On Appeal from the United States District Court For the Western District of Pennsylvania. D.C. Civil No. 85-1235
Before: GIBBONS, SLOVITER, Circuit Judges, and SCIRICA, District Judge*fn*
In this action Equimark Commercial Finance Company (Equimark) seeks to recover a portion of a security account held by C.I.T. Financial Services Corporation (C.I.T.) established under a contract between C.I.T. and Equimark's assignor, United Dealers Corporation (United). The district court gave summary judgment for C.I.T., holding that there was no genuine issue of fact that C.I.T. was entitled to retain the amounts in the account because of various contractual defaults by United, and that C.I.T. did not waive his right. Our review of the grant of summary judgment is plenary. See Maldonado v. Ramirez, 757 F.2d 48, 49 (3d Cir. 1985); Kahn v. United States, 753 F.2d 1208, 1210 (3d Cir. 1985).
United is a financing subsidiary of Swift Industries, Inc. (Swift), which was engaged along with various of its affiliates in the manufacture and retail sale of precut and prefabricated houses. United offered mortgage loans to Swift's retail customers. In an agreement dated April 12, 1967 ("Portfolio Agreement"), United sold a number of these obligations (so-called "paper") to C.I.T., and in another agreement dated the same day ("Home Financing Agreement"), United promised to give C.I.T. the right of first refusal on its subsequent sale of these obligations under essentially the same terms as the the Portfolio Agreement.
Both agreements contained a provision for a "holdback account" which served as collateral for United's obligations, and which contained $516,750.36 at the inception of the agreement. C.I.T. was entitled to retain in that account 5% of the aggregate gross unpaid balance on the paper as to which there was no default and 100% of the unpaid balance on paper that was 90 days overdue or as to which there had been a default by United. At the end of each quarter, C.I.T. was to remit to United the amount by which the holdback account exceeded the amount C.I.T. was entitled to retain. The holdback account was subject to a minimum balance of $100,000 or the aggregate gross unpaid balance then outstanding on the paper, whichever was less.
Paragraph II.D.(3) of the Portfolio Agreement and Paragraph IV.B.(3) of the Home Financing Agreement also provided that:
If for any reason [United] or any of its affiliated corporations is in default to [C.I.T.] . . ., then, notwithstanding any other provisions herein or elsewhere [C.I.T.] may retain all monies in said holdback account up to the aggregate gross unpaid balances then outstanding on the paper . . ., until all of the paper and all of the outstanding obligations of [United] to [C.I.T.]. . . have been fully paid, and [C.I.T.] may, at its option, charge any of said obligations of [United] against the holdback account, and thereafter notify [United] of such charge.
From 1975 through 1977, United breached its obligations under the contracts in various respects: beginning at the end of United's fiscal year ending March 31, 1975, and thereafter, United failed to provide C.I.T. with the requisite financial statements, and those that were received were not certified as required by Paragraph V.H. of the Portfolio Agreement and Paragraph VII.G of the Home Financing Agreement.
On May 20, 1975, United assigned its interest in the holdback account to Equimark, in violation of Paragraph X of the Portfolio Agreement and Paragraph XII of the Home Financing Agreement. C.I.T. was notified of the assignment in a letter dated December 1, 1976.
On January 17, 1977, Swift and its affiliates, including United, filed a Petition for an Arrangement under Chapter XI of the Bankruptcy Act of 1898. Under Paragraph VII.C. of the Portfolio Agreement and Paragraph IX.C of the Home Financing Agreement, the filing of the petition constituted at C.I.T.'s option an event of default. C.I.T., a secured creditor, did not participate in the Chapter XI proceedings. On July 21, 1977, a plan for arrangement was confirmed for the Swift companies. Equimark, the assignee, and its parent, Equibank, provided funds ...