be paid out by them? But if the agreement was that Hardaway & Prowell should take the risk and complete the work, using Coyne's plant and quarry for the money to be earned by so doing, but with the right to also call upon the reserved $8,300, in the contingency that the work should cost more than that part of the contract price to be earned by the completion, we can see some reason for providing that if the second fund is called upon that debts incurred for labor and materials shall be first paid. Such claims, as suggested heretofore, might be asserted as liabilities against the contractor's bond, and, if paid by the surety, would be debts for which Coyne would be liable

over.

Another consideration leading to the same interpretation is found in the fact that the contract provides that the work was to be completed upon the terms and stipulations recited. One of the considerations named is that appellants are to have the use of Coyne's plant and quarry free of expense. Another is that he is to receive the money already earned and to be earned, only the surplus of first-named fund to be paid over to Coyne in the event these funds prove more than sufficient to repay them for every kind of disbursement and also a profit of 15 per cent. In one contingency only is there any provision for any payment to be made by Coyne to them, except to the extent of the two funds mentioned, and that is in the event appellants shall cancel the contract for a breach by him in respect to the assignment of the two funds out of which they were to pay themselves. If, therefore, they are to be regarded as subcontractors, they are only such for a fixed price, being the two funds earned by completion and the free use of Coyne's plant. If they suffered unexpected losses, they must bear them. The price for which they agreed to do the work has been paid them, and they may not recover against the surety what they could not recover against the principal obligor. It was a speculative contract upon their side. They believed they could see their way through and realize a handsome commission. They took their chances and selected their own mode of payment.

The decree disaffirming their claims must be affirmed.

On Petition for Rehearing.

A petition to rehear has been filed. We rested our decision affirming the decree below upon the ground that Hardaway & Prowell were not subcontractors at all. But upon the assumption that they could be so considered we said:

"They are only such for a fixed price, being the two funds earned by completion and the free use of Coyne's plant. If they suffered unexpected losses, they must bear them. The price for which they agreed to do the work has been paid them, and they may not recover against the surety what they could not recover against the principal obligor."

It is now said that one of the funds to be paid them upon the theory that they were contractors for a fixed price, namely, the retained percentages for work done before Hardaway & Prowell became connected with the contract, has not, in fact, been paid to them; that this fund was paid into the court below and is there to-day; and that in any

view of the case ought to be paid to Hardaway & Prowell by virtue of the assignment to them by the contractors. No error was assigned in respect of this, and no attention called to the disposition of that fund by brief or otherwise. We therefore inadvertently and erroneously stated that Hardaway & Prowell had received the price for which they agreed to do the work upon the theory that they were contractors. The court below in respect of this fund said:

"This fund, as before indicated, is $8,176.75. It is made up of certain percentages withheld by the government from time to time out of what would otherwise have been due under the contract. It appears from the record that the whole sum was reserved upon the estimates for work done previous to June 2, 1903, and consequently the surety is entitled to the full benefit of this fund, though Hardaway & Prowell, in my judgment, would have been entitled to any reservation in respect to the work done after June 2, 1903. Section 3468, Revised Statutes of the United States, respecting the rights of sureties, may also support this conclusion of the court, even if the facts in the record do not otherwise make it clear. It results that the complainant is liable for $13,261.76 on the claims of classes 1 and 2. This sum includes, of course, the $8.176.75, the fund in court. The difference, namely, $5,085.01, and the costs of this action, should be paid into the court by it."

This is manifestly correct. The surety company's equity of subrogation is antecedent to any claim arising under the mere equitable assignment under which Hardaway & Prowell claim. Prairie State Bank v. United States, 164 U. S. 227, 17 Sup. Ct. 142, 41 L. Ed. 412: First Nat. Bank v. City Trust Bank, 114 Fed. 529, 52 C. C. A. 313: Reid v. Pauly, 121 Fed. 652, 58 C. C. A. 152; Henningsen v. United States, etc., Co., 143 Fed. 810, 74 C. C. A. 484. The application of that fund to the payment of claims for material and labor accruing before the assignment to Hardaway & Prowell is something of which Hardaway & Prowell cannot justly complain, inasmuch as any right of assignment is subordinate to the equity of the surety company to have the fund applied so as to relieve their liability. The right to go upon the surety company to the extent that such application leaves them unpaid could only arise if Hardaway & Prowell were subcontractors. That we held they were not. In that part of the opinion above set out we only undertook to state their utmost right if they should be so held.

