Fox-Greenwald Sheet Metal Co. v. Markowitz Bros., Inc.

• Citation: 452 F.2d 1346
• Decision Date: 12 October 1971
• Docket Number: No. 23160.,23160.
• Parties: FOX-GREENWALD SHEET METAL CO., Inc. v. MARKOWITZ BROS., INC., Continental Casualty Co., Blake Construction Co., Inc., Appellant, United States of America.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

452 F.2d 1346 (1971)

FOX-GREENWALD SHEET METAL CO., Inc. v. MARKOWITZ BROS., INC., Continental Casualty Co., Blake Construction Co., Inc., Appellant, United States of America.

No. 23160.

United States Court of Appeals, District of Columbia Circuit.

Argued March 5, 1970.

Decided October 12, 1971.

COPYRIGHT MATERIAL OMITTED

Mr. Robert D. Roadman, with whom Mr. Marshall E. Miller, Washington, D. C., was on the brief, for appellant.

Mrs. Janet R. Spragens, Atty., Department of Justice, with whom Asst. Atty. Gen. Johnnie M. Walters, Messrs. Thomas A. Flannery, U. S. Atty., Lee A. Jackson and Crombie J. D. Garrett, Attys., Department of Justice, were on the brief, for appellee United States of America. Mr. Fred B. Ugast, Atty., Department of Justice, also entered an appearance for appellee United States of America.

Before ROBINSON, MacKINNON and ROBB, Circuit Judges.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

This is a contest between the United States (the Government) and Blake Construction Company, Inc. (Blake), intervenors during the tenure of this litigation in the District Court. Both are creditors of Fox-Greenwald Sheet Metal Company (Fox-Greenwald) with competing claims to monies paid into the registry of the court in satisfaction of a judgment in favor of Fox-Greenwald against Markowitz Brothers (Markowitz) and Continental Casualty Company (Continental). The District Court awarded the fund in issue to the Government.¹ Blake, on this appeal, protests that it held the superior claim. We agree, and accordingly reverse the award.

I

Blake was the prime contractor selected by the General Services Administration for construction in the 1960s of a building complex for the National Bureau of Standards at Gaithersburg, Maryland. Blake engaged Markowitz as its mechanical subcontractor for the project and Markowitz, in turn, contracted with Fox-Greenwald for the performance of the sheet metal work.

In August, 1963, facing difficulties in meeting its payroll,² Fox-Greenwald asked Blake for a $50,000 loan. To this Blake agreed, but on condition that it be given a $50,000 promissory note to evidence the transaction and, as security for payment of the note, an assignment of all monies due and to become payable to Fox-Greenwald under its contract with Markowitz.³ Aware that Fox-Greenwald had covenanted in the contract against such an assignment without Markowitz' prior written consent,⁴ Blake contacted Markowitz in order to ascertain its position. Over the telephone, Markowitz' president gave an unqualified consent to the assignment, and in reliance thereon Blake consummated the loan. It is clear from the evidence that but for that conversation, Blake would not have made the loan.⁵

Blake remitted $20,000 to Fox-Greenwald on August 15, and the remaining $30,000 on August 27, 1963. On the latter date, Fox-Greenwald delivered to Blake a promissory note in the sum of $50,000 payable 60 days thereafter, and executed an assignment of all monies forthcoming from Markowitz under the contract.⁶ Markowitz, however, never reduced its previous oral consent to writing. After closing the loan Blake repeatedly requested Markowitz to do so, and after two months discontinued what seemed to be an exercise in futility. The note matured on October 26, 1963, and Fox-Greenwald had paid only $500 on it. In 1964, Blake brought an action⁷ on the note in the District Court to recover the balance of principal and interest due.⁸ That suit remained pending at the time the court resolved the conflicting claims of Blake and the Government to the fund arising in the case at bar.⁹

In February, 1964, Markowitz terminated its contract with Fox-Greenwald and refused to make further payments on it. Shortly thereafter, Fox-Greenwald filed suit in the District Court against Markowitz and Continental, its surety, for breach of contract. A jury awarded Fox-Greenwald a verdict and the judgment entered on the verdict was affirmed by this court on appeal.¹⁰ Continental, on August 20, 1968, paid the amount of the judgment into the registry of the District Court,¹¹ and three claimants promptly intervened.¹² One was paid in full,¹³ and because the residue of the fund is too small to satisfy the aggregated claims of the other two, the dispute now before us ripened.¹⁴

