by his answer, also filed a counterclaim against Steelcraft. Only
the counterclaim of Ellis was filed in the name of the United
States of America in strict accordance with the Miller Act, 40
U.S.C.A. § 270b(b). In substance all the materialmen's claims are
based upon the Miller Act and at the trial of the cause were so
construed and considered. Rule 15(b), F.R.Civ.P. 28 U.S.C.A. See
Glens Falls Indemnity Co. v. United States, 9 Cir., 229 F.2d 370.
The Miller Act, 40 U.S.C.A. § 270a et seq. is remedial and must
be liberally construed to accomplish its purpose. Fleisher
Engineering & Const. Co. v. United States, 311 U.S. 15, 61 S.Ct.
81, 85 L.Ed. 12. Ellis Gravel Company literally complied with the
notice required under the Miller Act. Clancy gave notice to
Steelcraft within 90 days through the Agricultural Stabilization
and Conservation Division of the Department of Agriculture.
Whitehouse delivered a copy of his unpaid bill to Orville Hewkin
who in turn at his request delivered it to Steelcraft within the
required 90 days of the date the material was furnished. Thus the
latter two claimants stated accurately the amount claimed and to
whom the material was furnished to Steelcraft. This court finds
that all of the notices were intended to inform Steelcraft of the
unpaid material claims of Hewkin and were sufficient notice to
comply with the Miller Act. Fleisher Engineering & Const. Co. v.
United States, supra; Houston Fire & Casualty Ins. Co. v. United
States, 5 Cir., 217 F.2d 727.
All of the answers and claims of the materialmen were filed
within one year of the final furnishing of materials which
necessarily is within one year of the settlement between
Steelcraft and Commodity Credit Corporation. The Hunter Lumber
Company filed an answer but failed to appear and make proof of
their claim at the trial, and their claim must be disallowed.
Steelcraft deducted liquidated damages in accordance with the
subcontract due to delayed completion by Hewkin which it paid to
Commodity Credit Corporation, leaving a balance due on the
contract in the amount of $15,861.51. Neither the government nor
any of the defendants have questioned the amount of liquidated
damages so paid by Steelcraft.
The government maintains that its tax liens are entitled to
priority over the claims of the materialmen whose claims had not
been reduced to judgment. A tax lien of the government was fully
perfected at the time the assessments were made, 26 U.S.C.A. §
6322 (formerly § 3671). If the materialmen were opposing the tax
liens on the basis of a statutory mechanic's or materialman's
lien, the government would have priority. United States v. Kings
County Iron Works, 2 Cir., 224 F.2d 232. United States v. White
Bear Brewing Co., 7 Cir., dissenting opinion, 227 F.2d 359,
reversed 350 U.S. 1010, 76 S.Ct. 646, 100 L.Ed. 871; Cf. United
States v. Saidman, 97 U.S.App.D.C. 344, 231 F.2d 503; United
States v. Hawkins, 9 Cir., 228 F.2d 517.
The facts in the instant case present a different situation.
Steelcraft was the principal on the payment bond executed to the
Commodity Credit Corporation with Fireman's Fund Indemnity
Company as surety, and is therefore liable for the unpaid
material bills as principal upon this bond under the Miller Act.
In United States Fidelity & Guaranty Co. v. United States, 10
Cir., 201 F.2d 118, 121, the court said:
"On the date of the execution of the subcontract
the prime contractor had a specific right of
ownership in any funds accruing to the subcontractor
from the performance of the subcontract. The right to
withhold these funds upon default was superior to any
other claim against the fund as the property of the
This specific right of ownership has even been held to extend to
interest on the sums expended by a surety. Glenn v. American
Surety Co., 6 Cir., 160 F.2d 977.
Steelcraft as the principal on the bond had a definite ownership
in the amount due Hewkin for a specific amount at all times.
