Court Opinion

ID: 9642827
Source: CourtListenerOpinion
Date Created: 2023-08-22 18:10:03.127962+00
Date Added: 2024-06-11T18:10:53.004224
License: Public Domain

HUTCHESON, Circuit Judge
(dissenting)-
The question to be determined by us on this appeal is simply, under the admitted and undisputed facts, which of two contestants, the surety on the construction bond, or a bank which advanced money to the contractor, has the superior right to moneys, $5,105.77, of the $15,810.08 unpaid on the contract and in the hands of the Town of River Junction, the owner, when the surety took over and completed the contract. These moneys the town paid the bank after receiving from it securities for the town’s protection and indemnity, long after the surety had completed and the town had accepted the work called for by the contract, and with full knowledge that the security claimed all the moneys in its hands. The moneys so paid were paid the bank as the principal and interest of three notes aggregating $4,800, one for $4,000 dated June 28, the others dated July 16 and 24, for $400 each, given by the contractor for moneys loaned him by the bank on those dates and purporting to be secured by an assignment of the June Sewer Estimate check as per letter1 and assignment *284of June 28. The bank and the city conceded below and concede here that as to so much of the moneys in the hands of the town as represented retained percentages, the surety’s claim attached as of the date of its execution of the bond, and could not be displaced by any act of the owner, the contractor or his assignee. They insisted below however, and insist here, that all of the moneys in the owner’s hands, when the notes and assignments were given, over and above the retained percentages, were free of the surety’s claims and that the contractor might freely draw and assign them, and the town, as freely pay the contractor or his assignee without accountability of any kind to the surety, on the part of the town, the contractor or the assignee. They especially insisted that the particular moneys in question were earned by and due to, the contractor when the asignment was made, and, though still in the city’s hands unpaid, they were, because earned, completely his moneys and subject tp his control, with no right of the town or the surety to withhold them from him.
The surety on its part insisted below and insists here, that upon’ settled principles, established by the cases set out below, 2 the contractor, on the undisputed facts, had no right in or to unpaid funds in the hands of the town, which it could enforce against either the town or the surety, and having none, it could assign none. In support of this position, the surety pointed below and points here; to the obligations of its bond that it would guarantee the performance of the contract, including the payment of all claims for labor and materials; to its rights of exoneration and subrogation, equitable and conventional as to the contractor, and equitable as to the owner; to the provisions of the contract that the contractor should provide all labor and materials, and for periodical payments by the town to the contractor;3 to the fact, self-evident on the record, that when the contractor made his notes and assignment to the bank, there were unpaid bills for materials furnished the job in excess of all moneys then remaining unpaid on the contract; to the fact that no June estimate or any other estimate after that, except the final, was ever made up by the contractor for approval by the engineer, and that no further moneys coming to the contractor on the job, because of his default in paying material bills, the city on August 4, called on the surety to see that the job was finished, and thereafter no money was paid to the contractor on account of the work except small sums paid it from time to time for payrolls on orders of the surety; to the fact that after the surety had taken the job completely over, and the contractor made up his final estimate on October 8, 1937, it showed total bills, lienable for materials actually incorporated in the job, unpaid of $17,964.40, a sum in excess of all the moneys in the town’s hands, to complete the job and pay the bills, and other bills not representing materials actually used on the job, of $6,-442; to the fact that after the town called upon it on August 4 to see to the completion of the job it did thereafter, for part of the time, in the name of the contractor and for the balance of the time in its own name, finish the job and pay all material claims against it, with an out of pocket outlay of $20,194.68. Finally, it points to the fact that long after the work had been completed, towit, in May of the following year, and accepted and, subject only to the payment of all material claims against the job, the surety became entitled to the balance in the town’s hands,' the town voluntarily, but only after taking full indemnity against the surety’s claim, paid the bank $5,105.77 of *285the $15,810.08, which it had been withholding to secure the performance of the contract. The surety insisted below, it insists here, that this was in violation of its right to succeed, upon its discharge of the contractor’s obligations, to the town’s position against the contractor and the contractor’s position against the town, as of the date of the execution of the bond, authorities in note supra. It relied below, it relies here, upon the holding in the Prairie Bank case, 164 U.S. at page 240, 17 S.Ct. at page 147, 41 L.Ed. 412, that the contractor could not transfer to the bank any greater rights in the fund than it itself possessed, its rights were subordinate to those of the town and the surety. And that in the Union Indemnity Company case, 130 So. at page 456, “In this case the surety was bound to pay the claims for labor and material furnished 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 cannot 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." (Italics supplied.)
So relying, it points out that if the contractor were here claiming the moneys in question, on the ground that it had used an equivalent amount of its own funds to pay off material claims which the surety would have had to pay if the contractor had not paid them, it would have to be admitted that the contractor could not do this, for, it has contracted 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. It insists therefore, that since the contractor could not make the claim, he cannot by assigning his claim to another, give that other the right to make it, for an assignee stands always in his assignor’s shoes.
The town and the bank, admitting that if the funds in question were moneys paid out of the retained percentages, the surety’s position would be unanswerable under the authorities, insisted that they do not apply here. They urged, citing Kane v. First National Bank, 5 Cir., 56 F.2d 534, 85 A.L.R. 362, and Third National Bank v. Detroit Fidelity & Surety Co., 5 Cir., 65 F.2d 548, that, since the June estimate was earned though never issued, the contractor and the bank stand in the same position they would have stood in had the money been actually paid to the contractor before the surety took over. The surety, pointing out that the Kane and Third National cases are not at all in point, insisted that the matter was not an open one, that the very question had been decided against the bank in these cases, Farmers’ Bank v. Hayes, 6 Cir., 58 F.2d 34; First National Bank v. City Trust, Safety Deposit & Surety Co., 9 Cir., 114 F. 529; Lacy v. Maryland Casualty Co., 4 Cir., 32 F.2d 48; Henningsen v. United States Fidelity & Guaranty Co., 208 U.S. 404, 28 S.Ct. 389, 52 L.Ed. 547; all holding that after default and the surety took over, its rights are the same as to all moneys retained in the owner’s hands, without regard to whether these retained moneys are the retained percentages or earned funds.
While the suit was in progress, the surety paid off all bills properly chargeable to the work, and made a showing that the whole of the $15,810.08, in the hands of the town when the surety took over the job, was $5,000 short of its exoneration. The District Judge, agreeing with the surety that the bank stood in the contractor’s shoes and that the fact that the contractor used the money loaned him by the bank to pay off material claims, was immaterial to the contest between the surety and the bank, because the contractor, if he had so advanced his own funds, could not have prevailed against the surety, struck the answer of the bank seeking to make this defense. And finding that by the arrangements for the payment to the bank, the town was completely protected, and in effect, still held the money in its hands, gave judgment for the surety against both town and bank.
While both town and bank have appealed, the burden of the appeal is borne by the bank, for the town has now paid the surety all of the moneys in its hands, except the $5,105.77 paid the bank, and as to that, is completely secured.
I agree with the District Judge. While most of the cases have had to do with retained percentages, many of them did not, and some of those cited above, have direct-*2863y held that there is no difference in the surety’s rights as to retained percentages and earned funds, as long as they are in the hands of the owner and necessary to the surety’s protection and exoneration.
But, authorities aside, I think it clear upon principle, that this must be so. For, if it were not then a contractor, by being careful to lay out no moneys of his own and to obtain, on assignments of his estimates, the moneys that he needs, could deprive the surety and the owner of the protection, which the owner always has, of stopping payments, when it is apparent that the contractor will not or cannot complete his contract, is or will be in default. This was the situation here when the contractor gave the assignment. The work was completed with the exception of a small additional amount, and there was then due and owing, more in material bills than the amounts retained in the town’s hands. Reason, justice and common sense, I think, conspire to teach that the right of the owner to protect himself and the surety by withholding funds in his hands when the contractor is in default, be not impaired or taken away by any act of the contractor so situated. They, conspire to teach that the contractor cannot, by assigning the funds, give to his assignee claims upon them which the contractor himself did not have.
The judgment was right.

