A provision in a contract between the City of San Francisco and
a construction company declaring that the company shall not, either
legally or equitably, assign any moneys payable thereunder or its
claim thereto, unless with the consent of the Board of Public
Works,
Page 242 U. S. 8
does not render absolutely void an assignment of money due and
payable under the contract, made by the contractor to a bank for
valuable consideration but without such consent, nor prevent the
passing of a prior title as against the right of a subcontractor
who subsequently took the steps prescribed by § 1184 of the
California Code of Civil Procedure for the sequestration of the
same indebtedness, it appearing that the city did not object to the
assignment or favor either claimant.
Burck v. Taylor,
152 U. S. 634,
distinguished.
211 F. 561, 215 F. 81, reversed.
The case is stated in the opinion.
Page 242 U. S. 9
MR. JUSTICE HOLMES delivered the opinion of the court.
This is a suit brought by the appellee Welles to establish a
lien upon a debt of $6,830.85, due under a construction
Page 242 U. S. 10
contract from the City of San Francisco, represented by the
appellee Boyle, to the bankrupt, Metropolis Construction Company.
The district court approved the report of the referee against the
claim and in favor of the appellant, but this decree was reversed
by the circuit court of appeals. 211 F. 561, 215 F. 81. The subject
matter is the fourth progress payment, which, on December 5, 1910,
had been authorized by the board of public works of the city. On
that day, the Construction Company applied to the appellant bank
for a loan of $30,000, secured by an order on the auditor of the
city, authorizing the bank to draw from the city for the above and
other amounts not in controversy here. The bank declined until the
order should be accepted by the auditor, whereupon, on the next
day, the order was presented to the auditor's office and stamped as
received on December 6. The order was intended and taken as an
assignment, and, after it had been stamped, was accepted by the
bank as security and the money was advanced. The next day $5,000
more was advanced on the same security, notes being given for each
sum. The appellee Welles was a subcontractor, and on December 12
and 16, served notice on the city to withhold payment, as permitted
by § 1184 of the Code of Civil Procedure of the State of
California. It is admitted by Welles that, if the assignment was
valid, his rights are subordinate to it,
Newport Wharf &
Lumber Co. v. Drew, 125 Cal. 585, and the only question argued
on his behalf is whether the terms of the contract between the
bankrupt and the city made the assignment void.
The contract provided that the contractor should keep the work
under his personal control, and should not assign or sublet the
whole or any part thereof without the consent of the board of
public works. It further declared that no subcontract should
relieve the contractor of any
Page 242 U. S. 11
of his obligations, and that he should not, "either legally or
equitably, assign any of the moneys payable under the contract or
his claim thereto unless with the like consent." The city has made
no objection to the assignment to the bank, and the money now
awaits the decision of this court as between the claimant of the
lien and the prior assignee.
There is a logical difficulty in putting another man into the
relation of the covenantee to the covenantor, because the facts
that give rise to the obligation are true only of the covenantee --
a difficulty that has been met by the fiction of identity of person
and in other ways not material here. Of course, a covenantor is not
to be held beyond his undertaking, and he may make that as narrow
as he likes.
Arkansas Valley Smelting Co. v. Belden Mining
Co., 127 U. S. 379. But
when he has incurred a debt, which is property in the hands of the
creditor, it is a different thing to say that, as between the
creditor and a third person, the debtor can restrain his alienation
of that, although he could not forbid the sale or pledge of other,
chattels. When a man sells a horse, what he does, from the point of
view of the law, is to transfer a right, and a right being regarded
by the law as a thing, even though a
res incorporalis, it
is not illogical to apply the same rule to a debt that would be
applied to a horse. It is not illogical to say that the debt is as
liable to sale as it is to the acquisition of a lien. To be sure,
the lien is allowed by a statute subject to which the contract was
made, but the contract was made subject also to the common law, and
if the common law applies the principle recognized by the statute
of California that a debt is to be regarded as a thing, and
therefore subjects it to the ordinary rules in determining the
relative rights of an assignee and the claimant of a lien, it does
nothing of which the debtor can complain.
See further
Cal.Civ.Code, §§ 954, 711. The debtor does not complain, but
stands
Page 242 U. S. 12
indifferent, willing that the common law should take its
course.
The circuit court of appeals relied largely upon
Burck v.
Taylor, 152 U. S. 634,
some expressions in which, at least, seem to warrant the conclusion
reached. But that case, as understood by the majority of the Court,
was quite different from this. A contract for the building of the
Capitol of Texas was made not assignable without the consent of the
governor and certain others. The contractor assigned an undivided
three-fourths interest to Taylor, Babcock & Company, with the
required assent, and then three sixteenths without assent to three
others severally, one of whom conveyed one thirty-second to the
plaintiff. The contractor made another conveyance of all his rights
under the contract to Taylor, Babcock & Company, and Taylor,
Babcock & Company made what purported to be a transfer of the
entire contract to Abner Taylor, the defendant. Both of these
transfers were assented to. In the latter, Taylor purported to bind
himself to the state to perform the original contract, and, in the
assent to the same, the governor and other authorities stated that
they recognized Taylor as the contractor, bound as the original
contractor was bound. The court held that there was a novation, p.
152 U. S. 650,
and that Taylor acted without notice of the plaintiff's claim, p.
152 U. S. 653.
Upon those facts, it would be hard to make out any right of the
plaintiff to proceeds of the new contract that Taylor had
performed.
The assignability of a debt incurred under a contract like the
present sometimes is sustained on the ground that the provision
against assignment is inserted only for the benefit of the city.
Whether that form of expression is accurate or merely is an
indirect recognition of the principle that we have stated hardly is
material here. It is enough to say that we are of opinion that,
upon the facts stated, the assignment was not absolutely void, that
therefore the bank got a title prior to that of Welles, and
consequently
Page 242 U. S. 13
that the decree must be reversed.
See Hobbs v. McLean,
117 U. S. 567;
Burnett v. Jersey City, 31 N.J.Eq. 341;
Fortunato v.
Patten, 147 N.Y. 277.
Decree reversed.
MR. JUSTICE McKENNA dissents for the reasons stated by the
circuit court of appeals.