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Craftmark Homes Inc. v. Nanticoke Construction Co.

decided: December 1, 1975.



Seitz, Chief Judge, Rosenn and Garth, Circuit Judges. Garth, Circuit Judge, dissenting.

Author: Rosenn


ROSENN, Circuit Judge.

First Pennsylvania Bank ("Bank") appeals from a judgment in the amount of $56,074 entered against it and in favor of Craftmark Homes, Inc., ("Craftmark") on the Bank's guarantee of payments due Craftmark under a construction contract. We conclude that the district judge interpreted the contract erroneously and reverse.

This diversity action has its origins in a construction contract entered into between Nanticoke Construction Company ("Nanticoke") as general contractor and Craftmark as subcontractor. Craftmark was engaged in the construction of panelized housing material. It contracted to supply Nanticoke with all necessary labor, materials, and equipment required for the erection of a 108-unit housing project in Nanticoke, Pennsylvania. The Bank became involved in this project in two ways. First, it was the construction lender. Second, in consideration of Craftmark's paying it a fee of one percent of the contract price, the Bank guaranteed payment of the contract price to Craftmark by Nanticoke.

Work on the project eventually led to a dispute between the principals, and on February 14, 1974, Craftmark instituted this action against Nanticoke, seeking payment for labor and materials delivered. Nanticoke answered that it did not owe Craftmark any money and counterclaimed for $15,000 against Craftmark for work not done or unsatisfactorily performed. On June 28, 1974, Craftmark amended its complaint to join the Bank as a defendant under the guarantee. The Bank's answer denied liability, alleging that Craftmark had failed (1) to perform satisfactorily under the contract, as the guarantee required, and (2) to submit executed payment vouchers required by the guarantee.

Several weeks prior to the scheduled trial date, counsel for Craftmark and Nanticoke, without notice to the Bank, stipulated to the entry of judgment against Nanticoke in the amount of $56,074. The stipulation was reduced to judgment on October 23, 1974.

Craftmark's case against the Bank was tried to the court. The trial consisted of testimony from a single witness, Robert R. Majewski, former Director of Design and Engineering for Craftmark. Majewski, a licensed architect, testified that Craftmark had fully and satisfactorily performed under its contract with Nanticoke and was owed the amount of $56,074. On cross-examination, he stated that all materials were delivered and labor completed before March 24, 1974, the date Nanticoke filed its counterclaim.

The critical issue before the trial court, and the only issue on this appeal, is the effect of Craftmark's failure to submit the required vouchers. The salient language of the guarantee agreement is as follows:

Payment shall be made by the Bank on satisfactory performance . . . upon vouchers properly signed by the General Contractor to the order of said Sub-Contractor with FHA Form No. 2403 - Application for Insurance of Advance of Mortgage Proceeds attached. These vouchers shall constitute evidence of performance and delivery and acceptance thereof, it being understood that such payment is subject to the Bank's inspection and approval of the labor performed and the materials and arrangements for storage, the inspection to be performed within three days after receipt of the voucher. Provided, however, that upon failure of the sub-Contractor to perform satisfactorily the labor and supply all of the materials herein contemplated, this guarantee shall become null and void and the Bank shall be relieved of the conditions and obligations herein stated.

It was not disputed that the vouchers referred to in the guarantee were not submitted to the Bank, and no reason was offered for the failure.*fn1

The defendant has contended that under the guarantee agreement the vouchers are a condition precedent to payment.*fn2 Plaintiff has argued that the Bank's only concern was whether the work was satisfactorily performed and that a proper interpretation of the guarantee is that the vouchers are merely evidentiary and not a condition precedent to payment. Thus, in plaintiff's view, once it was established through Majewski that the labor was satisfactorily performed and the materials delivered and stored, the Bank must pay.

The district court agreed with the plaintiff. It held that the submission of the vouchers "is not a condition precedent to recovery under the Cash Guarantee. The Guarantee does not explicitly require their submission as a condition precedent and the Court declines to infer such a condition." The district court did not offer a rationale for its decision but it did cite Miller v. Commercial Electric Construction, Inc., 223 Pa. ...

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