Fireman's Fund Ins. Co. v. Joseph J. Biafore, Inc.

Decision Date24 November 1975
Docket NumberNo. 75--1335,75--1335
Citation526 F.2d 170
Parties18 UCC Rep.Serv. 519 FIREMAN'S FUND INSURANCE COMPANY v. JOSEPH J. BIAFORE, INC., et al., Appellants.
CourtU.S. Court of Appeals — Third Circuit

Henry B. Fitzpatrick, Jr., Philadelphia, Pa., for appellants; Liebert, Short, Fitzpatrick & Lavin, Philadelphia, Pa., of counsel.

Paul J. Donnelly, Philadelphia, Pa., for appellee.

Before HASTIE, VAN DUSEN and HUNTER, Circuit Judges.

OPINION OF THE COURT

VAN DUSEN, Circuit Judge.

This action is based on a May 19, 1965, General Indemnity Agreement entered into between the plaintiff-appellee, Fireman's Fund Insurance Company (Fireman's), and Bethlehem Concrete Corporation, as well as the defendants-appellants, Joseph and Helen Biafore, President and Secretary-Treasurer, respectively, of the corporate defendants-appellants, Joseph J. Biafore, Inc. and Bidi, Inc. Plaintiff executed certain performance, and labor and material, bonds as surety for Bethlehem Concrete Corporation, principal, in three construction contracts at the request of defendants and Bethlehem Concrete. The above agreement of May 19, 1965, indemnified plaintiff against all liability, loss, costs, damages, fees of attorneys and other expenses it might incur in consequence of the execution of said bonds.

Subsequent to entering into the agreement, plaintiff learned that Bethlehem Concrete was financially unsound. Plaintiff then set up reserves in the amount of $25,000 and, pursuant to the Indemnity Agreement, directed defendants to deposit a like sum. Defendants did not comply. Thereafter, on August 1, 1966, Bethlehem Concrete executed an assignment of certain accounts receivable and certain assets to plaintiff.

On August 9, 1966, plaintiff filed financing statements with the Secretary of the Commonwealth of Pennsylvania and the Recorder of Deeds of Northampton County. Thereafter, tax liens were filed against Bethlehem Concrete by the Commonwealth and by the Federal Government. Upon the filing of the federal tax lien, Bethlehem Concrete ceased performance of its contracts. Pursuant to its obligation under the Indemnity Agreement, defendants completed work contracted by Bethlehem Concrete under the above construction contracts.

On July 27, 1967, Bethlehem Concrete was adjudicated a bankrupt. At the bankruptcy proceedings, the referee entered an order invalidating plaintiff's security interest in the accounts receivable and equipment of Bethlehem Concrete by reason of its failure to perfect such security interest by properly filing a financing statement with the Prothonotary of Northampton County, rather than the Recorder of Deeds, as required by 12A P.S. § 9--401(1) (c). This order was affirmed by the district court, In the Matter of Bethlehem Concrete Corporation, 306 F.Supp. 1047 (E.D.Pa.1969).

As a result of the failure of Bethlehem Concrete to perform its contracts and make payment for labor and materials, Fireman's paid claims in the amount of $45,868.70. Plaintiff commenced this diversity action against defendants to recover on the Indemnity Agreement in March 1973.

Fireman's motion for summary judgment was granted by the district court on November 1, 1974. The Memorandum and Order were silent as to the amount of damages, including interest, to be awarded plaintiff. See Fireman's Fund Insurance Co. v. Joseph J. Biafore, Inc., 385 F.Supp. 616 (E.D.Pa.1974). 1 On February 5, 1975, the district court entered an order decreeing that plaintiff shall recover from defendants the sum of $60,839.97, consisting of $41,938.31 as principal and $18,901.66 as interest. Notice of appeal was filed with the district court on February 27, 1975. Thereafter plaintiff moved this court to dismiss the appeal.

I.

Initially plaintiff contends that its motion to dismiss the appeal must be granted because the February 27, 1975, notice of appeal did not constitute a timely challenge to the November 1, 1974, district court order, 2 which plaintiff contends was a final order under 28 U.S.C. § 1291. The above-mentioned order contained this language:

'. . . IT IS ORDERED that the plaintiff's motion for summary judgment is GRANTED with leave to counsel to submit such further order as may be required.'

Because we have concluded that the November 1, 1974, order was not a final order under 28 U.S.C. § 1291 and that the district court order of February 5, 1975, 3 was a final, appealable order, we will deny the motion to dismiss the appeal.

