Portuguese-American Bank of San Francisco v. Welles

Background\n\nThis dispute involves a subcontractor, a bankrupt contractor, the City of San Francisco, and a bank. The contractor had a city construction contract. The bank accepted an assignment of a progress payment after the city auditor stamped the order, and advanced money to the contractor. The subcontractor served notice to the city to withhold payment under California law seeking a lien on the same payment. The contractor’s contract said the contractor should not assign payments without the board’s consent. The city did not object. Lower courts disagreed about which claim came first.\n\nReasoning\n\nThe Court addressed whether the contract clause made the bank’s assignment absolutely void. The opinion explains that a debt or payment can be treated like property and transferred, and the common-law view of a debt as a transferable thing applies where the debtor (the city) does not complain. The Court distinguished an earlier case with different facts and concluded the assignment here was not absolutely void. Because the bank took title before the subcontractor’s claim, the bank’s interest has priority. The Supreme Court therefore reversed the lower appellate court and favored the bank.\n\nReal world impact\n\nThe decision means the bank keeps the earlier-assigned city payment and the subcontractor’s lien is subordinate. Subcontractors who serve withholding notices may lose to prior valid assignments. The ruling turns on the particular facts that the city accepted the order and did not object, so future disputes could turn on similar timing and acceptance details.\n\nDissents or concurrances\n\nThere is a dissent by Mr. Justice McKenna, who agreed with the Circuit Court of Appeals’ reasoning that the contract term should prevent the assignment from taking priority.\n\n