Rehearing denied.

NOTE. The following is the opinion of Evans, District Judge:

EVANS, District Judge. The complainant. by its bill filed October 24, 1904, shows that the United States had on October 5, 1899, accepted the bid of the firm of Willard & Cornwell, composed of James E. Willard, Charles L. Cornwell, and Joseph Coyne, for the construction of lock and dam No. 4, Black Warrior river, in the state of Alabama; that the construction thereof required a large amount of material and labor, and that under the requirements of Act Cong. Aug. 13, 1894, c. 280. § 1, 28 Stat. 278 [2 Comp. St. 1901, p. 2523], the said firm was required to give and did give a bond in the penal sum of $50.000 for the faithful performance of their contract and for prompt payment to all persons supplying said firm with labor and material in the prosecution of the work under the contract. We need not notice the elaborate contract between the United States and the firm covering the details of the work, but the provisions of the bond as distinguished from the contract are most important, and are as follows:

"Contractor's Bond (Public Works).

"Know all men by these presents, that we, James E. Willard, Charles L. Cornwell, and Joseph Coyne, partners composing the firm of Willard & Cornwell, of Louisville, Kentucky, as principals, and National Surety Company, of New York City, a corporation existing under the laws of the State of New York, as surety, are held and bound unto the United States of America in the penal sum of fifty thousand ($50,000.00) dollars, to the payment of which sum well and truly to be made, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally, firmly by these presents.

"The condition of this obligation is such, that whereas the above-bounden Willard & Cornwell have, on the twenty-eighth day of September, 1899, entered into a contract with the United States, represented by Major Wm. T. Russell, Corps of Engineers, U. S. Army, for construction of lock and dam No. 4, Black Warrior River, Ala.

"Now, therefore, if the above-bounden Willard & Cornwell, heirs, executors, or administrators, shall and will, in all respects, duly and fully observe and perform all and singular the covenants, conditions, and agreements in and by the said contract agreed and covenanted by said Willard & Cornwell to be observed and performed according to the true intent and meaning of the said contract, and as well during any period of extension of said contract that may be granted on the part of the United States as during the original term of the same, and shall promptly make full payments to all persons supplying them labor or materials in the prosecution of the work provided for in said contract, then the above obligation shall be void and of no effect; otherwise to remain in full force and virtue."

The firm commenced, and for a year or more continued the work, but ultimately, in February, 1901, abandoned it (so far as two of its members could) to the other member, viz., Joseph Coyne, under the following contract, viz.: "This agreement, made and entered into by and between J. E. Willard, and C. L. Cornwell, parties of the first part, and Joseph Coyne, party of the second part.

