Court Opinion

ID: 9643437
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:29:14.626193+00
Date Added: 2024-06-11T18:11:00.533554
License: Public Domain

SIBLEY, Circuit Judge
(dissenting).
On the issues made in the pleadings and the facts found by the court I do not think a judgment should be entered for the Bank, but that further facts should *80be found to settle the equities between the Bank and the Contractor’s surety. The reason given for entering judgment for the Bank is that the Bank came lawfully into possession of the disputed money pending the suit, and the Surety failed to show that the Bank was not entitled to keep it, having the burden so to do.
The suit was filed Sept. 11, 1942 by the surety against the Contractor, the Bank and others, to settle the liabilities of the. surety on the bond and to establish the surety’s right by subrogation to receive the remaining money to be paid by the United States, the surety having already performed the defaulting Contractor’s contract as respects the United States, and standing ready to pay all outstanding materialmen’s claims against the job so soon as they might be settled. It is immaterial whether the relief sought be called exoneration or subrogation, for .all claims were settled before the trial and assignments of them taken by the surety to an amount of $178,204. The surety’s rights by subrogation and by assignment are fully proven.
Now the Bank in its answer, not yet having received the disputed money, claimed a right to receive some $6,600 from the United States in preference to the surety, because it held an assignment from the Contractor made under the Assignment of Claims Act of Oct. 9, 1940, 31 U.S.C.A. § 203; and because the money it had loaned the Contractor just before his default was in fact used by him for the relief of the surety in paying labor debts on the job. The Bank had the burden of proving these defenses. It proved the assignment, but made no effort to prove what use was made of the money.
Five months after the suit was filed, and after the surety had completed the job, the United States paid the Bank $12,-220 as a progress payment, but it does not appear whether any part of the work for which the payment was made was done by the Contractor before his default, or whether it was all done by the surety afterwards. It was paid the Bank as the assignee recognized by the United States. An injunction was sought to prevent the Bank’s accepting it, but in the face of that application the Bank took the money, paid itself, and paid the rest into court. Now it does not seem to me that the Bank could in this manner improve its position or alter in any way the rights of itself and the surety. It must be regarded that the Bank received the money subject to the outcome of the pending suit, and not even the burden of proof was affected thereby.
The surety having established its case, as above’ stated, the Bank did not prove a special equity which we recognized in Town of River Junction v. Maryland Casualty Co., 5 Cir., 133 F.2d 57, as sufficient to prevent recovery of money from a Bank in somewhat similar circumstances. The Bank only proved its assignment. A judgment for the Bank can therefore be meritoriously rested only on that assignment, as putting the Bank ahead of the subrogation rights of the surety, and of the materialmen whose claims were taken over by assignment. I do not think the Assignment of Claims Act had so great an effect.
It is true the Act says: “Notwithstanding any law to the contrary governing the validity of assignments, any assignment pursuant to this paragraph shall constitute a valid assignment for all purposes”; but I think the validity asserted is against all the other laws referred to, and for all purposes for which assignments are usually valid. The primary purpose of the Act was to remove the impediment which the federal statutes had before imposed, and to make it safe and lawful for the United States to pay the assignee without enquiry into the equities of other persons. It was not intended to upset the established doctrines as to the relation of such assignments to the rights of the surety on the Contractor’s bond, or those of the laborers and materialmen to be paid out of the proceeds of the job. The retained payments are still to stand as a general security put up for the bene^ fit of all concerned, and dating from the date of the construction contract. The assignment does not alter that. If Contractor and his surety both fail, there is an equity of laborers and materialmen to be paid; and when the surety does not fail, but pays them, there is the conventional subrogation stipulated for in the application for the bond when the surety pays them. I am unwilling to say that this new act puts the Bank who acts under it above and before every one else, no matter what became of the money it loaned to the Contractor.
I would send the case back for findings as to the date of the Contractor’s default; *81as to whether he then had done any work for which he had not been paid, or whether all the work subsequently paid for was done by the surety; and whether the money which the Bank loaned was diverted from the job, or was really used for the relief of the surety. I think these things would have a bearing on what is right to be done. The Act moreover requires that the Bank give notice of its assignment to the surety, I suppose that the surety may take such precautions against diversions as it may; but this Bank did not give notice for nearly a year, nor until the day before its last loan, and whether the Contractor was already in default does not appear. The surety at once protested the notice and the assignment. This does not seem a fair notice, if the Act is meant to destroy the surety’s rights when an assignment is made under it.