Petition for a Writ of Certiorari — Glassman Construction Co. v. Fidelity & Casualty Co. of New York

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Opes Suareme Court, U.S, |

IN. THE

Supreme Court of the United States

October Term, 1965

No.1 28 2:

GLASSMAN CONSTRUCTION CO., INC.,

Petitioner,

Vv.

THE FIDELITY AND CASUALTY CO.

OF NEW YORK,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

LEONARD S. MELROD

JOSEPH V. GARTLAN, JR.

815 Connecticut Avenue, N.W.

Washington, D. C.

Counsel for Petitioner

(i)

INDEX

OPINIONS BELOW

JURISDICTION

‘ QUESTION PRESENTED

WERSWE a ow we Oe

REASONS FOR GRANTING THE WRIT

CONCLUSION

Appendix A

Order for Summary Judgment and Judg-

ments Entered June 15, 1964, by the

United States District Court for the

District of Columbia . ; ‘

Appendix B

Opinion Delivered January 641966, by

the United States Court of Appeals for

the District of Columbia Circuit

Appendix C /

Per Curiam Order Entered September

3, 1965, by the United States Court of

& Appeals for the District of Columbia

Circuit . ™ Pee Se arta

Appendix D

Excerpts from Briefs Filed Pursuant

to Per Curiam Order Entered Septem-

ber 3, 1965, by the United States Court

of Appeals for the District of Columbia :

Circuit . . ae” 6 ‘ : .

(ii)

CITATIONS

Carr v. Corning, 86 U.S. App. D. C. 173.

182 F. 2d 14 (D. C. Cir. 1950) .

Cash v. Murphy, 339 F. 2d 757

(5th Cir. 1964)

Glassman Construction Co., Inc. v.

The Fidelity and a Co.

of New ie App.

D. C. 340

(D. C. Cir. ag.

Hycon ‘mca oe v. Koch & Sons,

219 F. 2d 353 (9th Cir. 1955), certi-

orari denied, 349 U.S. 953 (1965)

Lloyd v. Franklin Life Ins. Co., 245 .

F, 2d 896 (9th Cir. 1957) .

Proctor v. Sangamore Big Game Club,

265 F. 24.196 (3rd Cir. 1959),

certiorari denied, 361 U.S. 831

(1959) ‘ :

‘Riley v. Titus, 89 U.S. App. D/C. 79,

0 F. 2d 653 (D. C. Cir. 1951)¢

certiorari denied, 342 U.S. 855,

rehearing denied, 342 U.S. 889 (1951)

River Plate and Brazil Conferences v.

Pressed Steel Car Co., 227 F. 2d

60 (2d Cir. 1955) ‘

(iii)

Securities and Exchange Comm. v.

Chenery Corp., 318 U.S. 80

(1943) ‘

Shafer v. Reo Motdrs Ing., 205 F. 2d

685 (3d Cir. 1953)

Slip Scarf Co. v. Wm. Filene’ s Sons Co.,

289 F. 641 (1st Cir. 19237" —( ‘

United States rel. McClellan v.

’ Humphrey, 181 F. 2d 757 (3d Cir. 1959) .

Statutes:

3 Code of Virginia Section 11-23 (1964)

Miscellaneous:

Restatement, Contracts, Section 167(1)

(1932) . ‘ . ‘ eee P

16 Michie's Jurisprudence of Virginia

and. West Virginia 423 (1959)

5, 23

IN THE

_ Supreme Court of the United States

.October Term, 1965

ee ”

GLASSMAN CONSTRUCTION CO., INC.,

Petitioner,

v. : Se

THE FIDELITY AND CASUALTY CO.

; OF NEW YORK,

| Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT.

Petitioner, Glassman Construction Co., Inc., prays

that a Writ of Certiorari issue to review the judgment

of the United States Court of Appeals for the District

of Columbia Circuit, entered in _ above entitled

case on January 6, 1966..

OPINIONS BELOW

The United States District Court for the District

of Columbia entered an Order for Summary Judgment

and Judgments on June 1 64. A copy of that Order

is appended hereto as Appendix A. The United States

Court of Appeals for the District of Columbia Circuit ©

rendered judgment, and delivered its opinion on Janu-

ary 5, 1966. A copy of that opinion is appended here-

-to as Appendix B and is reported in _ U.S. App.

D.C.__—, 356 F.2d 340 (D.C. Cir. 1966).

JURISDICTION

The jurisdiction of the United States District Court

for the District of Columbia was based upon Title 11,

Section 301, et seq., of the District of Columbia Code

(1961 Ed.), and Title 28, U.S.C., Section 1331 et seq.

The jurisdiction of the United States Court of Appeals

for the District of Columbia Circuit was based upon

Title 28, U.S.C., Section 1291. The jurisdiction of

this Court is invoked under Title 28, U.S.C., Section

1254. Petitioner seeks a Writ of Certiorari to the Uni-

ted States Court of Appeals for the District of Colum-

bia Circuit to review a judgment of that Court enter-

-ed on January 6, 1966. On March 21, 1966, this Court

granted Petitioner's application for an extension of

time within which tofile petition for writ of certiorari,

extending such time from April 6, 1966, to and includ-

ing May 5, 1966.

