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Baird v. Aluminum Seal Co.

decided: December 26, 1957.


Author: Biggs

Before BIGGS, Chief Judge, and MARIS and KALODNER, Circuit Judges.

BIGGS, Chief Judge.

The suit at bar, sounding in tort for malicious use and malicious abuse of process, based upon diversity and jurisdictional amount, was brought by Baird against the appellee, Aluminum Seal Company, Inc.,*fn1 (Aluminum) an Indiana corporation. Baird alleged that Aluminum "willfully, wantonly, wrongfully, maliciously, and without probable cause" confessed judgment on Baird's judgment notes, thereby causing him to lose valuable properties. The notes had been issued by Baird pursuant to an escrow agreement dated May 14, 1947, which provided, after an amendment not pertinent, here, for their delivery to an escrow agent in exchange for $35,000 in cash payments to be made by the agent to Baird from a fund paid into escrow by Aluminum. Payments were to be made to Baird at stated intervals as the construction of thirty-five houses to be built by Baird in Richmond, Indiana, progressed. The construction contract for these houses provided that in consideration for the payment into escrow of the funds referred to, Aluminum was to have rental preferences for the benefit of its employees.

The escrow agreement provided that if Baird should complete the thirty-five houses within one year after May 14, 1947, and completion should be evidenced by the issuance of a Federal Housing Administration certificate, Baird would have perfected his right to the $35,000 subsidy in escrow. In that event the escrow agent was to return Baird's notes to him. If the houses were not completed by the time prescribed, the subsidy would be deemed not to have been earned by Baird and the escrow agent was to deliver Baird's judgment notes to Aluminum. If the housing project was completed and the FHA certificates procured Baird's notes were to be returned to him by the escrow agent.

Baird received a total of $35,000 from the escrow agent and gave the agent notes for that amount payable to Aluminum. Of these notes $25,000 were promissory notes containing warrants of attorney for the confession of judgment. Another note for $10,000 contained no such authority. In addition to the moneys represented by the escrow subsidy, Aluminum made available to Baird additional substantial sums to be used by it in the construction of the building projects.*fn2

At the end of the period for compliance with the terms of the escrow agreement, May 14, 1948, the houses were substantially completed although certain grading, paving and planting had not been done and Baird had not obtained FHA certificates as required by the agreement. Baird actually was in default on May 14, 1948 but on May 19, 1948 the escrow agreement was amended, to have "retroactive" effect, and the agreement as amended provided that Baird should have until August 12, 1948, to comply with its terms.

It is apparent from the record that Baird encountered financial difficulties and had trouble completing the project. Numerous troubles beset his venture. He had difficulty in procuring materials and skilled labor. A dispute as to rentals occurred between him and Aluminum. It was also alleged by Aluminum that moneys, aside from those of the escrow, loaned to Baird by Aluminum for use in the Richmond project had been diverted to other projects of Baird's. In October, 1948, the difficulties between Baird and Aluminum reached a climax when, according to Baird's testimony, Kipfer, Aluminum's President, ordered Baird to leave his office, saying, "You will be sorry for this day. We will get you. We'll get you good. You're through. You're done."

By January, 1949, Baird's financial difficulties had increased greatly. He informed Aluminum that he would be unable to meet a $5,000 payment required in reduction in the principal amount of the $65,000 mortgage referred to in note 2, supra, or even the interest payment then due on it. Baird also was in default on a $83,000 mortgage secured by a lien on apartment houses owned by him in Erie. On November 8, 1949, Lycette, assistant secretary of Aluminum, wrote a letter to Kunz, in charge of the escrow for the National Bank, saying that Aluminum had made Baird an offer to take over any equity which he might have in the Richmond project in consideration of a full discharge of all of Baird's indebtedness to Aluminum which was then in the amount of about $100,000. Baird rejected this offer. Early in November 1948, Aluminum sought the advice of William J. Kyle, Jr., Esquire, of Pittsburgh, a member in good standing of the Bar of Allegheny County, and Kyle demanded that the National Bank deliver Baird's escrow notes in the sum of $35,000 to him for Aluminum. Kyle informed Aluminum that in his opinion judgments should be confessed on the notes. On or about November 20, 1948, FHA acceptances finally were executed covering all the houses built by Baird at the Richmond development. In December, 1948, materialmen, Fox Brothers Manufacturing Company and Celotex Corporation, brought suits to secure liens on the Richmond properties in the amount of $17.500. Early in February, 1949, Baird caused all his Pennsylvania properties, except the four apartment houses in Erie, to be conveyed to himself and his wife as joint tenants, or as tenants by entireties. In re Vandergrift's Estate, 1932, 105 Pa.Super. 293, 161 A. 898. Baird and Aluminum attempted to effect a compromise but finally on March 22, 1949, after consulting with counsel in Erie, Aluminum caused judgment to be confessed on all Baird's escrow notes, save the one for $10,000 which contained no power of attorney authorizing confession of judgment, in the Court of Common Pleas of Erie County. It was the intention of Aluminum to procure judgments in the Circuit Court of Wayne County, Indiana. TheCourt of Common Pleas of Erie County, however, enjoined the use of exemplifications by Aluminum.

