Freeny v. Bauernschmidt

• Decision Date: 01 July 1929
• Docket Number: No. 2836.,2836.
• Parties: FREENY v. BAUERNSCHMIDT et al.
• Court: U.S. Court of Appeals — Fourth Circuit

33 F.2d 709 (1929)

FREENY v. BAUERNSCHMIDT et al.

No. 2836.

Circuit Court of Appeals, Fourth Circuit.

July 1, 1929.

John H. Skeen, of Baltimore, Md., for appellant.

Frederick J. Singley and Malcolm H. Lauchheimer, both of Baltimore, Md. (Sylvan Hayes Lauchheimer, of Baltimore, Md., on the brief), for appellees.

Before WADDILL and PARKER, Circuit Judges, and COCHRAN, District Judge.

PARKER, Circuit Judge.

This case involves a determination of the rights of subcontractors and materialmen in certain funds withheld by the city of Baltimore from the amount due a bankrupt contractor under a contract for the erection of a school building. The case arose on the petition of the trustee in bankruptcy of the contractor asking that the city be required to pay the funds over to him for the benefit of general creditors. Certain subcontractors and materialmen filed intervening petitions, claiming that they were entitled to the funds to the extent of their respective claims. The city thereupon paid the funds into court under an agreement that such payment should be without prejudice to the rights of any of the contending parties, and thereafter a hearing was had before the referee, who reported that the trustee was entitled to them. Upon exceptions to this report, the District Judge reversed the referee, and held that they should be paid to the subcontractors and materialmen, and from this holding the trustee has appealed.

The facts are undisputed and may be stated very briefly. The bankrupt, Mason, Curley, Brady, Inc., was a building contractor holding a contract with the city of Baltimore for the construction of a school building. This contract provided for monthly progress payments, and for the retention of 10 per cent. of the monthly estimates until the final completion of the work. It also contained, among others, the following provision, which is the one material for consideration here, viz.:

"When written notice is given to the supervising engineer before or within ten days after the completion and acceptance of the entire work under this contract, by persons having done work or furnished materials for said contract, that there is money due and unpaid for such work and materials, the contractor shall furnish the supervising engineer with satisfactory evidence that said money has been fully paid or satisfactorily secured by him. In case said evidence is not furnished as aforesaid, such amount or amounts as may be necessary to meet the claims of persons aforesaid may be retained from any moneys due the contractor under the contract until these liabilities shall be fully discharged or such notices withdrawn. The supervising engineer may, with the written consent of the contractor, use any money retained due or to become due under the contract for the purpose of paying for both labor and material for the work for which claims have been filed in the office of the supervising engineer."

The contractor was adjudged bankrupt March 7, 1927, on an involuntary petition filed February 18, 1927. At that time the city was due under the contract a sum in excess of $40,000.00. On February 7, 1927, a few days prior to the filing of the petition, the supervising engineer reported to the Baltimore public improvement commission, which had charge of the contract, that this amount was being held, and recommended that, inasmuch as releases from subcontractors had not been furnished, it continue to be withheld as a matter of protection. Nothing further was done about the matter until May 25th, after the adjudication, when, at a conference between the trustee in bankruptcy, the supervising engineer, and the commission, the engineer stated that the city would withhold payment to the trustee, in view of the claims and demands made by the subcontractors. No written consent was ever given by the contractor or its trustee in bankruptcy that the money retained by the city be paid to subcontractors or on their claims; and, as heretofore stated, it was paid into court by the city under an agreement that such payment should be without prejudice to the rights of any of the claimants.

The only question in the case, we think, is whether, by virtue of the provision of the contract which we have quoted, the subcontractors and materialmen had any lien on the funds withheld by the city. If they did not, it is clear that they acquired no lien thereon by reason of the bankruptcy or the payment into court without prejudice. Whether such lien existed is a matter of local law, and in this case depends upon the law of Maryland. Etheridge v. Sperry, 139 U. S. 266, 276, 11 S. Ct. 565, 35 L. Ed. 171; Knapp, Stout & Co. v. McCaffrey, 177 U. S. 638, 20 S. Ct. 824, 44 L. Ed. 921; Dooley v. Pease, 180 U. S. 126, 21 S. Ct. 329, 45 L. Ed. 457; Thompson v. Fairbanks, 196 U. S. 516, 522, 25 S. Ct. 306, 49 L. Ed. 577; Humphrey v. Tatman, 198 U. S. 91, 25 S. Ct. 567, 49 L. Ed. 956; Hiscock v. Varick Bank, 206 U. S. 28, 27 S. Ct. 681, 51 L. Ed. 945; Bryant v. Swofford Bros. Dry Goods Co., 214 U. S. 279, 291, 29 S. Ct. 614, 53 L. Ed. 997; Rock Island Plow Co. v. Reardon, 222 U. S. 354, 363, 32 S. Ct. 164, 56 L. Ed. 231.

And it seems clear that under the law of Maryland they had no lien. The provision of the contract under which rights are claimed by the subcontractors is a standard provision prescribed by ordinance of the city of Baltimore. It has been twice construed by the Court of Appeals of Maryland in other cases; and these decisions leave no room for any contention that subcontractors, by virtue of the provision, acquire any lien on or right in the funds withheld thereunder. Lombard Governor Co. v. Mayor & City Council of Baltimore, 121 Md. 303, 88 A. 140, 48 L. R. A. (N. S.) 678, Ann. Cas. 1915B, 865; Kellas & Co. v. Slack & Slack Co., 129 Md. 535, 99 A. 677, Ann. Cas. 1918D, 640.

In the first of these cases, funds were withheld by the city, as in this case, and subcontractors, conceding that they were not entitled to recover the amounts due them by attachment, filed a bill in equity upon the theory that the funds remaining in the hands of the city should be treated as a trust fund and subjected to the satisfaction of their claims. The Court of Appeals affirmed a decree dismissing the bill. It distinguished certain New York cases relied on by complainants and cited with approval decisions of the courts of Pennsylvania, Illinois, and the District of Columbia, quoting with approval the following language of Alvey, C. J., of the last named court, viz.

"This is an attempt by equitable garnishment to bind the money due the contractor Thomas in the hands of the municipal corporation of this District. This we think can not be done. If it could be done in this instance, it could be done in hundreds of other cases; and the consequences would be that the municipal government would constantly be liable to the obstruction and embarrassment in the administration of municipal affairs, that such claims and resulting litigation would necessarily produce. In the absence of express legislation making the municipal corporation liable to such proceedings, both reason and public policy forbid it."

In the opinion in the Lombard Governor Co. Case reference is made to an unreported decision of Judge Morris in the United States District Court for the District of Maryland, in the matter of James E. Granberry, Bankrupt (see Ann. Cas. 1915B, p. 867). It appears that in that...