Vineberg v. Brunswick Corporation

• Decision Date: 04 April 1968
• Docket Number: No. 24028.,24028.
• Citation: 391 F.2d 184
• Parties: Harold VINEBERG and Peter DeMet, Appellants, v. BRUNSWICK CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

391 F.2d 184 (1968)

Harold VINEBERG and Peter DeMet, Appellants, v. BRUNSWICK CORPORATION, Appellee.

No. 24028.

United States Court of Appeals Fifth Circuit.

March 4, 1968.

Rehearing Denied April 4, 1968.

Daniel Neal Heller, Miami, Fla., for appellants.

Paul R. Larkin, Jr., James E. Tribble, Miami, Fla., for appellee.

Before BROWN, Chief Judge, SIMPSON, Circuit Judge, and SUTTLE, District Judge.

SIMPSON, Circuit Judge:

On April 11, 1961, Brunswick, the Plaintiff below, and Sky Bowl, Inc., a Florida corporation, entered into a conditional sales contract whereby Brunswick would sell to Sky Bowl, Inc., thirty-two Brunswick automatic pinsetters. Harold Vineberg and Peter DeMet, defendants below, were directors of Sky Bowl, Inc. Subsequently, Brunswick entered into a similar contract with Congress Lanes, Inc., a Florida corporation, of which Vineberg and DeMet were also directors.

On August 26, 1963, Vineberg and DeMet executed two promissory notes in favor of Brunswick, the terms of which are set forth in the margin.¹

The corporations, Sky Bowl, Inc. and Congress Lanes, Inc., defaulted on the payment of the installments specified in the notes. No payments were received by Brunswick from the corporations after November 21, 1962. On default by the corporations, Brunswick sought payment of the notes executed by Vineberg and DeMet. No payments were made by Vineberg and DeMet and suit was filed by Brunswick. Summary judgment was granted in favor of Brunswick for the amount of the notes plus interest. We reverse.

The points raised on this appeal are: (1) whether the promissory notes are rendered null and void by virtue of the confession of judgment clause, (2) whether the notes constituted guaranties or third party beneficiary contracts, (3) whether parol evidence in the form of affidavits of Vineberg and DeMet should have been admitted for the purpose of revealing or explaining latent ambiguities in the notes, (4) whether there had been a valid election of remedies on the part of Brunswick under the conditional sales contracts by obtaining or repossessing the pinsetters, and (5) whether Vineberg and DeMet have a right of set-off of the dollar value of the pinsetters against the face amount of the notes.

In granting Brunswick's motion for summary judgment the court below decided that the confession of judgment clauses were void but severable from the substantive portions of the notes; thus, not affecting the ultimate issue of liability. The court further found that the notes were third party beneficiary contracts rather than contracts of guaranty, and that the notes were "free from any latent ambiguity which would necessitate the introduction of parol evidence to establish the intentions of the parties." The court concluded that a decision was not required with reference to issues (4) and (5). On this appeal we deal only with issues (1) through (3).

In the court below the defendants urged that Florida law was controlling in interpreting the terms of the notes. The plaintiff argued that Illinois law controlled, relying primarily on the last sentence of the notes to the effect that the notes are "to be construed and interpreted according to the laws of the State of Illinois." The order of the court below does not reveal that a decision was ever reached with respect to this question. Now on appeal it is apparent from the briefs and from our independent research that there is neither any Florida nor Illinois authority directly in point, and we need not reach the conflict of laws in question.

I.

The district court held that the confession of judgment clauses² were void under applicable Florida law,³ but severable as previously mentioned. The district court relied on the well known principle of contract law that an illegal contract provision, or one contrary to public policy, when invalidated, will be severed from the remainder of the contract if it is possible to do so without leaving the remainder of the contract meaningless. Local No. 234 of United Association of Journeymen and Apprentices etc. v. Henley and Beckwith, Inc., Fla.1953, 66 So.2d 818; Simpson v. Fuller, 114 Ind.App. 583, 51 N.E.2d 870 (1943); and 111 A.L.R. 1407, 1411 and cases therein cited. We agree with the lower court and affirm as to this point.

The case of Pearson v. Friedman, Fla. App.1959, 112 So.2d 894, is apparently the only Florida case construing Section 55.05 of the Florida Statutes, and is the only case relied on by the defendants. We find Pearson inapposite. The interpretation of Pearson urged by the defendants is that all contracts that so much as contain a confession of judgment or cognovit clause are void in their entirety, without regard to whether any attempt has been made to employ or enforce the illegal clause in the particular case.