 Dr. B. F. Barnes, Mayor
River Junction, Fla.
Dear Dr. Barnes:
Will you kindly send our June Sewer Estimate Cheque direct to the Gadsden County State Bank for our account when the same is ready to be paid.
Yours very truly,
Lackawanna Construction Company
(S) by Homer G. Bishop,
Secretary-Treas.
This agreeable to Town of River Junction,
For value received, we hereby sell, transfer and assign the above described cheque or any amount thereof required to pay the sum of Four Thousand Dollars and interest on the same and for such further sums that the said Gadsden County State Bank may advance to us for payment of Labor and Material.
Lackawanna Construction Company
(S) By Homer G. Bishop,
Secretary-Treas.

 Prairie State National Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412; Henningsen v. United States Fidelity & Guaranty Co., 208 U.S. 404, 28 S.Ct. 389, 52 L.Ed. 547; Martin v. National Surety Company, 300 U.S. 588, 57 S.Ct. 531, 81 L.Ed. 822; Union Indemnity Company v. City of New Smyrna, 100 Fla. 980, 130 So. 453; First National Bank of Dotham v. American Surety Co. of New York, 5 Cir., 53 F.2d 746; Bank of Ruleville v. Maryland Casualty Co., 5 Cir., 23 F.2d 378; Farmers’ Bank v. Hayes, 6 Cir., 58 F.2d 34; Id., 287 U.S. 602, 53 S.Ct. 8, 77 L.Ed. 524; First National Bank v. City Trust, Safe Deposit & Surety Company, 9 Cir., 114 F. 529.

 The contract provided among other things, that the contractor should provide all labor, materials, etc., and should pay ninety per cent, of the cost of all materials on or before the 20th day of the month, following the delivery thereof to the project. It also provided for periodical payments by the town to the contractor within the first 15 days of each calendar month “for work performed during the preceding calendar month, on estimates certified by the contractor, the owner and Government inspector.”