Royal Indemnity Company v. The United States and Jersey State Bank, Third-Party, 371 F.2d 462, 3rd Cir. (1967)

371 F.
2d 462
ROYAL INDEMNITY COMPANY

v.
The UNITED STATES and JERSEY STATE BANK, ThirdParty.
No. 202-65.
United States Court of Claims.

January 20, 1967.
Richard H. Nicolaides, Washington, D. C., for plaintiff, Royal Indemnity

Company. William F. Kelly, Washington, D. C., attorney of record;
Richard A. Bartl, Washington, D. C., and Hans W. E. Seltmann, New
York City, of counsel.
Edward L. Metzler, Washington, D. C., with whom was Asst. Atty. Gen.
Barefoot Sanders, for defendant.
Louis S. Papa, Washington, D. C., attorney of record for third party.
Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS,
COLLINS, SKELTON and NICHOLS, Judges.
COWEN, Chief Judge.
Plaintiff, Royal Indemnity Company (hereinafter "Surety"), a Miller Act surety,

claims $38,461.29 in retainages held by the Government pursuant to its contract
with Albert M. Barbato (hereinafter "Contractor"), Surety's principal. Jersey
State Bank (hereinafter "Bank"), contractor's assignee, was brought in as a third
party pursuant to Rule 23 and claims $31,200, plus interest, of the retainages.
Defendant admits that it holds $38,461.29, but seeks to offset $2,213.07, plus
interest, for withholding taxes not paid by Contractor; defendant considers itself
a stakeholder for the balance. Surety and defendant have moved for summary
judgment on their respective claims. The facts are as follows:
On April 12, 1963, Contractor entered into a construction contract1 with the
United States Army Corps of Engineers. On the same day Contractor and
Surety entered into a Miller Act suretyship agreement. Contractor thereafter

commenced work.
3
On May 31, 1963, Contractor, as collateral security for loans to be made by

Bank, assigned to Bank any and all sums due and to become due under the
contract. The assignment complied with the Assignment of Claims Act.2
Between June 3, 1963 and September 2, 1964, Bank made loans to Contractor
for use in performance of the 11030 contract, and all payments received under
the contract during that time were applied to repayment of the loans. However,
principal in the sum of $31,200, plus interest thereon, has not yet been repaid.
That is the sum Bank here claims.
By September 1964, Contractor had completed approximately 98 percent of the

contract but was unable to finish the remainder. The unfinished portion was
deleted from the 11030 contract by a change order and was completed by the
Government; an appropriate change in the contract price was agreed upon,
leaving $38,461.29 in retainages still due.
Beginning November 20, 1964, Surety, pursuant to its Miller Act payment
bond, paid $230,557.20 to Contractor's unpaid laborers and materialmen.
Surety alleges that these payments were for claims for labor and materials used
for the 11030 contract; Bank contends that they were for claims arising under
different contracts.
Defendant admits that it holds $38,461.29 in retainages, but claims an offset of

$2,213.07, plus interest, for taxes which Contractor failed to pay. No issue of
fact exists as to this offset, and defendant has moved for summary judgment.
Surety asserts, however, that its rights to the retainages are superior to
defendant's right of offset, citing, inter alia, Pearlman v. Reliance Ins. Co., 371
U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962). Surety makes the same argument
that we rejected in Barrett v. United States, 367 F.2d 834, 177 Ct.Cl. ___
(1966).3 As we stated in that decision, the claim of the surety is subordinate
and inferior to the right of the United States to set off the amount of taxes owed
it by the contractor against the contract retainages in the hands of the
Government. Defendant's motion for summary judgment on the right to offset
the taxes is granted. There thus remains approximately $36,248.22 for which
defendant is stakeholder and for which Surety and Bank are adverse claimants.
The law has long been settled that the rights of a surety in contract retainages
are superior to those of the contractor's assignee: "the equity of the surety
company is superior to the rights of the bank acquired under an assignment,
whether the surety's rights are derived from the discharge of its liability on a
performance bond or on a payment bond." Nat'l Sur. Corp. v. United States,
133 F.Supp. 381, 383, 132 Ct.Cl. 724, 727 (1955), cert. denied sub nom. First
Nat'l Bank in Houston v. United States, 350 U.S. 902, 76 S.Ct. 181, 100 L.Ed.
793; accord, Henningsen v. United States Fid. & Guar. Co., 208 U.S. 404, 28
S.Ct. 389, 52 L.Ed. 547 (1908); Prairie State National Bank of Chicago v.
United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412 (1896); Nat'l Union
Fire Ins. Co. of Pittsburgh v. United States, 304 F.2d 465, 157 Ct.Cl. 696
(1962); see Pearlman v. Reliance Ins. Co., supra, 371 U.S. at 136, 83 S.Ct. 232;
United Pac. Ins. Co. v. United States, 362 F.2d 805, 808, 176 Ct.Cl. ___
(1966).
8
Bank contends, however, that a proper reading of the Assignment of Claims

