Gilliam v. Travelers Indemnity Co., 5690.

• Decision Date: 28 September 1971
• Docket Number: No. 5690.,5690.
• Citation: 281 A.2d 429
• Parties: Gladys GILLIAM, Appellant, v. TRAVELERS INDEMNITY CO., Inc., Appellee.
• Court: D.C. Court of Appeals

Page 429

281 A.2d 429

Gladys GILLIAM, Appellant, v. TRAVELERS INDEMNITY CO., Inc., Appellee.

No. 5690.

District of Columbia Court of Appeals.

Argued May 24, 1971.

Decided September 28, 1971.

Arthur M. Wagman, Washington, D. C., for appellant.

John F. Myers, Washington, D. C., for appellee.

Before FICKLING, GALLAGHER and YEAGLEY, Associate Judges.

GALLAGHER, Associate Judge:

This is an appeal from the grant of summary judgment denying recovery to a homeowner under a bond required by regulations governing the conduct of the home improvement business in the District of Columbia.¹

The following facts are undisputed. Appellant, Gladys Gilliam (plaintiff below), entered into a remodeling contract for the sum of $16,895 with Federal Superior, Inc., then doing business as a home improvement contractor and bonded, as required,² in the amount of $5,000 by appellee, Travelers Indemnity Company, Inc. Work on the building progressed to the point of about two-thirds completion and then stopped, at which point $13,945.13 had been paid by appellant. Shortly thereafter, Harvey F. Greenwell, president and major stockholder of Federal Superior, appeared at appellant's residence and informed her that he could not complete the work on schedule without a final payment; and that if this were made the workmen would appear the following morning and complete the job. Appellant then gave Greenwell a check for $5,068.50, drawn to Federal Superior, making a total of $19,013.63³ which had been paid to the contractor with the work only two-thirds completed.

No workmen appeared in the next few days and it developed that within two days after receiving the check the office of Federal Superior had been closed and Greenwell had absconded, not to be heard from since. Efforts to locate him have been unsuccessful. Appellant later engaged another contractor and the remodeling was completed for the additional sum of $7,290.45.

Appellant filed suit against Federal Superior and appellee in the amount of the bond ($5,000).⁴ A default judgment was entered against Federal Superior, by that time a defunct corporation. A motion for summary judgment was filed against appellee to recover the full amount of the bond. Travelers Indemnity then filed a cross-motion for summary judgment against appellant. The trial court granted the insurance company's motion and denied appellant's, ruling appellant had failed to show that the financial loss was suffered "in connection with the transaction between her and the principal and arising out of a violation of statute or regulation, for which the principal was subject to criminal prosecution by the United States or the District of Columbia."⁵

The central issue is whether the uncontroverted affidavits filed in support of appellant's motion for summary judgment established a valid claim within the coverage of the Home Improvement Licensing Bond. We think they did.

Congress passed the Home Improvement Business Bonding Act⁶ because of a growing pattern of complaints from homeowners in the District who had been victimized by unscrupulous home improvement contractors. It concluded a bond was required of these contractors to insure that they would be financially responsible.⁷ Congress authorized the District Commissioners to promulgate regulations requiring applicants for a license in this field to obtain a bond in order to protect the public against financial loss for failure of the licensee to observe the various laws and regulations relating to the licensee's conduct of his business.⁸ The Commissioners later enacted these regulations.⁹ So far as pertinent, the regulations provide that (a) the surety shall not be required to be responsible for the completion of a home improvement contract, and (b) the surety shall not be liable for any claim "other than a claim for financial loss suffered by a homeowner in connection with the transaction between him and the principal and arising out of a violation of statute or regulation for which the principal was subject to criminal prosecution by the United States or the District of Columbia * * *."¹⁰

We think this is a typical instance where Congress and the Commissioners intended protection of a homeowner by means of a bond. It is undisputed that when the job was two-thirds finished the contractor inveigled the final payment ($5,068.50) from the homeowner and absconded.

The indemnity company contends, principally, that to hold it liable here under the bond would be to construe the bond as a performance bond; and that the regulation (section 2.4(a)) specifically provides that the bond does not require a surety to be responsible for the completion of a home improvement contract. The indemnity company apparently reaches this conclusion by excluding the existence of "a violation of a statute or regulation for which Federal Superior, Inc. or its president, Harvey F. Greenwell, are or were subject to criminal prosecution." (Brief for appellee at 6.) This is where we depart.

The test laid down in the District's regulation "arising out of a violation of statute or regulation for which the principal was subject to criminal prosecution by the United States or the District of Columbia * * *" (emphasis supplied), leaves something to be desired from the standpoint of draftsmanship. Be that as it may, it is our duty to construe it. No legislative intent is apparent on this point.¹¹

We think the reasonable construction of this regulation is that one should be considered "subject to criminal prosecution" in a suit to recover under the home improvement bond if facts appear which in the court's opinion would constitute a prima facie case of a violation of any criminal statute committed in connection with the home improvement contract or, where applicable, a pertinent home improvement regulation violation carrying a criminal penalty.

This leads to whether the conduct of Mr. Greenwell in obtaining the final payment under the contract and not only failing to complete the work hut vanishing with the money meets the test. We not only think it does but consider that home improvement bonds would be a rather empty gesture if they did not cover this aggravated factual situation.

Section 4.14 of the home improvement regulations¹² provides a criminal penalty for the violation of any provision of the home improvement regulations. Consequently, if Greenwell's conduct violated any material provision¹³ of the regulations, he would be "subject to criminal prosecution," and the surety would be liable on the bond.

As we have seen, the prevention of fraudulent practices in connection with home improvement contracts was a primary goal sought by Congress in the Home Improvement Business Bonding Act. In accordance with Congress' basic aim of protecting homeowners from these practices by home improvement contractors, the regulations expressly forbid fraudulent practices by the contractors. This is stated in section 4.11 which enumerates grounds for the denial, suspension, or revocation of a home improvement license. Specifically, paragraph 5 of section 4.11 prohibits:

Employment of any fraudulent or misleading device, method or practice in connection with the negotiation or performance of contract for home improvement work.

This...