"Witnesses, whereas, the said parties under the firm name of Willard & Cornwell have now and have heretofore had a contract with the government of the United States for the building and construction of Lock and Dam No. 4 on the Black Warrior River in the county of Tuscaloosa in the state of Alabama, and, whereas, the said firm of Willard & Cornwell, as composed of the said J. E. Willard and C. L. Cornwell and Joseph Coyne, is a firm and co-partnership formed only for the purpose of building and constructing the lock and dam aforesaid, and for no other purpose, and whereas, for the benefit of the government, and for the convenience of the said parties and of all persons now, or hereafter to become interested in said work, it is deemed advisable and beneficial that the said Joseph Coyne shall pay all the debts now due by said firm, and have and receive all the profits heretofore accruing or hereafter to accrue on said work, and whereas, the said Coyne has purchased from the said firm the plant, tools, and machinery herein mentioned, and desires to protect himself as well as the government of the United States in all and every way possible to him and to the said firm, and whereas, the said Coyne is the owner, as among said parties, of all the tools, machinery and plant now in said county of Tuscaloosa, and used or to be used in and about said work, which were put into said firm by the said Willard and the said Cornwell, and whereas, the said Coyne desires to pay to the said Willard and to the said Cornwell together the sum of forty-four hundred dollars ($4,400.00), and, whereas, as between said co-partners and the government and others, they, the said Willard and the said Cornwell have fully empowered and constituted the said Joseph Coyne, as agent, and attorney in fact of said firm to receive all moneys now due, or hereafter to become due to said firm by reason of, or in any manner arising from said contract with the government, as aforesaid, and it is agreed between the parties that the said Coyne shall execute and deliver to said J. E. Willard and C. L. Cornwell his two promissory notes of even date, herewith, each for the sum of twenty-two hundred dollars ($2200.00) and payable respectively in six and nine months after date, and that to secure the payment of said notes by said Coyne to said J. E. Willard and C. L. Cornwell, they,

the persons last mentioned, shall have a lien upon said plant, tools and machinery now used in and about said work and by them heretofore put into the firm assets, and that upon the payment by said Coyne of said notes, all interest of said Willard and of said Cornwell in said tools, plant, and machinery, shall cease. It is further agreed that all future purchases for said Lock and Dam No. 4 are to be made in the name of Joseph Coyne alone, and that he is to pay the debts of said firm as aforementioned.

"Witness our hands at Louisville, Ky., this fifth day of February, 1901.

"State of Alabama, Tuscaloosa County:

"J. E. Willard.
"C. R. Cornwell.
"Joseph Coyne.

"I. Jas. C. Brown, Judge of Probate, hereby certify that the foregoing conveyance was filed in my office for registration on the 8th day of February, 1901, and duly recorded in Contract Record No. 1, pages 471 and 472.

"Jas. C. Brown, Judge of Probate."

Coyne continued the work for a time, but getting into difficulties in June, 1903, made a contract with Hardaway & Prowell, as follows: "State of Alabama, Tuscaloosa County:

"This contract made this the 2nd day of June, 1903, by and between B. H. Hardaway and R. P. Prowell, hereinafter called Hardaway & Prowell, as parties of the first part, and Joseph Coyne, as party of the second part, witnesseth: "That, whereas, Willard & Cornwell, a firm composed of J. E. Willard, C. R. Cornwell and the said Joseph Coyne, díd, heretofore, on to wit, the

day of

1899, enter into a contract with the United States for the construction of Lock No. 4, in the Black Warrior River above Tuscaloosa, Alabama, and whereas, shortly after the beginning of the work upon said lock the said Joseph Coyne, by an arrangement between him and his co-partners, undertook to complete and finish said lock according to the specifications of the contract of said firm with the United States, and in consideration of such an undertaking acquired the beneficial interest of said firm in said contract and was to receive all amounts paid by the United States in consideration of such contract, and, whereas, said lock is still uncompleted, and the said Joseph Coyne cannot, on account of his inability to procure the necessary financial aid and on account of the disorganization of his labor forces and for various and sundry other reasons, complete and finish the said work in accordance with the said contract, and whereas said contract is a valued asset to the said Joseph Coyne if the said work can be prosecuted to its completion under the terms of said contract, there being held in reserve by the government under the terms of said contract about $8,300.00, which has already been earned by said Coyne, and whereas by reason of his said inability to finish said work the said contract is about to be forfeited, and the said Coyne is in imminent danger of losing, not only what profits may be made upon the completion of the work, but the entire reserve fund also retained by the government, and whereas the said Joseph Coyne for the purpose of preventing the forfeiture of said contract, has made overtures to the said Hardaway & Prowell to take up said work and complete it, and the said Hardaway & Prowell have agreed to do so upon the terms and stipulations hereinafter set forth. Now therefore:

"(1) The said Hardaway & Prowell do hereby undertake and agree with the said Joseph Coyne to superintend the completion of the said lock and dam No. 4 and to furnish the necessary finances for the completion thereof and to put in charge of said work a competent superintendent and to properly organize the work for an energetic prosecution thereof to completion for which services they are to receive an agreed compensation of 15 per cent. upon the total cost of completing said contract, which total cost shall be construed to include all amounts necessarily expended and expenses incurred by Hardaway & Prowell in the completion of said work and all amounts necessarily paid and expenses incurred by them to effect a settlement with and an acceptance of said lock and dam by the United States.

"(2) The said Joseph Coyne agrees to the above compensation for Hardaway & Prowell and further agrees to turn over to them entire charge of the com

pletion of said work, and not to interfere with them in any way in the prosecution of said work to completion, and further agrees to turn over to the said. Hardaway & Prowell the entire outfit of machinery, tools, etc., which he now has at said lock and dam and the quarries where he is getting stone, and to give the use of the same to them for the completion of said work free of any charge.

"(3) The said Joseph Coyne further agrees to have all checks for each estimate upon said work forwarded by the government to the said Hardaway & Prowell and to properly endorse such checks so that they may be collected by Hardaway & Prowell.

"(4) It is further agreed by all parties hereto that out of the proceeds of the checks referred to in the next foregoing paragraph the obligations shall be paid preferentially in the following order:

"(1) The compensation of the said Hardaway & Prowell as herein agreed for their services.

"(2) All moneys advanced by Hardaway & Prowell and used in the prosecution of said work.

"(3) All debts necessarily incurred by the said Hardaway & Prowell for the prosecution of said work other than debts for labor and material.

"(4) All debts incurred by said Hardaway & Prowell for labor and material or moneys advanced by them in payment of labor or material debts.

"(5) The said Joseph Coyne, for the completion of said work and for the securing to the said Hardaway & Prowell all amounts, that they shall have to pay on whatever account for the completion of said lock and dam and for a settlement with the United States and acceptance of said lock and dam by the proper authorities of the government, does hereby assign and set over to the said Hardaway & Prowell all his interest in the amount, aggregating as aforesaid about $8300.00 retained and now held in reserve by the government under the said contract for the building of said lock and dam, which shall be applied by the said Hardaway & Prowell in the following order:

"(1) To the payment of all debts for labor and material incurred in the building of said lock and dam.

"(2) Any balance that may be due to said Hardaway & Prowell for their compensation under this contract.

"(3) All other necessary debts incurred in the prosecution of the said work by Hardaway & Prowell and all amounts including expenses which they shall have to pay in order to effect a settlement with the government and acceptance · by it of said lock and dam.

"(4) Any balance to be paid to the said Joseph Coyne.

"(6) It is understood and agreed by all parties hereto that if the said Joseph Coyne should at any time fail or be unable to turn over to the said Hardaway & Prowell the checks for estimates on said work properly endorsed so that Hardaway & Prowell can collect them or should fail to secure the collection of them by the said Hardaway & Prowell then the said Hardaway & Prowell shall in that event have the option of annulling said contract and stopping work without notice to the said Joseph Coyne, or to any other parties whomsoever, but in said event the said Hardaway & Prowell shall have a claim against the said Joseph Coyne for all moneys furnished by them and expenses incurred by them upon any account whatsoever in the prosecution of said work, and which shall not have been repaid to them, and for all compensation earned under this contract and not paid to them, and such claim shall be due and payable at once upon their termination of the contract.

"In witness whereof the said parties of the first and second parts have hereunder set their hands and seals in duplicate, this the day and year first above written.

"Attest: C. B. Verner."

"B. H. Hardaway.
"R. P. Prowell.
"Joseph Coyne.

The bill charges that although each and all of the defendants agreed in their application to complainant to become their surety on the bond, to bestow upon the work their personal attention and supervision, they each and all failed.