Plaintiff contends that because a contract cause of action is the basis of the suit and only the computation of interest at 6% Was involved, the calculation of the damages was only a matter of mathematical computation, citing 9 Moore's Federal Practice $110.06--110.15 and cases such as Gillespie v. United States Steel Corp., 379 U.S. 148, 152, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964), and Pioche Mines Consolidated, Inc. v. Fidelity-Philadelphia Trust Co., 191 F.2d 399 (9th Cir. 1951). On the other hand, defendants rely on cases such as Cobbledick v. United States, 309 U.S. 323, 60 S.Ct. 540, 84 L.Ed. 783 (1940); Catlin v. United States, 324 U.S. 229, 65 S.Ct. 631, 89 L.Ed. 911 (1945), and City of Louisa v Levi, 140 F.2d 512, 514 (6th Cir. 1944). The record shows that after entry of the November 1, 1974, judgment order, plaintiff filed a motion to enter judgment, 4 and such motion was opposed by defendants, who filed an answer and memorandum 5 regarding the amount of interest to which plaintiff was entitled. It was only after the submission of a reply 6 by plaintiff-appellee to defendants-appellants' memorandum that the district court entered the February 5, 1975, order determining that plaintiff shall recover a total of $60,839.97, consisting of $41,938.31 as principal and $18,901.66 as interest. See Russell v. Barnes Foundation, 136 F.2d 654 (3d Cir. 1943); Western Geophysical Company of America v. Bolt Associates, Inc., 463 F.2d 101, 102--03 (2d Cir. 1972); 6 Moore's Federal Practice (2d Ed.) $56.20(4) at 2762--65. 7 In the Russell case, this court said at page 655:

'. . . the order appealed from, although it determines the liability of the defendant to the plaintiff, will not become a final adjudication of the controversy between them until the damages to which the plaintiff is entitled have been assessed.'

From the foregoing it is clear that the November 1, 1974, order did not and could not have disposed of the entire controversy without at least a subsequent agreement by counsel as to the amount of interest payable. 8

II.

Defendants' principal contention on the merits is that the plaintiff's failure to perfect its security interest in the accounts receivable of Bethlehem Concrete precludes the entry of summary judgment in its favor and requires the reduction of their liability under the Indemnity Agreement by such amount. Section 132 of the Restatement of Law of Security (1941), which has been adopted by the courts of Pennsylvania, is the basis for their contention. The section provides as follows:

'Where the creditor has security from the principal and knows of the surety's obligation, the surety's obligation is reduced pro tanto if the creditor (a) surrenders or releases the security, or (b) wilfully or negligently harms it, or (c) fails to take reasonable action to preserve its value at a time when the surety does not have an opportunity to take such action.'

Plaintiff, on the other hand, argues that the language of the Indemnity Agreement creates an unconditional guarantee and removes this case from the purview of § 132 of the Restatement.

A similar issue was considered by a Pennsylvania appellate court in Continental Leasing Corp. v. Lebo, 217 Pa.Super. 356, 272 A.2d 193 (1970). In that case a contract was entered into between a financing company and a supplier of restaurant equipment to guarantee payment for the leasing of such equipment to a third party. The court found the guarantee agreement unconditional in nature, and as such, the failure of the financing company to perfect a security interest in collateral taken for its loan to the principal debtor did not release the guarantors from their obligations. Judge Montgomery used this language in stating the holding of the case as follows, at 197 of 272 A.2d:

'We . . . agree with the conclusion . . . that an unconditional guaranty is one whereby the guarantor agrees to pay or perform a contract on default of the principal without limitation. It is an absolute undertaking to pay a debt at maturity or perform an agreement if the principal does not pay or perform. . . .

'Therefore, we hold that the present situation is not one that falls within Restatement of the Law of Security, § 132, which was relied on by the lower court; and that the allowance of $3,300 to Universal for the lost goods was error.'

The Continental Leasing decision is instructive as to those factors we must review in determining whether the guaranty agreement in the instant case is conditional or unconditional--the terms of the guaranty contract and the circumstances surrounding the transaction which induced the entering into of a guaranty arrangement. 9 Turning to the pertinent language of the agreement in question, we find in paragraph 10:

'10. The liability of the Indemnitors hereunder shall not be affected by the failure of the Principal to sign any such bond nor by any claim that other indemnity or security was to have been obtained, nor by the release of any indemnity, or the return or exchange of any collateral that may have been obtained; and if any party signing this instrument is not bound for any reason, this obligation shall still be binding upon each and every other party.' (Emphasis ours.)

and in paragraph 15:

'15. We agree that our obligation hereunder shall be continuous; provided, however, that any one of us may give the Company not less than thirty days written notice by registered mail of his desire to terminate this agreement but any such notice...

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