author: McCREE, Circuit Judge.

text:
    The WINSTON CORPORATION, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellee.
    No. 73-1886.
    United States Court of Appeals, Sixth Circuit.
    Jan. 17, 1975.
    John C. McDonald, Robert J. Sidman, Mayer, Tingley, Hurd & Emens, William A. Morse, Columbus, Ohio, for plaintiff-appellant.

      John L. Miller, McNamara & McNamara, John J. Petro, Columbus, Ohio, for defendant-appellee.
    Before WEICK and McCREE, Circuit Judges, and CONTIE,  District Judge.

       Honorable Leroy J. Contie, Jr., Judge, United States District Court for the Northern District of Ohio, sitting by designation.

   McCREE, Circuit Judge.

This is an appeal from a judgment in a diversity action for defendant-appellee on a performance and payment bond executed by Continental Casualty Company, as surety, in favor of appellant, The Winston Corporation, as obligee. The parties agree that Georgia law applies.

The facts of the case are virtually undisputed. In 1967, Diversified Engineering and Sales Corporation (Diversified) agreed to build for The Winston Corporation (Winston) a nursing home at a cost of $752,874.00. The construction contract required Diversified to obtain a performance and payment bond from an acceptable bonding company. Diversified purchased a bond from Continental Casualty Company (Continental) for a premium of $6,444.00. A copy of the bond, drafted by Continental on its own printed form, was delivered to Winston on October 3, 1967.

The bond expressly incorporated the provisions and specifications of the construction contract and provided, inter alia:

NOW, THEREFORE, THE CONDITION OF THE ABOVE OBLIGATION IS SUCH, that if the above bounden Principal shall well and faithfully perform the things agreed by him to be performed, according to the terms, conditions, and requirements of the foregoing contract; and shall pay all persons who have furnished labor or material for use in or about the improvement; and shall indemnify and save harmless the Obligee, and its officers, agents and employees, from any and all claims for damages, costs, judgments, and other expenses, arising or growing out of this contract; then, this obligation shall be null and void, otherwise, the same shall remain in full force and effect.

Continental issued the bond without reading the construction contract and never even requested a copy of it until approximately two and one-half years later. Continental did, however, investigate the financial condition of Diversified and its principal before it issued the bond. It learned that Diversified had comparatively thin assets, a not uncommon condition for some construction companies, but that Diversified’s principal was financially stable. Before construction began several weeks later, however, Continental discovered that Diversified’s principal was suffering a serious financial setback and that he would no longer be participating in the project. Continental did not object to his withdrawal, and accepted another officer of Diversified as a substitute, even though he had submitted to Continental financial statements overstating his own and Diversified’s net worth.

Continental never communicated any of this unfavorable financial information to Winston.

On December 4, 1967, Winston obtained a construction loan for which it executed a $1,250,000.00 promissory note and security deed. On December 11, the construction lender, the permanent lender, and Winston agreed that the permanent lender would purchase the loan from the construction lender upon completion of the project.

On the next day, Winston instructed Diversified to begin construction in accordance with their contract which provided that the project be completed within 300 calendar days after commencement of construction.

Shortly thereafter, construction began with completion scheduled for mid-October 1968. Upon expiration of the 300 day period, however, the building was far from finished despite Winston’s repeated exhortations. Continental watched closely the developments at the construction site and was fully aware of the construction delays and problems. In addition, Continental had initiated a lawsuit against Diversified in that same year for non-performance of another construction contract and eventually obtained a favorable judgment.

After the scheduled completion date had passed, Winston officials met with Diversified in January and again in April 1969. In April, the project was still not finished even though more than five months had elapsed since the scheduled completion date. Continental was asked on more than one occasion to attend these meetings convened to resolve construction delays and problems. The surety, however, refused to attend. During discovery proceedings, Winston learned that Continental, as early as April 1968, shortly after construction had begun, had discussed denying that the bond was still in force. These discussions were not communicated to Winston.