QUESTION PRESENTED

Whether a United States Court of Appeals may,

consistent with its proper judicial function, order the

production of evidence, weigh and consider such evi-

dence, make findings of fact therefrom, and on the

basis of such findings affirm a grant of summary

: 3

judgmeént made by a United States District Court on °

cross- motions for summary judgment; and whether a

United States Court of Appeals’ may enter judgment

based ypon its own findings of fact unsupported by the

record. ‘

STATEMENT

On April 28, 1959, one J. C. Harman (hereinafter

referred to as 'Harman"), an electrical contractor

entered into a General Contract of Indemnity with the

Respondent, The Fidelity and Casualty Company of

New York, (hereipafter referred to as "Fidelity"), a

surety bonding company, whereby Harman, as princi-

pal, assigned to Fidelity, as surety, all rights to col-

lect and receive all monies due or to become due to

Harman on contracts entered into between Harman

and others under which Fidelity; as surety, had is-

sued or would thereafter issue payment and/or per-

formance surety bonds. | |

On December 14, 1959, Petitioner, Glassman Con-

struction Co., Inc., (hereinafter referred to as

"Glassman"), entered into two subcontracts with Har-

man, whereby Harman yas to perform the electrical

work on two school construction projects in the State

of Virginia for which Glassmanwas prime contractor.

The two subcontracts also provided that Glassman

could withhold as contract retainages, a portion of

the consideration due Harmanunder such subcontracts.

On December 15, 1959, pursuant to the General

Contract of Indemnity dated April 28, 1959, referred

to hereinabove, Harman and Fidelity executed two

labor and material bonds covering Harman's obliga-

tions to suppliers of labor and materials on the two

subcontracts of December 14;°1959.

On July 19, 1960, Glassman entered into a third

subcontract with Harman, whereby Harman was to

perform the electrical work on another school con-

struction project for which Glassman was prime con-

tractor, and which was unrelated to the two projects

which were the subject of the two subcontracts of

December 14, 1959. . Fidelity was not the surety on

this third subcontract.

On November 30, 1960, Harman defaulted on all

three subcontracts. The cost to Glassman to com-

plete Harman's work on the third subcontract of July

19, 1960, exceeded the amount of retainages held by

Glassman under the twosubcontracts of December 14,

1959.

Fidelity brought suit against Glassman in the Uni-

ted States District Court for the District of Columbia

to recover the retainages on the two contracts of De-

cember 14, 1959, principally on the theory that it was

the assignee of Harman's rights to such retainages.

Glassman asserted against Fidelity its right to set-

off as against such retainages the excess costs incur-

red by it in completing Harman's obligations on the

third subcontract of July 19, 1960.

The matter came before the United States District

Court on cross-motions for summary judgment.

There being no material facts in dispute, Glassman's

motion for summary judgment was denied and Fidel-

ity's motion for summary judgment was granted on

June 15, 1964. Glassman appealed to the United

States Court of Appeals for the District of Columbia

Circuit.

By Order dated September 3, 1965, a copy of which

is appended hereto as Appendix C, entered after oral

argument of the appeal, the United States Court of

Appeals directed the parties to file briefs as to the

applicability -to the case of the general rule of law

that, when, in a suit on a chose in action brought by

the assignee thereof, the debtor pleads as a set-off

thereto a claim against the assignor, such set-off will

not be allowed if it appears that before he acquired

the claim the debtor had notice of the assignment or

had knowledge’ of suchfacts as were sufficient to have

put him upon inquiry as to it. See, Restatement, Con-

tracts, Section 167(1) (1932), and 16 Michie's Juris-

prudence of Virginia and West Virginia 423 (1959).

The United States Court of Appeals stated in its

Order:

"If such principle should be applicable, the dis-

position of this case may turn on certain facts

not appearing in the record as presently con-

stituted. These facts are the following:

** KK K *

(3) The date on which Glassman Construc-

tion Company received notice, either actual

or constructive, of the assignment provi-

sions contained in Paragraph No. 13 of the

General Contract of Indemnity entered be-

tween appellee, Fidelity and Casualty Com-

pany of New York, and J. C. Harman on

April 28, 1959." (Order dated September 23,

1965. Page 1.)

and directed the parties to indicate in their briefs

whether such date was controverted by the parties.

(Order dated September 23, 1965. Page 2.)

Upon the filing of supplemental briefs and replies

thereto by both parties, excerpts of which are ap-.

pended hereto as Appendix D, it became evident that

there was a serious dispute as to whether, at the time

that Glassman's right toset-off arose against Harman

on the third subcontract of July 19, 1960, Glassman

had notice of Harman's assignment to Fidelity of the

proceeds due under the two subcontracts of Decem-

ber 14, 1959. If Glassman had such notice, its right

to set-off against Fidelity would have been defeated.

