SNS Contractors v. Algernon Blair, Inc.
| Decision Date | 25 January 1990 |
| Docket Number | No. 89-3091,89-3091 |
| Citation | 892 F.2d 430 |
| Parties | SNS CONTRACTORS, Plaintiff, v. ALGERNON BLAIR, INC., and United States Fidelity and Guaranty Co., Defendants Third Party Plaintiffs-Appellees, Cross-Appellants, v. CARTERET SAVINGS BANK F.A., Third Party Defendant-Appellant, Cross-Appellee. FISCHBACH AND MOORE, INC., Plaintiff, v. ALGERNON BLAIR, INC., et al., Defendants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John M. Landis, Marcus V. Brown, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., for third party defendant-appellant, cross-appellee.
Robert L. Redfern, Paul J. McMahon, III, New Orleans, La., for defendants third party plaintiffs-appellees, cross-appellants.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before THORNBERRY, GARWOOD, and DUHE, Circuit Judges.
Carteret Savings Bank, F.A., ("Carteret"), third-party defendant/appellant, appeals a judgment holding it liable to Algernon Blair, Inc. ("Blair"), defendant/appellee, on Blair's third-party claim for sums due pursuant to the assignment of a construction contract. We affirm the district court judgment.
Blair, as general contractor, entered into a construction contract on June 12, 1985, with Three Lakeway Center Partnership ("Three Lakeway"), as owner, for the construction of a hotel and office complex in Metairie, Louisiana. Carteret agreed to make a construction loan of $82 million to Three Lakeway, with participation in the loan by other lenders. The loan was secured by numerous items of security, including a $90 million collateral mortgage on the project. Another required item of security was a collateral assignment ("Collateral Assignment") by Three Lakeway to Carteret of Three Lakeway's rights and interests under its construction contract with Blair. In section 6 of the Collateral Assignment, Carteret conveyed back to Three Lakeway a license to exercise all rights under the construction contract (which were now assigned to Carteret) so long as Three Lakeway did not default on its obligations under the loan agreement. Section 7 of the Collateral Assignment allowed Carteret to terminate the license upon default by Three Lakeway, and thereafter to exercise all of Three Lakeway's rights under the construction contract.
As a condition precedent to Carteret's advance of funds to Three Lakeway under the loan agreement, Carteret obtained Blair's consent to abide by the Collateral Assignment in a document entitled "Contractor's Consent and Certification" ("Contractor's Consent"). In section 3 of the Contractor's Consent, Blair agreed to obtain prior written consent from Carteret before agreeing to any change in the construction contract or any change order with subcontractors, to notify Carteret of any In the event that Borrower defaults under the Loan Agreement and does not cure the default within the time thereby allowed, or if there is a foreclosure on the mortgage securing the payment of the Loan, or if the Borrower becomes insolvent, the Contractor will, at the election and option of the Lender, and provided further that Lender continues to make disbursements to Contractor in accordance with the terms of the Construction Contract, complete its obligations under the Construction Contract with respect to the construction of the improvements for a contract price calculated pursuant to the Construction Contract for the benefit of and with no additional charge or expense to Lender, its nominee or wholly owned subsidiary, it being agreed that such contract price shall in no event exceed the maximum contract price stipulated in Section 2(iii) hereof. Notwithstanding the above, in the event of any default by Borrower under the Loan Agreement, Lender agrees that the Contractor shall be paid for the work done by it up to the date of such default and termination of the Construction Contract by Lender, including a pro-rata share of its construction fee and retainage.
default by Three Lakeway under the construction contract, and to refrain from terminating the construction contract unless Carteret failed to remedy such default by Three Lakeway within sixty days. Additionally, section 3(d) provided
(Emphasis added.) Blair's claim against Carteret rests upon the italicized portion of this provision.
The parties established an arrangement for disbursement of the loan proceeds. Section 2.1 of the loan agreement provided that Carteret would make periodic advances of the loan proceeds to Three Lakeway upon Three Lakeway's written requests. Section 16.6 of the construction contract provided that Blair would submit monthly payment requests to the architect for approval, who would forward them to Three Lakeway for payment. Three Lakeway arranged for Carteret to transfer Blair's portion of the disbursements directly to Blair.