Act leads to the conclusion that an assignee has rights in the retainages superior
to those of the surety. That contention has been considered by this court and
rejected. See Nat'l Sur. Corp. v. United States, supra; Newark Ins. Co. v.
United States, 181 F.Supp. 246, 149 Ct.Cl. 170 (1960); Nat'l Union Fire Ins.
Co. of Pittsburgh v. United States, supra. We find no reason to depart from our
prior decisions on this question.
Bank also argues that there must be some sort of formal declaration of the
Contractor's default before the superior rights of the surety arise. That
contention is not supported by the case law. All that is necessary for the surety
to prevail is that the contractor be in default as a matter of fact; and that as a
result of such default, the surety has become obligated to pay under its Miller
Act payment or performance bond. No formal declaration of default is required.
See Prairie State National Bank of Chicago v. United States, supra; Newark
Ins. Co. v. United States, supra.
10
Bank asserts, however, that in any event Surety is not entitled to summary
judgment, because the sums expended by Surety were not for claims arising
under the 11030 contract. Surety in its petition alleged that the sum of $220,470
was paid in settlement of claims arising from the 11030 contract. In an affidavit
attached to its brief, Bank averred that "Deponent [Bank's president] is further
informed and verily believes that the amounts claimed by plaintiff Surety in
this action represent payments made by said Surety on contracts other than * *
*" the 11030 contract. 4 No further facts or supporting documents are set forth.
Surety, as Exhibit I of plaintiff's reply brief, annexes the affidavit of its assistant
secretary whose statement consists of "facts known to me personally and
reflected from official records of the Royal Indemnity Company to which I
have access in the course of my official duties * * *." Affiant further says that
Surety paid $230,557.20 to contract 11030 claimants. As Exhibit II Surety has
attached copies of the drafts used to make such payments. Surety contends that,
under our Rule 64(f), Bank's affidavit and allegations are insufficient to show
the existence of a "genuine issue as to any material fact" and that Surety "is
entitled to a judgment as a matter of law." We agree.
In pertinent part, our Rule 64(f) reads:
11
Supporting and opposing affidavits shall be made on personal knowledge, shall

set forth such facts as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify to the matters stated therein
* * *. When a motion for summary judgment is made and supported as
provided in this rule, an adverse party may not rest upon the mere allegations or
denials of his pleading, but his response, by affidavits or as otherwise provided
in this rule, must set forth specific facts showing that there is a genuine issue for
trial. [Emphasis added.]
12
The language of the rule shows that Bank's averments are insufficient to
present an issue of fact.
13
The rule for summary judgment, both under our Rule 64 and under Rule 56 of
the Federal Rules of Civil Procedure, is that "mere formal denials or general
allegations which do not show the facts in detail and with precision are
insufficient to prevent the award of summary judgment." [Emphasis added.]
Engl v. Aetna Life Ins. Co., 139 F.2d 469 (2d Cir. 1943); accord, e. g., Curtis v.
United States, 168 F.Supp. 213, 144 Ct.Cl. 194 (1958), cert. denied, 361 U.S.
843, 80 S.Ct. 94, 4 L.Ed.2d 81 (1959); Garcia v. United States, 108 F.Supp.
608, 123 Ct.Cl. 722 (1952); Bruce Constr. Corp. v. United States, 242 F.2d 873
(5th Cir. 1957). Bank's averment is at best based on hearsay and is merely a
belief held by Bank's president. But "belief, no matter how sincere, is not
equivalent to knowledge, and * * * the facts set forth in an affidavit in
opposition to a motion for summary judgment must be such as would be
admissible in evidence should they be given from the witness stand during the
trial of a case." Lark v. West, 182 F.Supp. 794, 798 (D.D.C.1960), aff'd, 110
U.S.App. D.C. 157, 289 F.2d 898 (D.C. Cir. 1961), cert. denied, 368 U.S. 865,
82 S.Ct. 114, 7 L.Ed.2d 63.
14
Bank has made no effort to refute the unqualified affidavit of Surety or to

contest the documents supporting the affidavit. Thus, no genuine issue of fact
remains for disposition.
15
Therefore, we hold as follows: (1) Defendant's motion for summary judgment
on its offset of $2,213.07, with interest thereon from July 16, 1965, is granted;
(2) Surety's motion for summary judgment is granted in the amount of the
residue of the contract retainages; (3) Bank is entitled to recover nothing herein
and its cross-petition is dismissed; and (4) the claim of the New York State
Department of Labor, which at one time asserted a claim against the contract
retainages but has failed to appear herein after being duly cited, is forever
barred.
16
The case is returned to the trial commissioner for a determination, pursuant to

Rule 47(c) of the respective amounts defendant and Surety are entitled to
recover in accordance with this opinion.
Notes:
1
DA 30-075-ENG-11030, referred to herein as the "11030 contract."
54 Stat. 1029 (1940), 31 U.S.C. 203 (1964), as modified by 65 Stat. 41

(1951), 41 U.S.C. 15 (1964)
Surety submitted a brief and presented oral argument as amicus curiae

inBarrett.
Affidavit of John T. Stoll, para. 8; see third party's opposition to plaintiff's

motion for summary judgment, p. 6

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371 F.

ROYAL INDEMNITY COMPANY

United States Court of Claims.

Richard H. Nicolaides, Washington, D. C., for plaintiff, Royal Indemnity

Plaintiff, Royal Indemnity Company (hereinafter "Surety"), a Miller Act surety,

Surety entered into a Miller Act suretyship agreement. Contractor thereafter

On May 31, 1963, Contractor, as collateral security for loans to be made by

By September 1964, Contractor had completed approximately 98 percent of the

Defendant admits that it holds $38,461.29 in retainages, but claims an offset of

Bank contends, however, that a proper reading of the Assignment of Claims

Supporting and opposing affidavits shall be made on personal knowledge, shall

Bank has made no effort to refute the unqualified affidavit of Surety or to

Therefore, we hold as follows: (1) Defendant's motion for summary judgment

The case is returned to the trial commissioner for a determination, pursuant to

DA 30-075-ENG-11030, referred to herein as the "11030 contract."

54 Stat. 1029 (1940), 31 U.S.C. 203 (1964), as modified by 65 Stat. 41

Surety submitted a brief and presented oral argument as amicus curiae

Affidavit of John T. Stoll, para. 8; see third party's opposition to plaintiff's

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