In early spring of 1969, Winston faced the following crisis: the construction loan was about to mature; the permanent loan commitment was about to expire; and no progress was being made on the project. Accordingly, on April 7, 1969, after an earlier meeting to which Continental had been invited but refused to attend, Winston and Diversified entered into a letter agreement designed to accelerate construction. This agreement, intended as an assignment of the construction contract, permitted Winston to take possession of the premises, to assume construction of the project, and to take an assignment of Diversified’s subcontracts and other rights. It specifically contemplated, however, Diversified’s continuing participation in the contract. Moreover, one of its provisions stated that the agreement “does not modify or change the existing bond on the project which exists for the owner’s benefit.” The agreement, considered to be the most efficacious method of completing construction at the lowest cost and with the least delay, was believed to be authorized by Contract Article 33 governing assignment.

On the same day, April 7, 1969, Diversified notified Continental by telephone of the letter agreement and mailed a copy of it. Within a few days, Winston took over construction of the nursing home, and it was completed in mid-October 1969, approximately twelve months after the scheduled completion date. Winston took possession of the premises and began nursing operations a month later.

In December 1969, Winston submitted a claim to Continental on the performance and payment bond. When Continental refused to honor the bond, Winston brought this action in United States District Court on June 18, 1970.

The amended complaint alleged that the performance and payment bond had been executed by Continental to guarantee performance of the construction contract between Winston and Diversified; that the construction contract required Diversified to furnish all labor and materials for the construction of a nursing home in Georgia in accordance with certain plans and specifications; that Diversified had failed to do so; and that Continental had failed to honor the bond it issued in connection with the project. It also alleged that Continental had acted tortiously toward Winston by failing to relay to Winston information it learned concerning Diversified’s precarious financial condition.

In 1972, the case was tried before the district court sitting without a jury. Its decision was issued on March 2, 1973, and judgment was entered in favor of Continental. After a motion for reconsideration was denied, notice of appeal was filed on June 19, 1973.

In its opinion, the district court determined that Winston could not recover on the performance and payment bond because (1) the April 7 agreement was a novation of the construction contract that had the effect of discharging the surety in the absence of the surety’s consent; and (2) the failure of Winston to give Continental seven days written notice under Article 22 before terminating the employment of the contractor released Continental from its obligations on the bond. In addition, the court determined that Winston could not recover damages on either a common law tort or contract theory.

On appeal, Winston contends that the district court erred in concluding that the April 1969 agreement was a novation that discharged Continental, and argues further that if it were a novation, Continental consented to it in advance and therefore is not discharged. It also argues that even if it were a novation to which Continental did not consent, Continental, as a compensated surety, is not discharged because the novation was not actually detrimental to its interests. Further, Winston contends that the district court erred in denying recovery to it because of failure to comply strictly with the notice provisions of Article 22 of the construction contract. Finally, it contends that the district court erred in holding that Winston did not have a valid claim against Continental on common law tort and contract theories.

An examination of the opinion filed by the district court, of the briefs and record filed in connection with the appeal, and of Georgia law, convinces us that whether the April 7 agreement is interpreted as an assignment or as a termination of the contract, it did not discharge the surety. We also determine that the failure of Winston to comply strictly with the notice provisions of Article 22 did not excuse Continental from its undertaking to indemnify Winston under the bond. Accordingly, we need not decide the other assignment of error.

Under Georgia law, a material change in the terms of a contract is considered a novation and discharges a surety. Brunswick Nursing & Convalescent Center, Inc. v. Great American Insurance Co., 308 F.Supp. 297, 299-300 (S.D.Ga.1970); American Surety Co. of New York v. Garber, 114 Ga.App. 532, 151 S.E.2d 887 (1966).

In this case, the construction contract, which was expressly incorporated in the bond, permitted both an assignment of the contract and its termination under specified circumstances. Article 22, “OWNER’S RIGHT TO TERMINATE CONTRACT,” provided, in relevant part,

If the Contractor should persistently or repeatedly refuse or should fail, except in cases for which extension of time is provided, to supply enough properly skilled workmen or proper materials, ... or otherwise be guilty of a substantial violation of any provision of the Contract, then the Owner . . . may, without prejudice to any other right or remedy and after giving the Contractor, and his surety, if any, seven days written notice, terminate the employment of the Contractor and take possession of the premises and of all materials, tools and appliances thereon and finish the work by whatever method he may deem expedient.

By the very terms of the contract to which Continental agreed, Winston had an absolute right to terminate the employment of the contractor and to assume the construction of the home itself. Accordingly, even if the April 7 agreement be considered a termination of the contract, it was not a novation since it was contemplated by the terms of the contract. Instead, it was an implementation of one of the contract provisions. Winston, by the April 7 agreement, merely undertook to do that which Diversified had promised, but failed to do.