Despite the presence of a dispute as to a material...

fact which the parties had not theretofore considered,

and which had not been a subject of discussion in the

District Court, the United States Court of Appeals in

its opinion of January 6, 1966, made findings of fact

that: 5

"The issuance of the bonds was notice to Glass-

man of the assignment of Harman's rights to

Fidelity." (356 F.2d 340, 343)

and this because:

"Virginia law required the bonds, Glassman's

contract with Harman required the bonds,

Glassman received copies of the bonds at the

time they were issued and indeed was anobligee

thereon."" (356 F.2d 340, 343) —

Such finding was totally unsupported by the record

and was contrary to fact. The issuance of the bonds

was not notice to Glassman of the assignment since

the bonds neither contained any language of assign-

ment nor referred to the only place where such lan-

guage was present, the General Contract of Indemnity

executed on April 28, 1959, eight (8) months prior to

issuance of the bonds on,.December 15, 1959. Nor did

the fact that Virginia law required the bonds give

notice to Glassman. The applicable Virginia statute,

3 Code of Virginia Section 11-23 (1964), contains no

language that would put a contractor in Glassman's

position on notice that his subcontractor had assigned

contract procéeds to a surety. e

The Court made the further finding that:

"Harman in return [for Fidelity's execution of

bonds for the two subcontracts of December 14,

1959] assigned to Fidelity his rights to collect

and receive all moneys due and to become due

on these two subcontracts." (356 F.2d 340, 343)

(Emphasis added.)

This finding was also unsupported by the record and

contrary to fact. It is unthinkable to assert that an

assignment made on April 28, 1959, is given i return

for the execution of bonds on December 15, 1959,

eight (8) months later.

As a result of such findings of fact, and in disre-

gard of the presence of a dispute as to a material

fact, and despite its own recognition that ". . . Glass-

man now contends it had no notice of the assignment

...'' (356 F.2d 340, 343), the United States Court

of Appeals affirmed the District Court's grant of

summary judgment for Fidelity.

REASONS FOR GRANTING THE WRIT

It seems well established that a United States

Court of Appeals in reviewing a decision of a United

States District Court in an action at law may not re-

ceive ahd weigh evidence and make findings of fact

therefrom. Slip Scarf Co. v. Wm. Filene's Sons Co.,

289 F. 641 (ist Cir. 1923); United States ex rel.

McClellan v. Humphrey, 181 F.2d '757 (3d Cir. 1950);

Cash v. Murphy, 339 F.2d 757 (5th Cir. 1964).

The case of Carr v. Corning, 86 U.S. App. D.C.173,

182 F.2d 14 (D.C. Cir. 1950), is precise in its holding

that where review by a United States Court of Appeals

is limited to the propriety of an entry of summary

judgment in the District Court:

"An appellate court cannot be the trier phnries

and particularly it cannot decide a question of

fact upon evidence which is not in the record.

We cannot make findings of fact different from _

the allegations of the pleadings and affidavits

upon which summary’ judgment or dismissal

was entered below... ." (182 F.2d 14, 21)

Nor will a Court of Appeals, "[D]raw conclusions by

speculation where the,data necessary for certainty

was not given in the trial court." Riley v. Titus, 89

U.S. App. D.C. 79, 190 F.2d 653, 655-56 (D.C. Cir.

1951), certiorari denied, 342 U.S. 855, rehearing

denied, 342 U.S. 889 (1951), or seek to adjudicate

disputed facts, Hycon Manufacturing Co. v. Koch &

Sons, 219 F.2d 353 (9th Cir. 1955), certiorari denied,

349 U.S. 953 (1955), or, "[R]Jeverse a summary judg-

ment on the basis of arguments and facts not pre-

sented to the District Court."" River Plate and Brazil

Conferences v. Pressed Steel Car Co., 227 F.2d 60,

63 (2d Cir. 1955). |

See generally, Proctor v v. Sangamore Big Game

‘Club, 265 F.2d 196 (3d Cir. 1959), certiorari denied,

361 U.S. 831 (1959), and Shafer v. Reo Motors, Inc.,

205 F.2d 685 (3d Cir. 1953).

In Lloyd v. Franklin Life Ins. Co., 245 F.2d 896

(9th Cir. 1957), where summary judgment had been

entered on cross motions for summary judgment and

a motion to vacate the judgment was made thereafter

on the basis of unresolved material questions of fact,

the Court of Appeals said:

"If this Court on appeal had found that proposi-

tion [that there were unresolved material ques-

tions of fact] true, the cause must have been -

reversed, irrespective of the fact that each of

the contesting parties respectively filed a mo-

tion for summary judgment." (245 F.2d 896,

897)

This Courthas spoken on one aspect of the ques-

tion presented in Securities and Exchange Comm. v. .

Chenery Corp., 318 U.S. 80 (1943), wherein MR. JUS-

TICE FRANKFURTER stated that:

"(I]t is also familiar appellate procedure that

where the correctness of the lower court's de-

cision depends upon a determination of fact

which only a jury could make, but which has not

been made, the appellate court cannot take the

place of the jury." (318 U.S. 80, 88)

While the cases cited above may have served to

establish the general limitations upon the United

States Courts of Appeal in their judicial review of fac-

tual matters, none was concerned with the Court it-

self calling for the production of evidence.

The action of the Court of Appeals in calling for

the production of evidence and in making clearly er-

roneous findings therefrom is.not only prejudicial to ©

this Petitioner, but if left uncorrected, will establish

a precedent that greatly expands the permissible and

traditional scope of judicial review by the United

States Courts of Appeal, clnstituting them as triers

of facts which the parties intentionally or inadyer-

tently left unconsidered in the District Courts. Peti-

tioner believes that the Court of Appeals has so far

departed from the accepted and usual course of judi-

cial proceedings and has so greatly exceeded the

proper scope of its judicial function as to call for an

exercise of this Court's power of supervision over

the lower Federal tribunals.

