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KEYSTONE BUILDING CORPORATION v. LINCOLN SAVINGS AND LOAN ASSOCIATION (07/06/76)

SUPREME COURT OF PENNSYLVANIA


decided: July 6, 1976.

KEYSTONE BUILDING CORPORATION, A CORPORATION
v.
LINCOLN SAVINGS AND LOAN ASSOCIATION, APPELLANT

COUNSEL

John A. Metz, Jr., Metz, Cook, Hanna & Kelly, Pittsburgh, for appellant.

Frank J. Gaffney, Thorp, Reed & Armstrong, Pittsburgh, for appellee.

Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Jones, C. J., and Pomeroy, J., concur in the result.

Author: Roberts

[ 468 Pa. Page 87]

OPINION OF THE COURT

This case involves a dispute over an alleged breach of contract by appellant Lincoln Savings and Loan Association. The controversy between Lincoln and appellee Keystone Building Corporation has been the subject of protracted litigation including an earlier appeal to this Court, 439 Pa. 444, 266 A.2d 648 (1970). On remand, the trial court held that a decree entered by consent of the parties is res judicata on the issue of Lincoln's liability for breach of contract. The Superior Court affirmed and we granted the petition for allowance of appeal.*fn1 We find that there was no determination of Lincoln's liability, reverse the order and remand for further proceedings.

The Keystone Building Corporation, the Lincoln Savings and Loan Association and the Manufacturers Life Insurance Company of Canada entered into a construction loan agreement on October 7, 1968. Under the terms of the agreement Lincoln agreed to lend Keystone the funds necessary to finance Keystone's construction of an apartment complex and Manufacturers agreed to be the permanent mortgagee for the project.

In May 1969, approximately two months after construction had begun, a dispute arose between Lincoln and Keystone over the terms and conditions under which Lincoln was obligated to advance the necessary funds. The dispute revolved around the nature and sufficiency of the

[ 468 Pa. Page 88]

    proofs of expenditure which Keystone was required to present to Lincoln as a precondition for payment. Keystone believed it was submitting the vouchers in the proper form. Lincoln refused payment contending that the vouchers were not in accordance with the contract requirements. After protracted negotiations, Keystone commenced a suit in equity on July 3, 1969, asking that Lincoln be compelled to advance the requisitioned loan proceeds and that money damages be assessed against Lincoln for its asserted breach of contract.

On July 18, 1969, the court entered a consent decree based on an agreement between counsel for both parties.*fn2 The decree sought to resolve the dispute between Keystone and Lincoln concerning the form of the vouchers necessary to authorize payments. The decree provided that Keystone had to support its present and future requisitions for loan proceeds in a specified manner and that Lincoln had to advance the amounts thus requisitioned promptly. Unfortunately, Keystone and Lincoln could not agree on the implementation of the decree and the dispute continued unabated. On August 5, Keystone petitioned for and was granted a rule to show cause why Lincoln should not be held in contempt for failing to comply with the July 18 decree.

A lengthy hearing was held and, on October 6, the court decreed that although Lincoln had not been in contempt, it was obligated to provide Keystone with the funds properly qualified under the construction loan agreement and to advance all sums properly requisitioned thereafter. The court found that certain other expenses were not payable because they were beyond the terms of the construction loan agreement. The October 6 decree did not address whether Keystone was entitled to damages caused by Lincoln's alleged breach of the contract. There is no indication that either the court or the

[ 468 Pa. Page 89]

    parties focused on anything other than how the vouchers should be submitted and which amounts were properly included for payment.

Lincoln did not make the payments immediately and, on October 10, Keystone again petitioned for and was granted a rule to show cause why Lincoln should not be held in contempt. Lincoln filed a motion to dismiss the rule contending it was premature. It argued that Pa.R.Civ.P. 1518 allows twenty days to file exceptions to the October 6 order and that the twenty days had not yet run. The trial court ruled that Lincoln was not entitled to file exceptions to the October 6 decree because that decree "only interprets the final decree of the Court of July 18, 1969." Appeal was taken to this Court.

During the pendency of the appeal Manufacturers took an assignment from Lincoln of all its interest in the agreement. Lincoln then petitioned this Court to dismiss the appeal or remand the case to the trial court with directions to dismiss the action. Lincoln argued that because Manufacturers had assumed all of the responsibility for payment of the vouchers the case had become moot. Keystone replied that, although the question of payment on the vouchers may have been mooted by the assignment, the case was not moot because Keystone had sought other relief. Keystone had sought damages in its original complaint for the costs of interim financing and other expenses incurred as a result of Lincoln's alleged breach.

On July 2, 1970, this Court held that the action in equity would not be dismissed because, even though one of the central issues in the case was moot, Keystone had also sought damages for a breach of contract. We concluded:

"[S]ince there is still the possibility that the court could grant Keystone some sort of relief, the question whether further relief should be granted is initially for the trial court to decide."

[ 468 Pa. Page 90439]

Pa. at 448, 266 A.2d at 650. We remanded the case for further proceedings.

On October 14, 1971, on remand, the trial court found that there were no grounds for the award of equitable relief and that there was an adequate remedy at law. The case was transferred to the law side of the court for further proceedings. Keystone then filed its complaint on the law side of the court seeking damages from Lincoln for the alleged breach of the construction loan agreement. Lincoln answered, denying liability.

On April 22, 1975, without motion or petition by either party, Judge Louik entered an order that the case proceed solely on the issue of damages. The trial court stated, referring to the July 18 decree, that there had been a decree of the trial which was "not reversed, and therefore, the prior proceedings should be considered as res adjudicata on the question of [Lincoln's] liability." The trial court certified the question for appeal.*fn3 The Superior Court affirmed in an opinion by Judge Jacobs.

