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TUDOR DEV. GROUP v. UNITED STATES FID. & GUAR. CO.

August 25, 1988

TUDOR DEVELOPMENT GROUP, INC., SIDNEY COHEN, DOROTHY COHEN, MARC COHEN, t/a GREEN HILL ASSOCIATES, Plaintiffs,
v.
UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant



The opinion of the court was delivered by: CALDWELL

 William W. Caldwell, United States District Judge

 Defendant seeks dismissal of count I of the complaint to the extent it seeks recovery for Phase III of the Project. The complaint alleges that the Project was divided into three phases (para. 8), and that defendant "agreed to provide performance bonds for the three phases of construction." (para. 10). USF & G did issue bonds for Phases I and II but "subsequently refused to issue a bond for Phase III of the Project despite verbal and written assurances from its agent . . . that such bonding would be issued for all three phases of the Project." (para. 11). The Contractor's performance was deficient on all three phases (paras. 12 and 13) and count I seeks recovery for the entire Project even though performance bonds were issued only for the first two phases. Plaintiff alleges that defendant, through "previous representations and assurances" had "contractually committed" itself to provide a bond for Phase III as well.

 Defendant asserts that these allegations are insufficient to assert a claim for Phase III; that Pennsylvania law requires a suretyship contract to be in writing. And, that in the absence of a written agreement, the claim for Phase III must be dismissed. Defendant relies upon the following statutory section, quoted in pertinent part, as follows: "No action shall be brought . . . whereby to charge the defendant, upon any special promise, to answer for the debt or default of another, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person by him authorized." 33 P.S. § 3 (Purdon 1967). USF & G also cites Leonard v. Martling, 174 Pa. Super. 206, 100 A.2d 484 (1953) (oral promise to answer for the debt of another unenforceable pursuant to 33 P.S. § 3), aff'd, 378 Pa. 339, 106 A.2d 585 (1954). In response, plaintiff seems to assert that an oral agreement is sufficient. We disagree and conclude that count I as to Phase III must be dismissed. See generally, Blumer v. Dorfman, 447 Pa. 131, 289 A.2d 463 (1972).

 Defendant contends that count II should be dismissed because it is based upon the Contractor's breach of warranties given to Green Hill in the construction contract but the performance bonds do not provide coverage for, nor even mention, breaches of warranties. Defendant cites General State Authority v. Sutter Corp., 44 Pa. Commw. 156, 403 A.2d 1022 (1979) in its support. Defendant's reliance upon General State Authority is misplaced. In that case, the original defendant, Sutter Corporation, attempted to join National Surety Corporation, surety for Certain-Teed Products Corporation, in a suit for damages arising from an alleged defective roof on a Pennsylvania State Hospital. National Surety had issued a bond for the guarantee Certain-Teed had made on its roof membrane for the hospital. USF & G quotes the first and second paragraph of the following portion of the opinion. We will include the middle paragraph as well:

 
The general rule is that a surety assumes no liability or obligations beyond those set forth in the suretyship agreement; likewise, a bond obligation does not extend beyond the express obligation set out in the agreement. Peter J. Mascaro Co. v. Milonas, 401 Pa. 632, 166 A.2d 15 (1960); 35 P.L.E. §§ 52, 58, pp. 365-66, 372-73. See also Miller v. Commercial Electric Construction, Inc., 223 Pa. Super. 216, 297 A.2d 487 (1972).
 
The bond expressly limits National's liability to $ 5,196.00. However, general contractor Sutter argues that, because plaintiff GSA alleges that the entire roof must be replaced and is not just in need of repairs, the surety would be liable for any damage that can be shown to have been caused by the allegedly defective materials supplied by Certain-Teed.
 
Assuming that warranties on the roofing materials were made, they were made only by Certain-Teed. To find that National intended to back entirely any warranty made by Certain-Teed, express or implied, would be for us to invent a new suretyship agreement. The surety could not be liable to anyone beyond the express limits set forth in its bond.

 Id. at 163, 403 A.2d at 1026.

 The Commonwealth Court then went on to conclude that Sutter could not sue as a third party beneficiary of the National bond issued to Certain-Teed even to the extent of the amount of the bond.

 Defendant would argue that General State Authority supports its position here that, absent language in the performance bonds covering the Contractors' warranties, it has no duty to provide such coverage. But the middle paragraph of the quote makes clear that the Commonwealth Court was not dealing with that issue at all. It was only rejecting an attempt by Sutter to expose National to any and all damages arising from a breach of warranty by Certain-Teed. Thus, the opinion implicitly concedes that National would be liable for a Certain-Teed breach of warranty by mentioning several times National's limit of liability on the bond of $ 5,196.00. At the same time, however, it rejects any attempt to impose liability for "any warranty made by Certain-Teed"; that is, a warranty for an unlimited amount because the "surety could not be liable to anyone beyond the express limits set forth in its bond." Id., 403 A.2d at 1026. That the above discussion in General State Authority did not deal with the scope of the bond's coverage is made clear from the court's following statement made in connection with the intended beneficiary issue:

 
The most that can be said about the guaranty has already been said in our prior opinion dealing with the complaint against Certain-Teed. The suretyship agreement, if proven, would remove Dunmore from liability, to the extent of the guarantee, with Certain-Teed incurring the primary liability. General State Authority v. Sutter Corporation, 24 Pa. Commw. at 396, 356 A.2d at 381 (1976).

 Id. at 165 n.5, 403 A.2d at 1027 n.5. (emphasis in original). Thus, National did have an obligation under its bond but it was not in excess of the bond's limit and it was only in favor of Dunmore Roofing and Sheetmetal Co., the roofing ...


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