While the decision of this Court in Securities and

Exchange Comm. v. Chenery Corp.,318 U.S. 80 (1943),

- set forth the rule that an appellate court may not

make a finding of fact ". . . which only a jury could

make, but which has not been made... ." 318 U.S.

80, 88, which rule would, by analogy, extend to find-—

ings made by a trial court sitting without a jury, this

Court has not set forth or clearly defined the fact- |

finding power, of a United States Court of Appeals

where the case is on appeal from a judgment ren-

dered on cross- motions for summary judgment. Peti-

tioner believes that this Court should set forth the

proper procedure to be followed in such circum-

_ stances. 3

- To the extent that the decision Of the United States

Court of Appeals for the Ninth Circuit in Lloydv.

Franklin Life Ins. Co., 245 F.2d 896 (9th Cir. 1957),

a portion of which has been quoted hereinabove, has

not been adhered to in the instant case by the United

States Court of Appeals for’ the District of Columbia

Circuit, there is a conflict between the circuits, the

presence of which forms a basis for review by this

Court.

antennal

: For the

prays this

’ certiorari.

Respectfully submitted,

LEONARD S. MELROD

JOSEPH V. GARTLAN, JR.

y 815 Connecticut Avenue, N.W.

Washington, D. C.

Counsel for Petitioner

CERTIFICATE OF SERVICE |

_ Leonard S. Melrod and Joseph V. Gartlan, Jr. Kg

815 Connecticut Avenue, N.W., Washington, D.C.,

Counsel for Petitioner, hereby certify that copies of

‘the foregoing Petition for Writ of Certiorari to the

United States Court of Appeals for the District of Co-

lumbia Circuit, and Appendiceg,thereto, were hand

carried and delivered to Thdédmas H. McGrail, 505

Union Trust ae Washington, D.C., Counsel for

Respondent, this) “day of May, 1966. |

LEONARD S. MELROD

JOSEPH V. GARTLAN, JR.

815 Connecticut Avenue, N.W. -

Washington, D. C.

Counsel for Petitioner

APPENDIX A "

[Filed June 15, _— : é 2

ORDER FOR SUMMARY JUDGMENT

AND JUDGMENTS

This matter having come before the Court oncross

motions for summary judgment by the parties, and the

parties agreeing that there are no material facts in

dispute, and the issues aw having been briefed and

submitted to the Court bythe parties, full argument

by counsel for the parties having been heard by the

Court, and the Court having. considered the matter

' fully, it is this 15th day of June, 1964,

ORDERED, that defendant's motion for summary

judgment is denied and plaintiff's motion for summary -

judgment is granted, and it is further

ORDERED, ADJUDGED AND DECREED, That

plaintiff recover from defendant on the Whittier proj- -

> ect the sum of Four Thousand Six Hundred and Fifty-—

seven Dollars and Nineteen Cents ($4,657. 19) phus in-

terest- at -six-pereent- (6%)- per-annunr from December

#54961, and recover from defendant on the Washing-

ton Irving project the additional sum of Nine Hundred

and Fourteen Dollars and Fifty Cents ($914.50) and

its costs of this action.

/s/ G. L, Hart, Jr.

; 3 Judge

[Certificate of Service]

APPENDIX B

“United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 18,850

GiassmMan Construction Co., Inc., APPELLANT

Tae Fmenrry ann Casvatty Company or New York,

No. 18,853

THe Ferry anp CasvaLty Company or New York,

APPELLANT

| Vv,

Giassman Construction Co., Iyc., APPELLEE

Appeals from the United States District Court

for the District of Columbia

#: Speeinner

Decided January 6, 1966

, oo ee ¥ a

Mr. Leonard S. Melrod, with whom Mr. Joseph V. Gart-

lan, Jr. was on the brief, for appellant in No. 18,850 and

appellee in No. 18,853.. ,

Mr. Thomas H. McGrail for appellee in No. 18,850 and

appellant in No. 18,853.

Before Burcer, Wricut and McGowan, Circuit Judges.

Wricnt, Circuit Judge: Appellant Glassman Construc-

tion Company was the prime contractor on three contracts

with the School Board of Fairfax County, Virginia, for

construction of three schools in that county. It entered

into subcontracts with one J. C. Harman for performance

of the electrical work on each of the three jobs. Subse-

quently Harman entered into an agreement. with appellee

Fidelity & Casualty Company of New York, pursuant to

which Fidelity executed payment bonds covering Harman’s

obligations to the suppliers of labor and materials on two

of the above mentioned subcontracts. Harman in return

assigned to Fidelity his rights to collect and receive all

moneys due and to become due on these two subcontracts.

Fidelity was not the surety on the third subcontract.

After Harman failed to pay some of the materialmen

on the two jobs bonded by Fidelity, Fidelity paid them

pursuant to its obligation under the bonds. Harman also —

defaulted on the third subcontract and Glassman com-

pleted the work, incurring costs substantially in excess of

the contract price. It is agreed by the parties that the

excess costs on this third job exceeded the retainages on

the two subcontracts.on which Fidelity was surety.