On April 1, 1949, Aluminum brought suit on the $10,000 note in the Circuit Court of Wayne County, Indiana. On April 26, 1949, Fox and Celotex secured judgments amounting to $17,500. In June, 1949, the Richmond properties were sold at sheriff's sale for $18,000 to an agent acting for Aluminum and a sheriff's deed was executed to Aluminum on June 6, 1949 conveying the Richmond properties to Aluminum. On June 10, 1949, a check in the sum of $2,000 was sent by Lycette for Aluminum to Livengood, representing both Fox and Celotex, which was divided equally by him between two lawyers, Burr and Stamm, who respectively represented the two materialmen. Livengood testified that the payments were made by him to Burr and Stamm for helping to cover certain expenses in the cases of the materialmen.

There was testimony to the effect that after the judgments in Erie County had been entered on the escrow notes that Baird's credit became frozen and he was unable to raise funds to cover or refund his indebtedness. Baird filed a petition to open and to strike off judgments in Erie County. The Court of Common Pleas of Erie County filed an opinion on July 14, 1950 which held in substance that there was a justiciable issue as to whether Baird had performed his obligations to Aluminum and therefore had become entitled to the subsidy represented in part by the $25,000 in notes. The Court of Common Pleas opened the judgments. On January 5, 1952, counsel for Aluminum discontinued the suit in the Court of Common Pleas. On March 2, 1953 the judgments were stricken off with consent of counsel. Counsel for Aluminum testified that the suit was not pursued because Aluminum was of the view that an execution against Baird could yield no assets.

As to the suit brought in the Circuit Court of Wayne County, Indiana, by Aluminum on the $10,000 note, that Court filed an opinion and rendered judgment in favor of Aluminum on February 16, 1951. On appeal the appellate court of Indiana reversed this judgment on May 14, 1952 and held that Baird was entitled to the subsidy. Review was denied by the Supreme Court of Indiana.

A few facts other than those which we have set out hereinbefore are brought out in the evidence but we have made no reference to them for they are irrelevant to the issues presented by the appeal at bar. We have reviewed the evidence rather fully to the end that the legal questions presented by this appeal may appear clearly.

Upon the close of the evidence Aluminum filed a motion for a directed verdict. The trial court concluded, however, that Baird had presented an issue of fact as to whether Aluminum was motivated by malice in entering judgments on the notes. Being of the view that in actions for malicious use of process the issue of malice has a direct bearing on probable cause, the court below refused to direct a verdict for Aluminum. It therefore submitted the issue of malice to the jury and on the jury's determination that there was no malice entered judgment in favor of Aluminum. Baird, alleging errors by the court below in the trial of the case, moved to set aside the verdict and for a new trial. This motion was denied. D.C.1956, 149 F.Supp. 874. The appeal followed.

The judgment will be affirmed. Helvering v. Gowran, 1937, 302 U.S, 238 at page 245, 58 S. Ct. 154, 82 L. Ed. 224; S.E.C. v. Chenery Corporation, 1942, 318 U.S. 80, at page 88, 63 S. Ct. 454, 87 L. Ed. 626. Jurisdiction in the case at bar, as we have stated, is based on diversity and jurisdictional amount and it is clear that the law of Pennsylvania governs for the cause of action set forth in the complaint is based on the entry of the judgments in theCourt of Common Pleas of Erie County, Pennsylvania, though evidence as to Aluminum's suit in Wayne County was offered and accepted by the court below as background and as going to the motives which animated Aluminum in its dealings with ...

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