Duke v. Reconstruction Finance Corp.

• Decision Date: 04 January 1954
• Docket Number: No. 6697.,6697.
• Citation: 209 F.2d 204
• Parties: DUKE et al. v. RECONSTRUCTION FINANCE CORP. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

209 F.2d 204 (1954)

DUKE et al. v. RECONSTRUCTION FINANCE CORP. et al.

No. 6697.

United States Court of Appeals Fourth Circuit.

Argued November 12, 1953.

Decided January 4, 1954.

Wilson K. Barnes and Joseph Loeffler, Baltimore, Md. (William Hoffenberg and Harry E. Goertz, Baltimore, Md., on brief), for appellants.

Norman P. Ramsey and A. Frederick Taylor, Baltimore, Md. (Bradley T. J. Mettee, Jr., Semmes, Bowen & Semmes, Gordon & Feinblatt and David P. Gordon, Baltimore, Md., on brief), for appellees.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

Reconstruction Finance Corporation (hereinafter called R. F. C.) instituted a civil action against the defendants, Milton Duke and Morton L. Kemper, officers of the Bond Construction Corporation, (hereinafter called Bond), to recover on a contract of guaranty executed by Duke and Kemper, in order to secure a loan in the amount of $71,500, which R. F. C. agreed to make to Bond in furtherance of Bond's completion of a sub-contract which it had entered into on January 6, 1944, with the main contractor, Victor Frenkil, trading as Baltimore Contractors, Inc. The main contract was for the construction of a reservoir for the District of Columbia at Fort Stanton, Virginia.

In accordance with its loan agreement, R. F. C. made various disbursements to Bond aggregating $54,450 and was repaid $27,889.82. R. F. C. also realized on collateral, so that the net balance due on the loan was $25,840.32. On October 10, 1945, the original defendants voluntarily defaulted on their sub-contract, as a result of which Frenkil proceeded with the contract. R. F. C. sought a recovery on the guaranty contract against Duke and Kemper for this balance, $25,840.32, plus interest.

On June 22, 1951, the defendants, Duke and Kemper, moved to join the main contractor, Frenkil, and his company, as third party defendants in the present suit, alleging breach of their sub-contract with the defendants and fraud in connection with this sub-contract. On July 10, 1951, Frenkil and his company moved to dismiss this third party complaint. The District Court denied this latter motion. On October 31, 1951, the third party defendants moved to bring into the case as fourth party defendants, John S. Mahle, receiver of the defendants' company, Bond, and also the United States Casualty Company, which issued performance and payment bonds for the defendants. This motion was granted.

Answers by these other parties were filed and the receiver of Bond asserted a counter-claim against Frenkil and R. F. C. on account of Frenkil's alleged fraudulent failure to pay the sums to which he, as receiver of Bond, allegedly was entitled. The receiver also sought a determination of his rights against Frenkil and an adjudication of the legal status of R. F. C. and Bond by reason of the latter's assignment, executed at the same time as the contract of guaranty to R. F. C. as security for R. F. C.'s loan to Bond of all payments due or to become due from the main contractor, Frenkil, under Bond's sub-contract.

The District Judge wrote two opinions in this case. The first opinion, which we shall now consider, dealt with the liability of Duke and Kemper, on the contract of guaranty. Judgment, on this contract, was duly entered in favor of R. F. C. against Duke and Kemper, the guarantors. Appeal has been duly taken to us.

One defense of the guarantors, Duke and Kemper, was that there had been an alteration of the loan authorization subsequent to the submission by R. F. C. of all the papers to these defendants. On this point, the District Judge stated:

"While some parts of the evidence are not free from doubt, I reach the conclusion that the weight of the credible evidence does not justify this Court in saying affirmatively that there was any change in the loan authorization subsequent to submission of all of the papers to the defendants."

This is, of course, a pure question of fact. After a review of the record, we cannot say this finding is clearly erroneous, so we must uphold it. The paper alleged to have been altered was a R. F. C. document in no way requiring the signature of the borrower or the guarantors. It was a resolution of the lending agency's review committee laying down the conditions of the loan. The record adequately supports the finding that the change was clearly made before the document left the agency and that the document was never before the guarantors without the addition. See, Knapp v. Imperial Oil Co., 4 Cir., 130 F.2d 1; Rule 52(a), Federal Rules of Civil Procedure, 28 U.S.C.A.

Duke and Kemper filed an answer in which the following defenses were also raised:

(a) That R. F. C. failed to act reasonably and properly to compel Frenkil to make payments under the assignment from Bond to R. F. C. heretofore referred to, thereby causing the guarantors to be held liable for the unpaid balance of the obligation although Frenkil might have been held.

(b) Laches on the part of R. F. C. for failing to proceed against Frenkil promptly thereby prejudicing Duke and Kemper.

(c) Gross negligence and wilful conduct by R. F. C. by acquiescence in and failing to prevent Frenkil's alleged fraud on Bond.

Duke and Kemper thus urge that a practically unconditional guaranty of payment is discharged because the R. F. C. did not diligently enforce its rights or supposed rights against collateral security additional to the guaranty held to secure the note of the Debtor. The argument of the guarantors is directly contrary to both the law of guaranty and the documents which control in this case.

In connection with this point it is well to note the specific provisions of the guaranty in question that R. F. C. "shall not be required, prior to any such demand on, or payment by the undersigned (guarantors) to make demand upon or pursue or exhaust any of its rights or remedies against the Debtor or others with respect to the payment of any of the Liabilities, or to pursue or exhaust any of its rights or remedies with respect to any part of the collateral." This is a spelling out by the parties of precisely the legal effect of an unconditional guaranty.

Another important portion of the guaranty bearing on the asserted defenses is the language found in the section of the guaranty granting R. F. C. powers to deal with the collateral and the underlying obligation, which provided as follows:

"The undersigned (Duke and Kemper) hereby grants to Reconstruction Finance Corporation full power, in its uncontrolled discretion * * * to deal in any manner with the Liabilities and the collateral, including, but without limiting the generality of the foregoing, the following powers:

* * * * * *

"(e) In the event of nonpayment when due * * * of any of the Liabilities, * * * to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Reconstruction Finance Corporation may elect * * * or to forbear from realizing thereon, all as Reconstruction Finance Corporation in its uncontrolled discretion may deem proper * * *." (Italics supplied.)

The paragraph then provides:

"The obligation of the undersigned (Duke and Kemper) shall not be released, discharged or in any way affected * * * by reason of any action the Corporation may take or omit to take under the foregoing powers." (Italics supplied.)

These provisions of the guaranty confer on R. F. C. the right to determine whether or not to pursue such rights in the discretion of R. F. C.

In the light of these provisions, we think the District Judge correctly ruled that these defenses were lacking in merit. See, Merchants National Bank v. Stone, 296 Mass. 243, 5 N.E.2d 430; Hodgson v. Burroughs, 175 Md. 413, 2 A.2d 407; Continental Oil Co. v. Horsey, 175 Md. 609, 3 A.2d 476; 24 Am.Jur. 885, 38 C.J.S., Guaranty, § 61, p. 1217; Stearns, Law of Suretyship, Elder's Revision (5th Ed.1951) 65.

An examination of the guaranty shows that no condition is attached to the document with respect to the obtaining by R. F. C. of an apportionment agreement. The argument that R. F. C. was required to obtain such an agreement is an attempt to add to a written guaranty contract by parole.

The contract of guaranty in this case was a...