In Pearson a judgment had been entered in Illinois on a defaulted note without service of process pursuant to the provisions of a cognovit clause. The question was whether such judgment was enforceable in Florida. An immediate and obvious distinction exists between these facts in Pearson and those in the instant case, and that is that in the instant case no judgment has been obtained or attempted to be obtained pursuant to the cognovit clause.

The Florida court held that the Illinois judgment was unenforceable in Florida and in so doing stated: "the Florida Statute, quoted in footnote No. 1 F.S. 55.05, expressly provides that such contracts for confession of judgment `made or to be made by any person whatsoever within this state' shall be void. * * This pronouncement is more than a prohibition of the use of a procedural device; it concerns the validity of the contracts themselves." (Emphasis added). 112 So.2d at 895. The emphasized portions above are those relied upon by defendants as establishing that all contracts with the prohibited cognovit clause are invalid.

We read the quoted portion of Pearson differently. In the first instance, judgment was obtained by the use of the cognovit clause in Pearson, and no such reliance was made in the instant case. The references of the Florida court to "contracts" does not mean all contracts with the prohibited clause; rather, what is actually stated is that all contracts for confession of judgment are void. The use of "contracts" in the next to the last word of the quotation refers back to "contracts for confession of judgment." (Emphasis added). The entire contract would be invalidated, as urged by the appellant, only if judgment had been obtained pursuant to the confession of judgment clause.

Applying Pearson to the present facts we hold that the cognovit clause is void but severable so long as judgment has not been sought or obtained by virtue of it.

II.

A guaranty is "a promise to answer for the debt, default, or miscarriage of another". 30 Fla.Jur., Suretyship and Guaranty, Section 2. The ultimate effect of holding that the notes are conditional guaranties is to require that the creditor (Brunswick) make a diligent effort to collect from Sky Bowl and Congress before it can resort to the guarantors. See generally, Scott v. City of Tampa, 158 Fla. 712, 30 So.2d 300, cert. den. 332 U.S. 790, 68 S.Ct. 99, 92 L. Ed. 372; 38 C.J.S. Guaranty §§ 61, 84 et seq. On the other hand, if the notes are third party beneficiary contracts the liability of the makers of the notes is primary, rather than secondary or collateral.

A motion for summary judgment under Rule 56, F.R.Civ.P. may be granted only if it appears from the pleadings, depositions, admissions and affidavits, considered in the light most favorable to the opposing party, that there is no genuine issue as to any material fact for trial and that the moving party is entitled to judgment as a matter of law. Poller v. Columbia Broadcasting System, 1962, 368 U.S. 654, 82 S.Ct. 486, 7 L.Ed.2d 458; Brunswick Corporation v. Vineberg, 5 Cir. 1967, 370 F.2d 605.

With this test in mind, we turn to the notes in question.⁴ Vineberg and DeMet emphasize the portions of the notes indicating that the notes were given

"not as payment on said contract but as additional security for the payment of October, November and December installments which would otherwise be due on said contract, but which have been postponed to February 15, 1964. Payment on this note or any part thereof shall be deemed to be also payment on said contract. Correspondingly, the payment by SKY BOWL, INC., on February 15, 1964 of all amounts then due on said contract, as now extended, shall satisfy the indebtedness of the undersigned on this note." (Emphasis added)

The appellants argue that what is meant by "additional security" is that Brunswick would look first to the value of the pinsetters, then to them as guarantors for the balance only.

Brunswick urges that the first paragraph of the notes clearly expresses the intent of the parties that Vineberg and DeMet independently promised to pay the stated amounts with no qualifying limitation that Brunswick would look first to the corporations with the pinsetters as primary security for payments on the contract.

To the court below the notes were clear and unambiguous and it declined to admit parol evidence offered by the defendants to explain what they classified as a "latently ambiguous contract". The parol evidence offered by the defendants was their own affidavits stating that at the time of the execution of the notes they had been assured by a Mr. J. J. Ryan, Field Collection Manager of Brunswick, that their

"liability under the notes would only arise if and when CONGRESS and SKY BOWL failed to make their payments on the contracts on the extended due date. We were further assured by him that the pinsetters themselves would continue to be the primary collateral, as security, for the payments on the contracts and that the notes would only be used as `additional security\' for payments on the contract."

As previously stated, the trial court excluded the preceding affidavit as being within...