The next question is whether Continental was discharged from its obligation because Winston failed to give it written notice seven days in advance of taking over the construction. In deciding this question, we apply the surety law of the State of Georgia as expressed either by its legislature or by its highest court. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). And, in the absence of a disposi-tive statute or a controlling decision by the state’s highest court, we apply what we determine to be the state law after giving proper regard to relevant precedents of other courts of the state. Commissioner v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967).

Historically, an alteration of the primary obligation owed to the obligee discharged the surety. Bethune v. Dozier, 10 Ga. 235, 238-239 (1851), 10 Williston, Contracts, § 1240 (rev.ed.1917). The obligation of a surety was considered stricti juris, and even a slight deviation from the contract terms discharged the surety. The results of applying this rule were often harsh and unjust, especially when compensated sureties were relieved of their obligations because of technical breaches of the assured contract. Consequently, most courts departed from the rule of stricti juris in cases in which a surety had been compensated for its undertaking and developed the rule that a compensated surety is discharged only if the change is material and causes some injury, loss, or prejudice to it. See Montpelier v. National Surety Co., 97 Vt. 111, 122 A. 484, 33 A.L.R. 489 (1923), School District v. Massachusetts Bonding & Ins. Co., 92 Kan. 53, 142 P. 1077 (1914), Bross v. McNicholas, 66 Or. 42, 133 P. 782 (1913), Annot., 127 A.L.R. 10, 62-63 (1940), Annot., 12 A.L.R. 382 (1921), Note, 33 Tulane L.Rev. 717 (1959).

Although most jurisdictions now differentiate between compensated and uncompensated sureties for the purpose of determining contractual liability, there is recent authority in Georgia that appears to support the application of the stricti juris rule even when the surety is compensated. Brunswick Nursing & Convalescent Center, Inc. v. Great American Surety Co., supra, Peara v. Atlanta Newspapers, Inc., 120 Ga.App. 163, 169 S.E.2d 670 (1969).

The Georgia Supreme Court has not, however, definitively determined whether the distinction between compensated and uncompensated sureties applies in Georgia. Appellant has cited only two cases decided by the Supreme Court of Georgia in which the question of discharge of a surety has been discussed, and appellee has cited none. Neither case is dispositive. Zellner v. Hall, 210 Ga. 504, 80 S.E.2d 787 (1954) and Alropa Corp. v. Snyder, 182 Ga. 305, 185 S.E. 352 (1936) stand only for the proposition that a surety is discharged by an act of his principal or obligee that increases its risk unless it consents to the novation. They do not hold that a compensated surety is discharged by a change in the contract that does not increase the risk it has assumed.

In other instances, although the Georgia Supreme Court has spoken in terms of stricti juris in considering the liability of sureties, it has refused to give effect to unreasonable terms in surety contracts and has applied equitable principles in order to achieve just results. Thus, in Waldon v. Maryland Casualty Co., 155 Ga. 76, 116 S.E. 828 (1923), the court considered the effect of the failure of the obligee to comply strictly with contract provisions for service of process on the surety in an action on the bond. The pertinent portion of the contract stated:

Provided, however, that this bond is executed upon the following express conditions, the performance of each of which shall be condition precedent to any right of recovery hereon, anything in the contract to the contrary notwithstanding ... 2. That no claim, suit, or action by reason of any default shall be brought against the principal or surety after the 18th day of March, 1916, nor shall recovery be had for damages accruing after that date; that service of writ or process commencing any such suit or action shall be made on or before such date

155 Ga. at 80, 116 S.E. at 830. Service of process on the surety was not perfected until March 30, 1916, although the suit was filed before March 18. The court refused to construe the contract terms strictly and held that service on the surety company related back to the filing of the suit. It held that any other interpretation of the contract would empower court officers to prevent recovery by delaying service of process. Because the contract in Waldon stated that service of process before a certain date was a condition precedent to the surety’s liability, the court’s decision to hold the surety liable when the action was timely commenced evidences a policy of the Georgia Supreme Court to avoid an injustice that would result from giving effect to a technical breach of a contract of suretyship. And the Georgia Supreme Court applied equitable principles in an action against a surety who was not permitted to claim the rule of stricti juris when his own actions contributed to the default. Jones v. Hawkins, 60 Ga. 52 (1878).