Fidelity filed a complaint in the District Court against

Glassman claiming the retainages on the two subcontracts

it bonded. Glassman defended on the ground that it was

entitled to set off against these retainages the excess costs .

it incurred in completing Harman’s work on the third job.

On cross-motions for summary judgment, the District

Court entered judgment for Fidelity in the amount of

$5,571.69, but denied Fidelity’s request for interest from

December 7, 1961, the date on which the subcontracts

became due and payable. Glassman limits its appeal to

the issue of liability and Fidelity cross-appeals for interest.

We affirm the District Court. |

Fidelity’s claim to the retainages on the subcontracts it

bonded is based on three independent grounds. Primarily,

it seeks to establish itself as an assignee of the rights of

Harman. Glassman opposes recovery on this ground, citing

United States v. Munsey Trust Co., 332 U.S. 234 (1947),

for the principle that an assignee’s claim to a fund is sub-

ject to any right of set-off the stakeholder may have

against the assignor. Fidelity, while admitting that

Munsey Trust so holds, would limit Munsey Trust to its

facts—where the United States is the stakeholder with

the set-off claim.

Fidelity’s second approach to recovery, designed to

avoid Glassman’s set-off claim, is as assignee of the rights

of the materialmen whose claims it satisfied. Its title to

these rights, it argues, is clear on two - bases. First, it

obtained the materialmen’s rights by formal assignment

at the time it paid the materialmen’s claims, and second,

, under the traditional theory of subrogation the “surety

who pays the debt of another is entitled to all the rights

of the person he paid to enforce his ght to be re-

imbursed.” Pearlman v. Reliance Insurance Co., 371 U.S.

132, 137 (1962).

Fidelity’s third ground for recovery, and second basis

for avoiding the set-off claim, is predicated on Prairie

State Kank v. United States, 164 U.S. 227 (1896). In that

case the Supreme Court recognized the surety as the sub-

rogee of the party protected by the bond against the

claims of materialmen. Thus here, since Glas was an

obligee on the bonds, Fidelity would poe og Rea

right to use the retainages to satisfy the claims of

materialmen. cs

Although there is much support in Pearlman and Prairie

State Bank for Fidelity’s position, the fact remains that

in neither was the stakeholder asserting the cross-claim.

Moreover, the broad langage 1 in Munsey Trust, where,

as here, the stakeholdér was asserting the cross-claim,

would seem to cover the present case. Fortunately, we

need not penetrate the confusion created by the apparent

inconsistencies in Pearlman, Prairie State Bank and

Munsey Trust. Here Glassman’s right to set-off against

Harman did not arise until after it received notice of

the assignment of Harman’s rights under the subcon-

tracts to Fidelity. Thus the set-off is ineffective against

the assignment. |

The law in Virginia,’ as it does generally,* clearly recog-

nizes that an assignee “takes the assignment subject to all

defenses of the obligor against the assignor, or pledgor,

existing before notice of assignment.” Hartford Fire Ins.

Co. v. Mutual Savings & Loan Co., 193 Va. 269, ——, 68

S.E.2d 541, 546 (1952). See also National Bank & Trust

1In Munsey Trust, the Court stated that the United States

has the right, “‘which belongs to every creditor, to apply

the unappropriated money of his debtor, in his hands, in

extinguishment of the debts due to him.’” 332 U.S. at 239.

2The parties are agreed that the law of Virginia, where

the contract was performed, applies.

* The general rule, as stated in the Restatement of Con- .

tracts, is that “[a]n assignee’s right against the obligor is

subject to all limitations of the obligee’s right, to all absolute

and temporary defenses thereto, and to all set-offs and

counterclaims of the obligor which would have been avail--

able against the obligee had there been no assignment, pro-

vided that such defenses ‘and set-offs are based on facts

existing at the time of the assignment, or are based on facts

arising thereafter prior to knowledge of the assignment by

the obligor.” RESTATEMENT, CONTRACTS § 167(1) (1932).

Corbin states that “[i]n no jurisdiction is the counterclaim

or set-off effective against the assignee if it was acquired by

the obligor after notice of the assignment.” 4 CORBIN, CON- .

TRACTS § 897, pp. 600-601 (1951). See also UNIFORM CoM-

MERCIAL CODE § 9-318(1) (1962), and comment thereto.

Company v. Castle, 196 Va. 686, 85 S.E.2d 228 (1955), and

16 Micuiz, Jurisprupence or Vircinta AND WEsT Vir-

ainia § 13, p. 423 (1951). This aspect of the case turns,

therefore, on whether Glassman’s right to set-off under

the third subcontract arose prior to notice to it of the

assignment to Fidelity under the first two.

The facts here show that the Harman subcontracts

bonded by Fidelity were entered into December 14, 1959,

that Fidelity, as surety, for Harman, executed the pay-

ment bonds covering the two subcontracts’on the following

day, December 15, 1959, that Glassman’s third subcontract

with Harman, not bonded by Fidelity, was entered into on

July 19, 1960, and that the default on all three subcon-

tracts occurred on November 30, 1960. These facts present

for our resolution two questions: (a) when did the assign-

ment become effective, and (b) when did Glassman receive

notice thereof. .

