entered into with a state or municipality, provided there is no statutory provision to the contrary; * * *.'
No statute in force at this time which would invalidate the withholding provision of this contract has been brought to the attention of the trial judge. Where the withholding clause has been inserted for the benefit of the labor and materialmen, it has been sustained and applied for the protection of the surety. See Lancaster Co. Nat. Bank's Appeal, 1931, 304 Pa. 437, 155 A. 859. This case is most nearly in point with the present case. The contract between the state and the contractor provided for the withholding of the semi-final or final payments until evidence was presented that labor and material claims had been settled. The contractor assigned to its surety the money due it if there was a default. After completing most of the work, the contractor borrowed money from the Lancaster Bank. The court assumed that the contractor assigned to the bank the money due it on the contract. Before the semi-final or final payment, the contractor defaulted and the surety paid the labor and material bills. The contest between the surety and the bank as to who was entitled to the payments involved was resolved in favor of the surety. The court said in 304 Pa. at page 443, 155 A. at page 861:
'(The assignee-bank) knew, * * * that the statute, the contract, and the bond made the rights of the materialmen and workmen paramount to those of the contractor, and that upon these provisions the materialmen, workmen, and surety had a right to rely.'
It is to be noted that the Lancaster Co. Nat. Bank case was cited in Sundheim v. Philadelphia School Dist., supra, where the court said in 311 Pa. at pages 96-97, 166 A. at page 367:
'In construing these acts appellant applies the decisions of the federal courts. Under federal statutes a single bond is required which must provide for the completion of the contract and the payment of labor and materialmen. 40 U.S.C.A., § 270, 36 Stat. 1167. It has been held by federal courts that there is a direct contractual obligation to the government as a party to the contract, binding on the contractor and surety, to pay labor and materialmen. Consequently, when the contractor fails to pay labor and materialmen, it is tantamount to a breach of its contract with the United States government. When this occurs and the surety pays the labor and materialmen, it stands in the position of a surety completing a contractual obligation of a defaulting contractor and performing an equitable duty to the United States. It is therefore entitled to subrogation to the rights of the United States in the fund. Subrogation does not arise through the contractor, but from the government's rights. Prairie State Bank v. United States, 164 U.S. 227, 17 S. Ct. 142, 41 L. Ed. 412; Henningsen v. United States Fidelity & Guar. Co. of Baltimore, 208 U.S. 404, 28 S. Ct. 389, 52 L. Ed. 547; In re Scofield Co., 2 Cir., 215 F. 45. In Pennsylvania, where our statutes and the facts coincide with the cases decided by the federal courts, we are in harmony with those decisions as illustrated by Lancaster County National Bank's Appeal, 304 Pa. 437, 155 A. 859, 861.'
And at page 103 of 311 Pa., at page 370 of 166 A., the court said:
'We have no doubt that an express executory contract in writing whereby the contracting parties sufficiently indicate an intention to make some particular property or fund therein described the security for a debt or other obligation creates an equitable lien on the property so indicated * * *, but there must be such an identification of the fund and such a transfer of it as would clearly indicate that intention.'
of this contract satisfies this last requirement. It is also apparent, from the authorities cited above,
that the defendant was authorized to insert such a clause and that such a clause is valid. The effect of such clause was to subrogate London & Lancashire Indemnity Co. to the rights of the defendant in the amount retained as soon as it made the payments for labor and materials. There was a privity created by this clause between the defendant-municipality and the labor and materialmen. Therefore, as between plaintiff and London and Lancashire Indemnity Co., the latter was entitled to the fund. Since the defendant was thereby justified in turning this fund over to the surety, judgment will be entered in its favor.