company liable to such creditors of the contractors in the full sum of the bond, $11,625, and awarding payment to such creditors pro rata. It also adjudged that upon such payment the liability of the company upon the bond should be discharged. On March 16, 1904, pending the performance of the contract, the contractor, or rather Henningsen alone, for Clive had ceased to have any connection with the performance of the contract, made a written assignment of all payments which were then due, or might thereafter become due on account of the contract, to R. R. Spencer, in trust for the National Bank of Commerce of Seattle, to secure payment of a loan made by the bank to the contractors, October 10, 1903, of $3,500, and also subsequent loans, and at the same time gave as further security an order addressed to the United States quartermaster, requesting him to deliver to said Spencer all checks of the Government on account of said contract. The moneys so loaned were paid directly by the bark to Henningsen and handled and disbursed by him, without any supervision or control upon the part of the bank or Spencer. This suit was commenced by the Guaranty Company by a bill in the Circuit Court of the United States for the District of Washington to restrain the appellants from collecting or accepting the balance due on the contract from the United States. It appeared at the time of the commencement of the suit that there was in. the hands of the quartermaster, due upon the contract, the sum of $13,066, which he was about to pay to Spencer under the assignment and order. On June 17, 1904, an arrangement was made between the parties, by which the sum of $8,024.21 was paid to certain creditors, and the balance, $5,041.79, was applied in conditional payment of the indebtedness of the contractors to the bank, with a stipulation that if it should be finally determined that the Guaranty Company was entitled to receive it then the bank should pay it to the Guaranty Company. This suit proceeded to a decree in favor of the Guaranty Company for $5,041.79, which decree was affirmed by the Circuit Court of Appeals. (February 12, 1906; 143 Fed. Rep. 810;

Argument for Appellants.

208 U. 8.

74 C. C. A. 484.) The bond of the Guaranty Company was given under the requirements of the act of Congress of August 13, 1894, c. 280 (28 Stat. 278), which reads:

"That hereafter any person or persons entering into a formal contract with the United States for the construction of any public building, or the prosecution and completion of any public work, or for repairs upon any public building or public work, shall be required before commencing such work to execute the usual penal bond, with good and sufficient sureties, with the additional obligations that such contractor or contractors shall promptly make payments to all persons supplying him or them labor and materials in the prosecution of the work provided for in such contract; and any person or persons making application therefor, and furnishing affidavit to the department under the direction of which said work is being, or has been, prosecuted, that labor or materials for the prosecution of such work has been supplied by him or them, and payment for which has not been made, shall be furnished with a certified copy of said contract and bond, upon which said person or persons supplying such labor and materials shall have a right of action, and shall be authorized to bring suit in the name of the United States for his or their use and benefit against said contractor and sureties and to prosecute the same to final judgment and execution: Provided, That such action and prosecution shall involve the United States in no expense."

Mr. George E. de Steigner, with whom Mr. W. W. Wilshire was on the brief, for appellants:

The contract, so far as the United States is concerned, had been fully performed, so that there was no right of the Government to which the surety company could be subrogated; the creditors furnishing labor and material had no lien upon the fund, and therefore there was no right in their favor to which the surety company could be subrogated; therefore the War Department was entitled to pay it to the contractors or to their assignee, the bank, and either the contractors or the bank

208 U. S.

Argument for Appellants.

was entitled to receive it. Therefore the Circuit Court of Appeals was in error in stating that "the real question in the case is one of priority of equities as between the bank and the surety company." The real question is whether the surety company had any equity whatsoever.

It must recover, if at all, on the strength of its own right. This right must be something more than the general right of a creditor to be paid. It must be something in the nature of a lien, legal or equitable, upon the particular fund. Prairie State Bank v. United States, 164 U. S. 227; First National Bank v. City Trust Company, 114 Fed. Rep. 529; Greenville Savings Bank v. Lawrence, 76 Fed. Rep. 545; Lawrence v. United States, 71 Fed. Rep. 228; Reid v. Pauly, 121 Fed. Rep. 652; Richard Brick Company v. Rothwell, 18 App. D. C. 516.

The decision in each case was founded upon the fact, either that the contractors had failed to perform their contract and the sureties had completed the performance thereof for the Government, or that the contract provided for the retention of a portion of the contract price until laborers and materialmen were paid. In the present case, neither of these facts is found. The original contractors finished the work for the Government; and the contract contained no stipulation for retaining any part of the amount due for the payment of laborers and material-men. There is, therefore, no default of which the Government can take advantage. So far as it is concerned, the contract has been fully performed. United States v. Rundle, 100 Fed. Rep. 400; United States v. National Surety Co., 92 Fed. Rep. 549.

