for earlier or larger payments than the above.
'(h) To pay the Subcontractor on demand for his work or materials as far as executed and fixed in place, less the retained percentage, at the time the certificate should issue, even though the Engineers fail to issue it for any cause not the fault of the Subcontractor.'
In Aquilino v. United States, 1950, 363 U.S. 509, 512, 80 S. Ct. 1277, 1280, 4 L. Ed. 2d 1365, the Court posed the question here involved as follows:
'The threshold question in this case, as in all cases where the Federal Government asserts its tax lien, is whether and to what extent the taxpayer had 'property' or 'rights to property' to which the tax lien could attach. In answering that question, both federal and state courts must look to state law, for it has long been the rule that 'in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property * * * sought to be reached by the statute.' Morgan v. Commissioner (of Internal Revenue), 309 U.S. 78, 82 (60 S. Ct. 424, 84 L. Ed. 585). Thus, as we held only two Terms ago, Section 3670 'creates no property rights but merely attaches consequences, federally defined, to rights created under state law * * *.' United States v. Bess, 357 U.S. 51, 55 (78 S. Ct. 1054, 2 L. Ed. 2d 1135). * * *'
Atlantic Refining Company v. Continental Casualty Company, D.C.W.D.Pa. 1960, 183 F.Supp. 478, 482, involved a case very similar to the instant case. The only substantial variation being that in Atlantic Refining a surety was involved although it was not in the instant case. I do not think that that makes any difference in the net result so far as the facts of this case are concerned. The scholarly opinion of Judge Marsh so thoroughly and convincingly covers the entire situation that there is little that I can add other than to say that I am in complete accord with that opinion. Judge March held, inter alia:
'It is a general principle that a material failure of performance by one party to a contract not justified by the conduct of the other discharges the latter's duty to give the agreed exchange. Sections 274 and 275, Restatement, Contracts, with which Pennsylvania law is in accord; (citing Pennsylvania cases) * * *.
'In the cited cases it was held that the tax liens of the United States did not attach to the withheld funds; and the sureties and, in one case, the materialmen, won the money. In at least four of the cases, it seems that the contractors had completed or substantially completed the work for the owners, the contractual breach being their failure to pay materialmen.
'Therefore, I am of the opinion that a failure by the Contractor here to pay for labor and materials is just as much a failure to perform and carry out the terms of the contract as an abandonment of the work would have been.
'* * * Consequently, except for $ 23.17, the Contractor had no right of property in the balances withheld by the Owner; he could 'not get' the withheld balances, Lancaster County Nat. Bank's Appeal, 304 Pa. 437, 155 A. 859; he had 'no rights whatever' to the said balances, Prairie State National Bank of Chicago v. United States, 1896, 164 U.S. 227 (17 S. Ct. 142, 144, 41 L. Ed. 412) * * *.
'Thus when perfected in 1955, the lien of the government's taxes bound a contingent right of the Contractor to receive the balance of the contract prices if, but only if, he substantially performed his direct contractual obligations to the Owner to pay the materialmen. After his material breaches, the Contractor's contingent right never ripened into a 'right to property' which he could enforce or on which the federal tax liens could attach.'
I conclude that the Contractor has no 'property' or 'right to property' in the withheld balances which the Owner paid into Court and, therefore, there was nothing to which the Government's lien could attach.
Let Order be submitted in accordance herewith.