As to the time the assignment in surety contracts

becomes effective, there seems to be a division of author-

ity.* And the State of Virginia, whose law we apply,*

provides no guidance.*: We must predict, therefore, the

position of the court of last resort in that state were the

' _ *See.cases cited in Judge Magruder’s excellent opinion in

‘Gray V. Travelers Indemnity Company, 9 Cir., 280 F.2d “649,

554 (1960). esi :

°In determining priority to proceeds of construction con-

tracts, we apply the law of the place of performance for the

reason that the same law governs other questions of per-

formance. See RESTATEMENT, CONFLICT OF LAWS § 354

(1984),

* The decision in American Surety Co. v. Plank & Whit-

sett, 159 Va. 1, 165 S.E. 660 (1932), cited and relied on by

Fidelity, while involving priority to proceeds dn construction .

contracts, is- based on fraud and thus f

precedent.

eo Qs

problem presented to it for resolution.’ We find that Vir-

ginia would follow the better reasoned cdses,* including

our own,’ in holding that the assignment in a payment

and performance bond is effective from the date of its

execution. While the right actually to receive the retain-

ages is subject to a condition precedent, when that condi-

tion is, met, an equitable right to the funds withheld arises

“from and relate[s] back to the date of the original con-

tract of suretyship.” Morgenthau v. Fidelity & Deposit

Co. of Maryland, supra Note 9, 68 App.D.C. at 166, 94 F.2d

at 635. See 4 Cornin, Contracts § 875.

The issuance-of the bonds was notice to Glassman of

the assignment of Harman’s rights to Fidelity. Virginia

. ™ “Tn ascertaining what the state law is, the federal court

must make use of all available data. Thus, in the absence of

state decisions in point the court may look to the Restatement

of the Law, to treatises and law review writing, and may,

where appropriate, assume that the state will ow the

majority rule.” 1 BARRON & HOLTZOFF, FEDERAL CTICE

AND PROCEDURE § 8 (Wright ed. 1960, Supp. 1964). See also

President and Directors of. Georgetown College v. Hughes,

76 U.S.App.D.C. 123, 125, 130 F.2d 810, 812 (1942), and

Cardozo, Choosing and Declaring State Law: Deference to

State Courts Versus Federal Responsibility, 55 Nw. U. L.

REv. 419, 423-427 (1960).

& See Gray Vv. Travelers Indemnity Company, supra Note

4. See also Insurance Inc. v. United States Fidelity and

Guaranty Co., 9 Cir., 323 F.2d 513, 516 (1963), and Danais

v. M. DeMatteo Const. Co., D.N.H., 102 F.Supp. 874, 877

(1952). See also 4 CORBIN, CONTRACTS § 897.

®See Morgenthau V. Fidelity & Deposit Co. of Maryland,

68 App.D.C. 163, 166, 94 F.2d 632, 635 (1937); Moran

v. Guardian Casualty Co., 64 App.D.C. 188, 189, 76 F.2d 438,

439 (1935); Philadelphia Nat. Bank v. McKinlay, 63 App.

D.C. 296, 72 F.2d 89 (1934); National Surety Company Vv.

Lane, 45 App.D.C. 176 (1916); — v. National Surety

Co., 43 App.D.C. 136 (1915).

law required the bonds,’® Glassman’s contracts with Har-

man required the bonds, Glassman received copies of the

bonds at the time they were issued and indeed was an

obligee thereon. Even without considering the general

practice in the industry, it is clear from these facts that

Glassman had notice of the assignment.” Moreover, sub-

rogation as a matter of law resulted on the payment of

the bonds, and relates back to the time of issuance; notice

to Glassman, of course, is presumed therefrom.?2

Although. Glassman now contends it had no notice of

the assignment, its primary argument in support of its

set-off claim is that the assignment did not take effect

until the default of Harman and, since Harman defaulted

on all three subcontracts on the same day, its set-off was

effective against the assignment. The case, relied on by

Glassman, which supports the thesis that an assignment

\ in tiese circumstances is not effective until default of the

assignor is Guarantee Co. of North America v. Tandy ¢°

Allen Construction Co., 76 N.J.Super. 274, 184 A.2d 426

(1962). Tandy & Allen held that, although the assignment

was effective on the date the surety bond was executed, it.

was conditioned upon a breach of contract by the sub-

contractor, and that, since the breach deprived the sub- |

contractor of the right to the retainages on his contract,

no right thereto passed by assignment to the surety on

the bond.

With due respect, the reasoning of Tandy ¢ Allen will

not bear analysis. It recognizes the assignment but denies

103 CODE OF VIRGINIA § 11-23 (1964).

" Relying on two letters from Fidelity formally asserting

its rights under the bonds, Glassman, in its supplemental

brief, argues that it had no notice of the assignment until

after the default by Harman. For the reasons stated in

text, this argument is untenable.

12 See authorities cited supra Note 8.

the surety the benefit thereof sy delaying its effectiveness

until after the subcontractor has defaulted and forfeited

his contract rights. Thus Tandy é Allen “permits the

[prime contractor] to: enjoy its security and at the same

time deprive the surety of the security without which the

[prime contractor’s] security would never have existed.

* * * In [Tandy ¢ Allen], the decision empowered the

[prime contractor] to compel the surety assignee to carry

the risk of the assignor’s nonperformance of other con-

tracts as well as of his nonperformance of the contract for

which the bond was executed.” 4 Corpin, Contracts § 897

n.29 (Supp. 1964).