Lincoln raises two arguments on this appeal. First, it argues that the July 18 consent decree -- further interpreted by the October 6 decree -- acted as a complete settlement or final judgment on Keystone's cause of action on the contract.*fn4 Keystone's action sought specific performance and damages for Lincoln's alleged failure to perform timely. Although the July 18 and October 6 decrees were directed only to the issue of performance -- the payment of the vouchers -- Lincoln argues that the entire

[ 468 Pa. Page 91]

    action on the contract constituted one cause of action*fn5 which was extinguished by the consent decree. Thus, Lincoln contends, if the prior decree is res judicata it is res judicata against Keystone barring Keystone from seeking any further relief on the contract. We need not consider that contention because Lincoln raises it for the first time on this appeal. Because it was not raised in the court below it has not been preserved for our review. Dilliplaine v. Lehigh Valley Trust Co., 457 Pa. 255, 322 A.2d 114 (1974).

We agree with Lincoln's second argument that the consent decree is not res judicata of its liability for breach of the contract. It is the law of the Commonwealth that

"a final valid judgment upon the merits by a court of competent jurisdiction bars any future suit between the parties or their privies, on the same cause of action. Identity of the thing sued for, the causes of action, and of the quality of the capacity of the parties suing or sued, is essential to the application of the doctrine."

Burke v. Pittsburgh Limestone Corp., 375 Pa. 390, 395, 100 A.2d 595, 598 (1953); Stahl v. Hilderhoff, 432 Pa. 179, 247 A.2d 582 (1968); Callery v. Blythe Township Municipal Authority, 432 Pa. 307, 243 A.2d 385 (1968); Stevenson v. Silverman, 417 Pa. 187, 208 A.2d 786, cert. denied, 382 U.S. 833, 86 S.Ct. 76, 15 L.Ed.2d 76 (1965).

A judgment entered as a result of a consent decree similarly bars relitigation of a claim. Cf. Cooper-Bessemer Co. v. Ambrosia Coal & Construction Co., 447 Pa. 521,

[ 468 Pa. Page 92291]

A.2d 99 (1972); Zampetti v. Cavanaugh, 406 Pa. 259, 176 A.2d 906 (1962); Harding v. Harding, 198 U.S. 317, 25 S.Ct. 679, 49 L.Ed. 1066 (1905); United States v. Parker, 120 U.S. 89, 7 S.Ct. 454, 30 L.Ed. 601 (1887).*fn6

Our review of the record, however, persuades us that the parties intended that the consent decree cover only how the vouchers were to be submitted and what payments were properly due under the agreement. The decree was designed to interpret the contract requirements to get the funds flowing. The conduct of the parties and the court, and the language of the decree itself, indicates that they did not intend the decree to act as an adjudication of whether there was a breach of the contract by Lincoln rendering it liable for unascertained damages. That issue was not addressed and was reserved for future determination. Thus, although the requisite identities for res judicata are present there has not been a final judgment on the merits of the liability question. Without such an adjudication, the issue cannot justly be resolved against Lincoln.*fn7

[ 468 Pa. Page 93]

Our conclusion is reinforced by several factors. The July 18 decree itself indicates that the court and the parties did not intend it to be a final determination of the entire claim. The decree states, "Jurisdiction of the within matter shall be retained by this Court pending further order." In its answer to Lincoln's "Suggestion of Mootness and Motion to Vacate Orders as Moot" filed in the prior appeal to this Court, Keystone argued that the case should not be dismissed as moot because "evidence on other matters for which relief is sought was not fully presented to the Court below." It is apparent that Keystone did not then regard the liability issue as adjudicated. Moreover, Judge Louik's order stating that the further proceedings in the trial court would proceed only on the damage issue was a sua sponte pronouncement. Up to that time Keystone had not contended that the question of Lincoln's liability was res judicata.

Our determination that Lincoln's liability has not been adjudicated is not altered by the October 6 decree which, unlike the July 18 decree, was issued after a hearing. As the trial court ruled when Lincoln sought to file exceptions to that decree, "the Order of this Court of October 6, 1969, only interprets the final decree of this Court of July 18, 1969." Thus the October 6 decree cannot be given more effect or greater scope than the July 18 decree which it interpreted.

Nor did the decision of this Court in the prior appeal hold or even intimate that liability had been determined. Our decision merely recognized that the matter had not been mooted by the extinguishment of the question concerning payment of the vouchers. We stated:

"While it is apparent that one of the central issues in this case, the propriety of ordering Lincoln to disburse certain sums in accordance with the construction loan

[ 468 Pa. Page 94]

    agreement, is now moot, it does not follow that the cause ought to be dismissed altogether."

"[T]here is still the possibility that the court could grant Keystone some sort of relief, the question whether further relief should be granted is initially for the trial court to decide."

439 Pa. at 448, 266 A.2d at 650. Remanding the case, we said the question was "whether further relief should be granted;" we did not say the question was "what relief should be granted."

The procedure by which the action was split was obviously unorthodox.*fn8 Ordinarily a judgment in an action disposes of the entire cause of action.*fn9 But there is no valid reason why, when the parties can expeditiously resolve one issue in an action, they cannot consent to a judgment on that issue and preserve their right to fully litigate the other issue.*fn10

[ 468 Pa. Page 95]

It has never been ascertained that the vouchers were payable at the time Lincoln refused payment, and it therefore cannot be said that there has been an adjudication or binding determination that Lincoln had violated its duty to perform under the terms of the contract. That must yet be determined in a further proceeding.*fn11

Order of the Superior Court reversed. Case remanded for further proceedings consistent with this opinion.


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