Steelcraft retained the ownership of the funds to be paid to
Hewkin until the contract was fully performed. This amount was
determinable by deducting from the subcontract price the amount
which Steelcraft had advanced to Hewkin from time to time as the
work progressed. Since Steelcraft is liable under the Miller Act
to the materialmen for their unpaid bills it was entitled to
retain sufficient funds to reimburse itself, based upon its prior
right of ownership which existed from the inception of the
subcontract. United States Fidelity & Guaranty Co. v. United
States, supra; Glenn v. American Surety Co., supra. See also
General Casualty Co. of America v. United States, 5 Cir.,
205 F.2d 753; Karno-Smith Co. v. Maloney, 3 Cir., 112 F.2d 690; In re
Caswell Const. Co., Inc., D.C.N.D.N.Y., 13 F.2d 667; American
Fidelity Co. v. Delaney, D.C.D.Vt., 114 F. Supp. 702; Great
American Indemnity Co. v. United States, D.C.W.D.La., 120 F. Supp. 445;
New York Casualty Co. v. Zwerner, D.C.N.D.Ill.E.D.,
58 F. Supp. 473.
The terms of the contract obligated Hewkin to "furnish all
materials and supplies," thereby creating an implied condition of
the subcontract that the materialmen would be paid. Houston Fire
& Casualty Insurance Co. v. E.E. Cloer General Contractor, 5
Cir., 217 F.2d 906; United States, for use of W.E. Foley & Bro.
v. United States Fidelity & Guaranty Co., 2 Cir., 113 F.2d 888.
The materialmen are thus third-party beneficiaries of
Steelcraft's specific ownership in the amount due Hewkin derived
by and from the date of the subcontract. The government's claim
is based upon the failure of Hewkin to pay his taxes and he and
his property alone are liable for their payment. See Central Bank
v. United States, 345 U.S. 639, 73 S.Ct. 917, 97 L.Ed. 1312.
Steelcraft is not liable for the payment of Hewkin's taxes to the
government. United States v. Crosland Const. Co., 4 Cir.,
217 F.2d 275. See Great American Indemnity Co. v. United States,
supra. Since Hewkin was not entitled to receive payment until he
complied with his subcontract he had no right of ownership in the
amount still due and the lien of the government never attached to
this fund. The rights of the government rose no higher than those
of the taxpayer whose right to the withheld sum never accrued.
Great American Indemnity Co. v. United States, supra; F.H. McGraw
& Co. v. Sherman Plastering Co., D.C.Conn., 60 F. Supp. 504,
affirmed F.H. McGraw & Co. v. Milcor Steel Co., 2 Cir.,
149 F.2d 301, certiorari denied 326 U.S. 753, 66 S.Ct. 92, 90 L.Ed. 452.
To hold otherwise would impose upon Steelcraft double liability,
that is, to the government and the unpaid materialmen. This would
be inequitable. See Karno-Smith Co. v. Maloney, 3 Cir.,
112 F.2d 690.
The bank contends that its assignment is superior to the claims
of the materialmen. Steelcraft acknowledged the assignment but it
is obvious that Hewkin thereby intended to assign only his profit
to be received under the subcontract. See Mueller v. Northwestern
University, 195 Ill. 236, 63 N.E. 110. Furthermore, the bank
could stand in no better position against Steelcraft than Hewkin,
its assignee. Reeve v. Smith, 113 Ill. 47; Angelina County Lumber
Co. v. Michigan Cent. R. Co., 252 Ill. App. 82.
The bank does have priority over the tax claim of the
government. This is not disputed by the government. The
assignment to the bank was executed long before the government's
taxes were assessed. By virtue of 26 U.S.C.A. § 6323 (formerly §
3672) the bank is a purchaser to the extent of the amount it
advanced to Hewkin as present consideration for the assignment.
National Refining Co. v. United States, 8 Cir., 160 F.2d 951. Cf.
United States v. Scovil, 348 U.S. 218, 75 S.Ct.
244, 99 L.Ed. 271; R.F. Ball Construction Co. v. Jacobs,
D.C.W.D.Tex., 140 F. Supp. 60.
This court therefore concludes that Steelcraft is entitled to
an order that it be discharged upon the payment of $15,861.51
into this court and the materialmen are entitled to be paid their
claims. The balance remaining after the payment of these claims
of the materialmen must be paid to the bank. Since this absorbs
the entire fund withheld there is nothing to be paid to the
government on withholding taxes.
Findings of fact, conclusions of law and final order may be
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