Since Erie directs our attention to the statutes of the state as well as its high court decisions, we consider 28A Georgia Code Annotated, section 103 — 202, which provides:

Any change in the nature or terms of a contract is called a novation; such novation, without the consent of the surety, discharges him.

It is evident, however, that the Georgia legislature intended the sweeping provisions protecting sureties to apply only to uncompensated sureties. The very first section of the surety statute defines a contract of suretyship as

one whereby a person obligates himself to pay the debt of another in consideration of credit or indulgence, or other benefit given to his principal, the principal remaining bound therefor. It differs from a guaranty in this, that the consideration of the latter is a benefit flowing to the guarantor.

28A Ga. Code Ann. § 103-101.

The plain meaning of this section is that only uncompensated sureties were intended to benefit from this statutory protection and compensated sureties were to be treated as guarantors.

The statute has been so applied in cases where married women seek to bind their separate estates to secure the extension of credit to third persons. In Georgia, married women may not act as sureties and bind their separate estates but may act as guarantors. The determinative factor in deciding whether a married woman has agreed to act as a surety or as a guarantor is whether she has received “new, separate and independent” consideration for the undertaking. If she did not, she is a surety, for the purpose of the statute, and her separate estate is not bound by her undertaking. See, e. g., Southern Land & Development Co. v. Silvers, 499 F.2d 967 (6th Cir. 1974), Wolkin v. National Acceptance Co., 222 Ga. 487, 150 S.E.2d 831 (1966). Nevertheless, a third person, not a married woman, who obligates himself to pay the seller of goods in consideration of credit extended to a purchaser has, in Georgia, uniformly been considered a guarantor even though he receives no independent consideration.

In cases other than those concerning the power of married women to bind their separate estates and concerning the extension of credit to the purchaser of goods, the line of demarcation between sureties, who are said to be favorites of the law, and guarantors, who are said not to be, is not clear despite the statutory definition of those terms. However, we observe that in none of the cases cited by the parties has a compensated surety been discharged because of the failure of its obligee to comply strictly with a provision of the assured agreement unless the departure from its terms increased the surety’s risk or changed the contract to the surety’s detriment. See, e. g., Alropa Corp. v. Snyder, supra, Hill v. O’Neill, 101 Ga. 832, 28 S.E. 996 (Ga.1897), Peara v. Atlanta Newspapers, Inc., supra, Palmes v. Southern Mechanical Co., 117 Ga.App. 672, 161 S.E.2d 413 (1968), Mayor & Aldermen of the City of Savannah v. Glen Falls Insurance Co., 104 Ga.App. 879, 123 S.E.2d 293 (1961), cf. American Surety Co. of New York v. Garber, 114 Ga.App. 532, 151 S.E.2d 887 (1966).

From our review of the statutes and case law, we conclude, as many of the Georgia courts of appeals have, that the law of suretyship in Georgia is unsettled, and often contradictory. E. g., General Finance Corp. of Atlanta, Northeast v. Welborn, 98 Ga.App. 280, 105 S.E.2d 386 (1958), Etheridge v. W. T. Rawleigh Co., 29 Ga.App. 698, 116 S.E. 903 (1923), A. B. Small Co. v. Claxton, 1 Ga.App. 83, 57 S.E. 977 (1907). Since there is no authoritative expression of Georgia law, we may exercise our judgment based upon applicable principles of state law, upon relevant decisions in other jurisdictions, and upon our own conceptions of sound and just rules. E. g., Putnam v. Erie City Manufacturing Co., 338 F.2d 911 (5th Cir. 1964), New England Mutual Life Insurance Co. v. Mitchell, 118 F.2d 414 (4th Cir.) cert. denied, 314 U.S. 629, 62 S.Ct. 60, 86 L.Ed. 505 (1941).

We believe that the Georgia Supreme Court, if it were deciding this case, would follow recent authority and refuse to apply the outmoded strieti juris rule that some Georgia courts have stated is applicable to compensated sureties. Instead, we believe the supreme court would determine that appellant’s failure to give seven days notice was an insubstantial breach in light of the circumstances of this case, and that it caused no prejudice or injury to the surety.