* Fidelity’s demand for interest from December 7, 1961,

the date on which the subcontracts became due and pay-

able,.was properly denied by the District Court. Under

the appropriate statute, plaintiff’s judgment “shall include

interest on the principal debt from the time when it was .

~ due and payable” if interest is required “by contract or by

law or usage.” 28 D. C. Cops § 2707 (1961). Citing Kenny

Construction Company v. District of Columbia, 105 U.S.

App.D.C. 8, 262 F.2d 926 (1959), Fidelity claims law and

usage entitle it to interest. In Kenny Construction Com-

pany interest was allowed, not on retainages, but on funds

improperly withheld from the contractor. Thus Kenny

provides no authority for the payment of interest on re-

tainages. Since the contract between Glassman and Har-

man does not provide for interest on retainages, no basis

is shown for allowing it./

Affirmed.

APPENDIX C

[Filed Sep. 3, 1965] ‘e

Before: BURGER, WRIGHT and McGOWAN,

Circuit Judges.

ORDER

This case came on to be heard on appeal from

summary judgment entered in favor of appellee, Fi-

_ delity and Casualty Company of New York, in the Uni-

ted States District Court for the District of Columbia,

and was argued by counsel.

It appears to the court that the principle stated in

Restatement, Contracts § 167(1) 932), governing the

relative priorities between an assignee of a claim, on

the one hand, and the obligor, who seeks to set off the

claim against a claim which he holds against the as-

signor, on the other, may be applicable to this case.

See 16 Michie, Jurisprudence of Virginia and West

Virginia 423 (1951). If such principle should be ap-

plicable, the disposition of this case may turn on cer-

tain facts not appearing in the record as presently

constituted. These facts are the following:

(1) | The date on which J.C. Harmon entered into

the subcontract with appellant, Glassman

Construction Company, Inc., for the Ellen

Glasgow School Projects;

(2) The date on which the said Harmon defaulted

on this subcontract;

(3) The date on which Glassman Construction

, Company received notice, either actual or

constructive, of the assignment provisions

contained in Paragraph No. 13 of the General

Giggs

Contract of Indemnity entered between appel-

lee, Fidelity and Casualty Company of New

York, and J. C. Harmon on April 28, 1959.

It is therefore ORDERED by the court that the

parties herein, on or before Séptember 30, 1965, file

briefs directed to the folldwing matters:

1. Is the aforementioned principle applicable to

the facts in this case?

2. Are any of the dates referred to in (1), (2),

and (3) above ‘controverted by the parties to

this appeal?

Reply briefs, if any, may be filed on or before

October 11, 1965. : ;

Per Curiam.

Dated: Sep. 3, 1965 He has

APPENDIX D

Excerpts from Briefs filed pursuant to Per Curiam

- Order entered September 3, 1965, by the United States

, Court of ia a for the District ‘of Columbia Circuit.

(a) iuidiimbedin’ Brief for Appellant [Glassman]

"As shown in the agreement between the par-

ties in response to question #2 propounded

by the Court (infra, pages 4-6), Appellant

did not have notice, either actual or construc- |

tive, of the assignment between Appellee and

- . Harman until after the default by Harman on

the Ellen Glasgow School subcontract. Thus,

under the foregoing, principal cited by the

Court in its order of September 3, 1965, Ap-

pellant should be permitted to set-off as

against Appellee, the former's claim against

J. C. Harman, Appellee's assignor." [Page 3]

(b) _ Supplemental Brief for Appellee [Fidelity]

"Glassman had actual or constructive knowl-

edge of the assignment, prior. to the time his

set-off arose and indeed prior to Harman's

actual default- and this is so as a matter of

law."" [Page 9]

"The only ‘notice’ to Glassman of any perti-

nence is notice of the issuance of the bonds. -

The fact of that. notice is obvious." [Page 10] -

[Fidelity's] Supplemental Brief

"Appellee also states that because its general —

indemnity agreement with Harman preceded

Harman's default on the Ellen Glasgow School

job, Appellant had notice of the ee

’ |

26 &

‘ .

—

provision contained therein. However, Ap-

pellant had no knowledge, ¢ither constructive

or actual, of the existence of this general in-

demnity agreement until long. after Harman's

default on the Ellen Glasgow job. As the

agreement between Appellant and Appellee

expressly shows, Appellee admits that Ap-

- pellant did ngt have notice, either actual or” °

constructive, of the assignment between Ap-

pellee and Harman until after the default by

Harman on the Ellen Glasgow School sub-

contract." {Page 2]

(d) Reply. of Appellee [Fidelity] to Supplemental

Brief for Appellant [Glassman]

"For reasons set forth in Appellee's Supple-

mental Brief, Appellant Glassman had actual

and constructive notice of the assignment to

this Appellee prior to November 30, 1960,

....'' [Page 4]

7 ." 2%

.* BIBRARYS Office Supreme Court, US. ]

wimenesat COURT. U. &

“Supreme Court of the nites SE” | pasgem |

“a

No. 1285

GLASSMAN CONSTRUCTION CO., INC.,

Petitioner

THE FIDELITY AND CASUALTY

COMPANY OF NEW YORK,

Responder

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR RESPONDENT IN OPPOSITION ’

Filed May 27, 1966

™.

