principal and $305 interest paid the bank. The principal which by reason of its use the bank ought to retain is $4,450.29. The proportion of interest attributable to it is $287, making $4,737.29 that the bank may retain, The difference, $368.48, must be restored by the bank and town with $89.38 interest to date of decree. Paragraph 8 of the decree is amended by striking the words “Fifty-One Hundred Five and 77/100 ($5105.77) Dollars together with interest up to the date of the decree in the sum of $1,238.82”, and substituting “Three Hun-dred Sixty-Eight 48/100 ($368.48) Dollars together with interest up to the date of the decree in the sum of $89.38”. As amended, the decree is affirmed, with costs of appeal to appellant.