Under modern American surety law, a mere technical breach of a surety contract, not resulting in damage or prejudice to the surety, will not release it from its obligations. Montpelier v. National Surety Co., 97 Vt. 111, 122 A. 484, 33 A.L.R. 489 (1923), Doyle v. Faust, 187 Mich. 108, 153 N.W. 725 (1915), School District v. Massachusetts Bonding & Ins. Co., 92 Kan. 53, 142 P. 1077 (1914), Bross v. McNicholas, 66 Or. 42, 133 P. 782 (1913), Annot., 127 A.L.R. 10, 62-63 (1940), Annot., 12 A.L.R. 382 (1921), Simpson, Suretyship 111 (1950). This is the situation here. In the bond it executed for the benefit of Winston, Continental agreed, for a substantial consideration, that the bond would “remain in full force and effect” until the principal, Diversified,

shall well and faithfully perform the things agreed by him to be performed, according to the terms, conditions, and requirements of the foregoing contract; and shall indemnify and save harmless the Obligee, and its officers, agents and employees, from any and all claims for damages, costs, judgments, and other expenses, arising or growing out of this contract . . .

Moreover, when Continental executed the bond, or shortly thereafter, it was aware of the precarious financial condition of Diversified and of its failure to perform another construction contract to which Continental had acted as surety. Continental kept itself informed of the progress of construction of the nursing home and was aware of the delays and difficulties that finally led to the April 7 agreement. ■ Continental was invited to discuss construction problems with Diversified and Winston several times but declined to attend any meeting including the one on April 7.

Had the April 7 agreement provided that it would not become effective until seven days after receipt by Continental, there is no doubt that Continental would not have been discharged. We do not believe that this insignificant distinction, in light of Continental’s knowledge of the construction problems and its rejection of Winston’s repeated invitations to discuss them, should require a different result.

Reversed and remanded for entry of judgment for appellant.

      . The assignment article of the contract provides:
      ASSIGNMENT
      Neither party to the Contract shall assign the Contract or sublet it as a whole without the written consent of the other, nor shall the Contractor assign any moneys due or to become due to him hereunder, without the previous written consent of the Owner.

      . In this case an attorney had acted as surety for his client and procured a discharge in bankruptcy. The attorney asserted that the bankruptcy adversely affected the risk he undertook. The court held: “Whilst there is nothing immoral in what [surety] did as counsel, yet he does not come into court in such manner as entitles him to claim stricti juris as his measure of right.” 60 Ga. at 56.

      . We observe here that Louisiana has surety-statutes similar to those of Georgia, and Louisiana courts have given literal effect to the statutes’ terms. Art. 2198 of the Louisiana Civil Code provides that “[t]he novation that takes place with regard to the principal debt- or, discharges the surety,” and is similar to section 103-202 of the Georgia Code. Art. 3061 of the Louisiana Civil Code provides that any act of the obligee which is prejudicial to the rights of the surety discharges it. This provision is similar to section 103-203 of the Georgia Code. Originally, Louisiana courts made no distinction between accommodation sureties and compensated sureties, but a more realistic approach was taken in Texas & Pacific R.R. v. United States Fiduciary & Guaranty Co., 16 So.2d 671 (La.App.1944), where strict construction of surety contracts was limited to accommodation sureties.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. ORR IRON, INC., Respondent.
    No. 74-1149.
    United States Court of Appeals, Seventh Circuit.
    Argued Nov. 19, 1974.
    Decided Jan. 13, 1975.

      Elliott Moore, Deputy Associate Gen. Counsel, William M. Bernstein, Atty., National Labor Relations Board, Washington, D. C., for petitioner.
    Joseph A. Yocum, Evansville, Ind., for respondent.
    Before SWYGERT, Chief Judge, CUMMINGS, Circuit Judge, and WYZANSKI, Senior District Judge .

       Senior District Judge Charles Edward Wyzanski, Jr., of the District of Massachusetts, is sitting by designation.

   PER CURIAM.