Blair substantially completed construction of the project and obtained certificates of substantial completion for the two phases of construction on March 27, 1987, and September 14, 1987. After September, Carteret made two of its regular monthly loan advances directly to Blair pursuant to Three Lakeway's authorization. Three Lakeway withdrew its authorization for direct payments to Blair in November or December and requested that Carteret make subsequent loan advances to it rather than Blair. Blair requested its final payment in the amount of $1,498,304.00 on January 20, 1988, and the architect submitted its approval for this payment to Three Lakeway on February 2, 1988. Stephen A. Cole, a vice president of Carteret, testified that Carteret did not make the loan advance that would have covered the final payment due to Blair because Carteret and Three Lakeway disagreed as to the amount of a credit due Three Lakeway under the final change order. The parties agreed at trial that the figure of $1,498,304.00 represented the value of the work actually done by Blair for which Blair had not yet been paid.
The loan from Carteret to Three Lakeway matured on December 14, 1987. Carteret claims it never declared Three Lakeway in default before maturity, although in September 1987, Carteret became aware that Three Lakeway was experiencing financial difficulties and had insufficient funds to complete full construction of the building. Blair, however, was not aware of Three Lakeway's financial difficulties at that time. Carteret negotiated unsuccessfully with the participating lenders from October 1987 to the end of January 1988 in an attempt to modify and extend the construction loan. At the time of maturity two line item overruns were still unresolved, and Three Lakeway was without funds to resolve them. Carteret finally called in the loan and Three Lakeway filed bankruptcy in February 1988.
SNS Contractors, Inc., and Fischbach and Moore, Inc., two subcontractors After a bench trial on December 12, 1988, the district court entered judgment against Blair in favor of SNS Contractors for $93,536.55 and in favor of Fischbach and Moore for $145,472.20, plus interest. The district court entered judgment for Blair and against Carteret on the third-party claim in the amount of $1,498,304.00, the outstanding principal balance owed to Blair for work performed on the project. Blair also sought early completion bonuses and reimbursement for additional expenses for delays allegedly caused by Three Lakeway pursuant to the construction contract, but the district court denied these on the ground that the language of the Contractor's Consent indicated that Carteret did not obligate itself to pay for such amounts. That ruling on bonuses and expenses for delay is not before us on appeal. Before us is Carteret's appeal of the judgment on the third-party claim, holding Carteret liable to pay for the work performed by Blair.
brought separate actions in late February 1988 against Blair and the United States Fidelity and Guaranty Company (the surety that issued Blair's payment and performance bonds for the project) in Louisiana state court for sums still owed under their subcontracts. Blair removed the actions to the United States District Court for the Eastern District of Louisiana. Blair then filed a third-party complaint against Carteret, alleging that Carteret owed Blair money pursuant to the Collateral Assignment and the Contractor's Consent. The two cases were consolidated
Carteret first argues that the Collateral Assignment and the Contractor's Consent together constitute a suretyship agreement under Louisiana law, and that federal law prohibits a federally chartered savings bank from becoming a surety outside certain limitations specified in federal regulations. See 12 U.S.C. § 1464(b)(2); 12 C.F.R. § 545.103 (1989). Carteret asserts that the transaction in this case falls outside those limitations, and therefore the suretyship is ultra vires and unenforceable.
The district court expressly held that the agreements at issue did not create a suretyship. Since a question of contract interpretation is a matter of law, this court is not bound by the clearly erroneous standard of review in Fed.R.Civ.P. 52(a), but may interpret the contract language by its own independent examination. In re Stratford of Texas, Inc., 635 F.2d 365, 368 (5th Cir.1981). After independently examining the agreements in this case, we agree that Carteret's obligation is not a suretyship. Therefore, we do not reach Carteret's argument that a suretyship would be ultra vires under federal regulations.
Under Louisiana law, a suretyship is "an accessory contract by which a person binds himself to a creditor to fulfill the obligation of another upon the failure of the latter to do so." La.Civ.Code Ann. art. 3035 (West Supp.1989). "A contract is accessory when it is made to provide security for the performance of an obligation." La.Civ.Code Ann. art. 1913 (West 1987).
We do not think the documents executed by the parties create a suretyship because...
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