Greenville Sav. Bank v. Lawrence , 22 C.C.A. 646 ( 1896 )

MORRIS, District Judge

(after stating the facts). The parties to this controversy being all anxious that some tribunal should assume jurisdiction and adjudicate their respective claims, no question of jurisdiction, procedure, or right of appeal has been raised, and we assume that the case is rightly before us on appeal. The contention of the appellants that Lawrence, the contractor, could assign and transfer the money coming to him from the United States under his contract so as to affect any one but himself cannot be maintained in the face of sections 3477 and 3737 of the Revised Statutes; and Nichols, who was a mere disbursing agent of the United States, manifestly had no authority to do anything but to pay over the money when it was due. His acceptance of orders on the fund which he expected to disburse was of no validity. U. S. v. Gillis, 95 U. S. 407; Spofford v. Kirk, 97 U. S. 484; McKnight v. U. S., 98 U. S. 179. And, even without the prohibition of sections 3477 and 3737, Lawrence could make no assignment which would abrogate the contract. By the contract the United States reserved the right to withhold the payments under it if Lawrence failed to pay promptly those who furnished labor or materials. The reason of this provision is apparent. Against all buildings except those of the United States and the states and the governmental agencies acting under them, by the statutes of nearly all states, those who furnish labor and materials are given liens, but contractors with the United States for the erection of its buildings may collect tbe contract price, and let those who have furnished the labor and materials go unpaid. This gives dishonest or reckless contractors the opportunity to underbid honest ones, and subjects congress to appeals to its generosity to make good the losses of those whose labor or materials have erected public buildings. It is, therefore, in its own interest, as well as in tiie interest of honest dealing, that stipulations like the one in question are inserted in government contracts, and the contractor cannot abrogate them. The fund in this case was withheld by the treasury department under this stipulation of the contract, as the United States alleges in its answer, in the interest of such persons as furnished labor and materials used in the construction of said building, and for no other purpose, and prays the court to ascertain the rights of the claimants of the fund and to distribute it. As the correctness of some of the labor and material claims was disputed by Lawrence, and he alleged there might be others not filed with the treasury department, the court, by appropriate methods, called in all claimants, and required them to prove their claims. Obviously, as against labor and material claims, the assignees of Lawrence could have no standing to participate in the fund. It was a fund withheld under the stipulation of the contract for a particular class of creditors, to which mere assignees of the fund do not belong, and the rights of such assignees, if they have any, must be postponed until the creditors who have a special equity are paid.

It is further urged that, as the money advanced by the bank and Mr. Norwood was loaned to be used, and was used, by Lawrence in most part to pay current labor and material claims during the progress of the building, they should be subrogated to the rights which those persons would have had if they had not been paid. The proof shows that the loans were made by the bank to Lawrence on his promissory notes in the ordinary course of business. The amounts were put to his credit, and he drew the money as he chose. He stated the purpose for which he needed the loans, and he agreed to secure them by securing to the bank, as far as he could, the payments he expected from the government. The bank did not pay the laborers or the material men. Lawrence paid them, and extinguished their claims. There was no intention to keep the claims alive for the protection of the bank. The bank relied on the expectation of getting the government checks, and being paid by Lawrence out of them, and not upon any agreement that the labor and material claims should be assigned to it.

In Sheldon on Subrogation it is said (section 240):

“Tlie doctrine of subrogation is not upheld for the mere stranger or volunteer who has'paid the debt of another without any assignment or agreement for subrogation, without being under any legal obligation to make payment, and without being compelled to do so for the preservation of any rights or property of his own.”

In Insurance Co. v. Middleport, 124 U. S. 534, 8 Sup. Ct. 625, the foregoing statement of the law is approved, and the whole subject ably discussed by Mr. Justice Miller, and the proposition announced that there is no subrogation in favor of one who, being under no obligation to do so, furnishes money for the payment of a debt to which he is a stranger. Moreover, the doctrine of subrogation is of equitable origin, and is never allowed to interfere with equal equities in third parties growing out of express contract. In the present case the class protected by the contract are those whom Lawrence has failed to pay, and it would certainly be contrary to that stipulation to allow the claims of those whom he has paid to be set up in favor of one who loaned him money without any agreement for substitution or subrogation. We cannot see that the circuit court could have decided otherwise than it did, and the decree is affirmed.