There was no right or equity left in the United States to which the complainant could be subrogated. Liles v. Rogers, 113 N. Car. 197.

The laborers and material-men never had any right to the fund. Aside from some statutory or contract provision, laborers or material-men have no claim, legal or equitable, either against the property improved, or the contract price. Lawrence v. United States, 71 Fed. Rep. 228; Canal Co. v. Gor

don, 6 Wall. 561, 571; Withrow Lumber Co. v. Glasgow Investment Co., 101 Fed. Rep. 863-868; Mechanics' Bank v. Winant, 1 N. Y. S. 659–660; Randolph v. New York, 53 How. Pr. 68; Phillips on Mechanics' Liens, § 1; 20 Am. & Eng. Enc. Law (2d ed.), 269, 293.

Of course, in no case is there such a claim in the case of public property. 20 Am. & Eng. Enc. Law (2d ed.), 295.

The complainant cannot be subrogated to any rights of the Government, because the contract had been fully performed and the Government had lost all interest in the retention of the fund; and the complainant cannot be subrogated to the rights of the laborers or material-men, because the fund was not retained for their benefit and they have no interest therein to which the right of subrogation can attach.

Mr. James B. Murphy, with whom Mr. Harold Preston, Mr. Carroll B. Graves and Mr. Edward B. Palmer were on the brief, for appellees:

The assignment made by Henningsen to Spencer is void under Rev. Stat., §§ 3477, 3737, as against the rights of third persons. Greenville Savings Bank et al. v. Lawrence, 76 Fed. Rep. 545; United States v. Gillis, 95 U. S. 407; Spawford v. Kirk, 97 U. S. 484.

The appellant bank occupies no better position than a general creditor. It was under no obligation to lend this money, and there is no proof that any part of it was used on the contract in question. The money was passed to the credit of Henningsen, and checked out to whom and for what no one seems to know, and as far as this fund is concerned the bank is a stranger and a mere volunteer. Emmert v. Thompson, 52 N. W. Rep. 31; Sheldon on Subrogation, § 240; Ætna Life Ins. Co. v. Middleport, 124 U. S. 534.

On the other hand, this appellee, by admitting its liability and paying the full penalty of its bond into court, comes into court with clean hands. It did equity and to all intents and purposes occupies the same position in a court of equity as a

surety who had finished a contract or had already paid the contractors' bills. That is, it is entitled to assert the doctrine of subrogation and has a prior equity in this fund. The doctrine of subrogation does not depend on a lien. Etna Life Ins. Co. v. Middleport, 124 U. S. 534; Matthews v. Fidelity Trust Co., 52 Fed. Rep. 687; Memphis & Little Rock R. R. Co. v. Dow, 120 U. S. 287; Emmert v. Thompson, 52 N. W. Rep. 31; Prairie State Bank v. United States, 164 U. S. 227; First National Bank v. City Trust Co., 114 Fed. Rep. 529.

The appellants' contention that appellee is not entitled to assert the right of subrogation is not well founded. They insist that there "must be something in the nature of a lien." Such is not the law. This doctrine is a creation of equity to see that substantial justice is done by one who in good conscience ought to do it. Etna Life Ins. Co. v. Middleport, 124 U. S. 534; Memphis & Little Rock R. R. Co. v. Dow, 120 U. S. 287; Emmert v. Thompson, 52 N. W. Rep. 31; Prairie State Bank v. United States, 164 U. S. 227, and cases cited.

MR. JUSTICE BREWER, after making the foregoing statement, delivered the opinion of the court.

A motion is made to dismiss on the ground that the jurisdiction of the Circuit Court was invoked solely on the ground of the diversity of citizenship of the parties, and hence the decree of the Circuit Court of Appeals was final. The motion must be overruled. Diversity of citizenship was, it is true, alleged in the bills, but grounds of suit and relief were also based on the statutes of the United States, as from the discussion of the merits will be seen. Those statutes entered as elements into the decision of the Circuit Court of Appeals, and were necessary elements. Howard v. United States, 184 U. S. 676; Warner v. Searle & Hereth Co., 191 U. S. 195, 205.

Passing to the merits of the case, the question turns upon the respective equities of the parties. Appellants concede that the bank was not by the making of the loans to Henningsen entitled to subrogation to the rights, if any, of the United