()

INDEX

QUESTIONS PRESENTED ee eb eeeeoee#eee#e#eee#e#s€e# oh eeee#s 1

STATEMENT ........... Perr ese Sere res Pr Gaeat

ARGUMENT:

I, Holding Objected to Is One of Law and Not a

Finding of Fact .......cccccccccccccscccces 6

II, Court of Appeals Did Not Order Production .-

of Evidence Nor Make Findings of Fact and, ®

in Any Event, Petitioner Concurred in Pro-

COGEES pciccccccoseseccesccescocscesenes |

ee eee re eS ee ee eee eee

CITATIONS

CASE:

Glassman Construction Co., Inc. v. The Fidelity

and Casualty Company of New York, 356 F.2d340

Ses Gis BONEN s 62:65 65-68 8-666 n Bee ae 04 O86 3, 6, 7

STATUTE:

3 Code of Virginia, Title 11, § 23 (1964 ed.) ............ 2

MISCELLANEOUS: :

2 Pomeroy's Equity Jurisprudence, 5th ed., §604 ........ 8.»

IN THE

Supreme Court of the United States

No. 1285

GLASSMAN CONSTRUCTION CO., INC.,

Petitioner

Vv.

‘ THE FIDELITY AND CASUALTY

COMPANY OF NEW YORK, *

Respondent

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Pe BRIEF FOR RESPONDENT IN OPPOSITION

SS Respondent, The Fidelity and Casualty Company of

New York, requests that the Petition for a Writ of Cer-

tiorari be denied.

QUESTIONS PRESENTED

- 1. Whether the determination to which petitioner ob-.

jects constitutes a conclusion of law rather than finding

of fact. \

2. Whether the appellate court only inquiredas to the

existence of controversy over certain dates or whether

it ordered the production of evidence, considered such

evidence and made findings of fact thereon and, in any

event, is petitioner estopped from objecting in view of

its stipulation and its acquiescence to the procedure ob-_

jected to. | ;

STATEMENT

On December 14, 1959, petitioner Glassman entered

‘into two subcontracts with J. C. Harman whereby Har-

man became the electrical subcontractor to petitioner on

two school construction projects for which petitioner was

prime contractor for an instrumentality of the Common-

wealth of Virginia.

On December 15, 1959, respondent surety issued la-

bor and material bonds with Harman as principal and pe-

.titioner as obligee covering Harman's obligations to la-

borers and materialmen on the two subcontracts. Said

bonds were obtained by Harman in accordance with the

requirements of state law (3 Code of Virginia, Title 11,

§ 23 (1964 ed.) ) and, as. well, the subcontract terms, and

were issued by respondent under a General Contract of —

Indemnity executed by Harman under date of April-28,.

1959.

Seven months later, on July 19, 1960, petitioner en-

tered into a third electrical subcontract with Harman on

a third school project in Virginia. Respondent was not

the surety on that subcontract.

Harman defaulted onall three subcontracts on Novem-

ber 30, 1960, and fileda petition in bankruptcy on Decem-

ber 1, 1960. “,

Petitioner holds sehmeabenst retainages on aoe two

projects bonded by respondent, after setting off all its

losses arising from Harman's default on those projects: _

In respect to the third subcontract (not bonded by respond- so

ent) petitioner suffered losses by Harman's default, which

losses it seeks to set off against the available retainages

- p

on the first two sicibiiaie: Respondent aia seeks

the same retainages'to reimburse it for its payments un-

der the bonds pertaining to said subcontracts.

‘Respondent surety brought suit against petitioner to

ecover the available retainages on the projects it bonded. ~

Respondent contended below that it had a legal and equit-

“able right by reason of: its payment of unpaid material-

men, its subrogation rights to the. retainages, the assign-

ment by Harman to it of contract proceeds, and the con-

trolling law of suretyship as enunciated by the Court of .

last resort of Virginia. Summary judgment granted re-

spondent,surety (plaintiff below) by the trial court was

affirmed by the appellate court. Glassman Construction }

Co., Inc. v. The Fidelity & Casualty Company . New

York, 356 F.2d 340 (D.C. Cir. 1966).

Subsequent to oral argument on appeal the appellate

court issued an order advising the parties that the relg-

tive priorities of an assignee of a claim and an off-set-.

ting obligor "may be applicable" and in such case the

_ disposition of the claim "may turn on certain facts not |

‘ appearing in the record as:presently constituted." (See

‘ Order dated September 3, 1965, in Appendix C, at page

23 of the Petition Kerein.) The court requested the par-

ties to submit briefs-directed to the aforementioned ques-

tion of priorities and also inquired of the parties whether

any of the following three dates were "controverted": (1) |

date of the third subcontract; (2) date of Harman’s default

on that subcontract; (3) date. Glassman received actual or

constructive notice of the assignment to peagencem. (Id.

at 24)

The petitioner filed its "Supplemental Brief for Appel-

lant" (part of the record herein). pursuant to the above ap-

tence as follows:

"Appellant agrees that iia ortiietss le stated in

Restatement, Contracts, Sec, 167(1) *(1932) and in

Michie's Jurisprudence of Virginia and West Vir- ~ -

—

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