This case comes upon the application of the National Labor Relations Board pursuant to Section 10(e) of the National Labor Relations Act, as amended (61 Stat. 136, 73 Stat. 519, 29 U.S.C., Sec. 151 et seq.), for enforcement of its December 12, 1973 order, reported at 207 N.L.R.B. No. 133, commanding Orr Iron Inc. to cease and desist from unfair labor practices interfering with employees in the exercise of their Section 7 rights, and directing the Company to offer reinstatement with back pay to a former employee Collins, to mail to each of nine unfair labor practice strikers a letter rescinding the Company’s so-called “replacement” letter of July 10, to offer immediate and full reinstatement to those strikers, and to make them whole for any loss they may have suffered as a result of the Company’s failure to reinstate them beginning five days after their unconditional applications for reinstatement. The order further directs the Company to bargain with the Union upon request and to post appropriate notices and to mail a copy of such a notice to each of the unfair labor practice strikers.

The issues presented are whether substantial evidence on the record as a whole supports the Board’s finding that the Company interfered with its employees in the exercise of their Section 7 rights; whether substantial evidence on the record as a whole supports the Board’s finding that the Company violated Section 8(a)(1) and (3) of the Act by discharging employee Jim Collins for refusing to remove a Union button, and by subsequently terminating nine unfair labor practice strikers; and whether the Board properly found that the Company violated Section 8(a)(5) and (1) of the National Labor Relations Act by refusing to bargain with the Union as the representative of its employees, and finally whether a bargaining order is an appropriate remedy for the Company’s unfair labor practices.

This court has jurisdiction to consider the N.L.R.B.’s application for enforcement of its December 12, 1973 order. 61 Stat. 136, 73 Stat. 519, 29 U.S.C. Sec. 151 et seq.

The record as a whole shows that there is substantial evidence to support the Board’s findings of fact, which are briefly summarized below:

The Company operates an industrial division and a steel division located in a five-story building and two adjoining warehouse buildings. The warehouse crew of the steel division has a day shift and a night shift, each made up of a working foreman and three to five steel handlers,' each of whom is paid at an hourly rate. The warehouse is under the overall supervision of Charles Merrick, an Operations Manager, who is assisted by a warehouse Superintendent James Simpson. The Company employed Collins as a steel handler and relief truck driver during the latter part of 1967 when the Company operated only one shift. When the Company instituted a second shift in 1968, it frequently transferred Collins to the night shift on a temporary basis, for the purpose of training a new night shift foreman in cutting, loading, and equipment operation. Collins was told that the reason for these new assignments was his superior knowledge and experience in the work. After a few temporary assignments of this character, Collins, in accordance with his express preference for regular first shift work, was returned to the first shift following each training period, with the exception of the final one, when he was given a regular truck-driving assignment.

In October 1970 Collins asked Superintendent Simpson to take him off the truck-driving assignment. Simpson informed Collins that the only available job was as night-shift foreman. Collins accepted the job on the condition that Simpson would get a replacement and return Collins to his former day-shift work. Although Simpson agreed to this condition he in fact did not send any replacement, and Collins remained as night-shift foreman at the wage rate he had received before he was assigned to truck-driving and so remained as night-shift foreman until his discharge in June 1972.

When assigned as night-shift foreman, Collins made it plain that he did not want to have anything to do with transfers of employees, and Vice President Fridrich agreed that he would take care of such matters. As night foreman, Collins was not included in supervisory meetings nor given authority to recommend or affect actions involving wages, hiring, suspension, discipline, layoff, recall, transfer, assignment, granting of time off, adjustment of grievances, or other terms and conditions of employment. Nor was he even consulted about such matters.

In 1969 while training a foreman, Collins told one of the steel handlers to do his work or to go home, and on another occasion Collins spoke with Simpson about the poor attendance of another employee whom he sent to Simpson. But these were incidental and extraordinary exceptions to Collins’ regular practice, and when looked at against a total background do not in any way show that Collins had the authority to discipline or recommend the discipline of employees as one of his regular functions. It was Collins’ practice to report to work 15 minutes before the beginning of the night shift, and to receive from Superintendent Simpson the clipboard of invoices to be filled that night. Collins assigned work to the steel handlers. This work consisted in taking one of the invoices, accumulating the merchandise specified in that invoice, placing it on a truck or skid, performing any cutting or banding required by the invoice, and depositing the material together with the invoice in a place where other employees would complete the work or load the merchandise.

Collins spent almost all of his time performing manual labor like that performed by other employees on the shift. But he did occasionally go where the steel handlers were working to see what they were doing. His primary responsibility was to get the trucks loaded. At the end of the shift, Collins left copies of complete invoices on Simpson’s desk.