The two claimants remaining are Blake, asserting the assignment from Fox-Greenwald of the amounts due it from Markowitz, and the Government, endeavoring to enforce unsatisfied tax liens filed against Fox-Greenwald after the assignment.¹⁵ Under the law then in force,¹⁶ the tax liens took precedence over Blake's claim if the assignment did not elevate it to a secured status;¹⁷ otherwise, as the Government appears to concede, the claim outranked the subsequently-filed tax liens.¹⁸ Thus priority between the Government and Blake to the fund depended upon the validity and enforceability of the assignment.¹⁹ The District Court held that the antiassignment clause in Markowitz' contract with Fox-Greenwald, coupled with Markowitz' refusal to furnish a written consent, rendered the assignment ineffective against the Government, and that in any event the statute of limitations barred its enforcement.²⁰ We think the District Court erred on both points.

II

In asserting its claim of priority to the in-court fund, Blake does not challenge the validity of the nonassignability clause contained in Markowitz' contract with Fox-Greenwald.²¹ Blake argues, rather, that as a matter of proper interpretation of the clause, only Markowitz could insist upon its observance. In that position Blake finds solid support in the decisions.

Judicial holdings sustain overwhelmingly the proposition that a contractual ban on assignment ordinarily serves to protect the obligor alone, and in no way imperils the transaction as between assignor and assignee.²² "Where a term in a contract prohibits assignment and is not rendered ineffective by statute or otherwise, the term is to be construed, unless a different intention is manifested, * * * to be for the benefit of the obligor, and not to prevent the assignee from acquiring rights against the assignor. * * *"²³ The obligor, of course, may gain from a valid and unwaived nonassignability provision the prerogative to resist or even nullify the assignment.²⁴ That does not mean, however, that the assignee cannot compel the assignor to stand by his bargain where the obligor has not seen fit to interfere.²⁵ And perhaps nowhere has the rule that an assignment offending such a provision normally binds the assignor to the assignee seen greater application than where the assigned claim was for monies due or to become due under a contract.²⁶

The District Court recognized these principles for the most part. "If," said the court, "this proceeding were merely to decide any claim to the fund as between Blake and Fox-Greenwald, the rights, so far as the assignment is concerned, would be with Blake, notwithstanding failure of Markowitz to execute a written consent to it."²⁷ Referring to some of the precedents, however, the court felt that "these cases are authority to sustain the validity between the parties of the assignment in question,"²⁸ but that "they do not sustain a priority claim against a subsequent judgment lien."²⁹ "In this case," the court concluded, "the rights of the United States have intervened by reason of the tax liens which were filed"³⁰ and "the lien of the United States is superior to the claim of Blake and must be enforced by payment from the registry of the court to the extent that such fund is available in amount."³¹

We cannot readily share the District Court's view that the Government's tax lien on the monies due Fox-Greenwald by Markowitz prevails over the security lien which the assignment purported to confer upon Blake. Surely that view encounters formidable difficulties when examined in light of the principles which underlie the canon favoring inter-parties validity of assignments contractually forbidden. There is not the slightest whisper in the record of an intention to benefit anyone but Markowitz by insertion of the antiassignment provision in its contract with Fox-Greenwald. By the same token, Fox-Greenwald's assignment to Blake, though in contravention of that prohibition, was not void on that account; it was, as we have said, valid and binding as between Blake and Fox-Greenwald, subject at most to such rights as Markowitz had and might assert under the nonassignability clause.³² The important consideration is that only Markowitz could avail itself of that option; third parties could gain naught from it. That is evident from cases wherein the offending assignment was upheld, not only as between the assignor and the assignee, but against creditors of the assignor as well.³³ But the District Court's decision permitted the Government, as a creditor of Fox-Greenwald, to upset a transaction Fox-Greenwald itself was powerless to disturb, and to defeat an assignment indefeasible at the instance of Fox-Greenwald. It likewise permitted the Government, whose rights to the monies were derivative through Fox-Greenwald, to gain priority over Blake to whose rights by assignment Fox-Greenwald's own interest in the monies was subordinate.³⁴

III

Were we called upon to make an independent determination of the effect of the antiassignment clause upon the assignment to Blake, we would unhesitatingly follow the course of judicial decision heavily prevailing across the Nation. The canonical rule that, absent manifestation of a broader purpose, such a clause will be construed as protection for the obligor only, appeals to us as an accurate reflection of what the parties very probably intended. Obligors naturally shy away from the prospect of conflicting claims and the specter of double liability; they may well be interested in the obligee's personal performance and apprehensive about any material change in duties in that regard. These are the concerns usually dictating inclusion...