Superintendent Simpson was ordinarily present during the first hour and a half of the night shift. Warehouse Operations Manager Merrick sometimes remained longer. After both of them had gone home Collins had standing instructions to call one of them if any problem arose. This he did frequently.

Problems of overtime were handled by Collins if less than an hour was involved. But otherwise, Superintendent Simpson made the necessary determinations.

Turning now from a review of the facts with respect to Collins’ employment and duties, we address ourselves to the facts shown with respect to the Union’s organizing campaign.

On June 26, 1972, the Union began its campaign. On that day employee Don Nally secured Union authorization cards from ten employees.

On June 29, 1972 the Union had a meeting of the Company’s employees at the Union Hall. All of the night shift and four of the day shift warehouse employees attended and received Union buttons. The night shift employees returned to work wearing the buttons on the fronts of their shirts. That night Collins fastened Union buttons to the hard hats of the night-shift employees. The next morning Collins, reporting to perform overtime work, wore his hard hat with the Union button attached and during the morning fastened such buttons to the hard hats of the day crew.

On June 30, 1972 the Company received by hand a letter addressed to Vice President Fridrich demanding recognition of the Union in truck-driver and warehouse unit, and requesting a meeting. The Company on the same day refused to recognize the Union, questioned its majority, and declined to meet with its representatives. Later that day Operations Manager Merrick sought to speak with Collins alone, but the latter told him if he wanted to talk, he could do so to the employees as a group. Then Merrick approached another employee, Allender, and asked him what the button was. About noon, Merrick approached Collins again and asked what was going on and what the employees wanted; and when Collins replied that they wanted more money, Merrick asked how much. But after Collins told him, Merrick walked away. At 2:45 p. m. Vice President Fridrich asked Collins to meet him, and they went to an office where Merrick and Company Secretary John Orr joined them. Fridrich said that “no supervisor of mine is going to wear a union button” and gave Collins the choice of removing the button or being fired. Collins refused to remove the insignia, and Fridrich told him that in that event he was fired. When Collins reported this termination to his fellow employees, they started to leave the warehouse to go home. Superintendent Simpson came out of his office and told the employees to report for a meeting. On reporting, they were addressed by Fridrich who told them that there never had been a union at the Company, and there was not going to be then, that he would fight it to the limit, at all costs and in any way he could. Fridrich also told the employees that he was going to give them the same choice he had given to Collins, “to go home and think about it and take the buttons off, or . . . ”

Fridrich, Merrick, and Simpson left the meeting, and then Company Secretary Orr told the employees that the Company had operated for 135 years without a union, and that he did not want a union, but if that was what the employees wanted, he could do nothing about it. He told them he thought they were making a bad mistake and tried to get them to return to work. When the employees said they wanted a decent wage and job security written into a contract, Orr asked how much money they wanted and promised to take up the matter with his father, Company President Sam Orr. One of the men said that if the Company fired Collins everybody was going to walk out. Orr said that he agreed with Fridrich that Collins would have to take off the Union button or go home; whereupon the employees decided to leave the premises.

While the employees were hanging around, Simpson asked Collins if he were going to work. Collins said he wasn’t going to take the button off, so Simpson said Collins was fired. Then the employees set up a picket line.

On July 10, 1972 the Company wrote letters to Collins and to each striker. To Collins the Company said that it confirmed that he had been discharged; to the strikers, the Company said that they had been permanently replaced.

The foregoing recital, which falls within a standard pattern, makes it plain that there was substantial evidence on the record as a whole to support the Board’s findings that Collins was within the meaning of the National Labor Relations Act an employee who was not a supervisor, within the definition set forth in Section 2(11) of the Act; that there was substantial evidence on the record as a whole that the Company violated Section 8(a)(3) and (1) of the Act by discharging Collins for refusing to remove a Union button, and by subsequently terminating nine unfair labor practice strikers; that substantial evidence on the record as a whole supports the Board’s finding that the Company interfered with its employees in the exercise of their Section 7 rights, in violation of Section 8(a)(1) of the Act; that substantial evidence on the record as a whole supports the Board’s finding that the Company violated Section 8(a)(5) and (1) of the Act by refusing to bargain with the Union as the representative of its employees; and that a bargaining order is an appropriate remedy for the Company’s unfair labor practices.

Bearing in mind the scope of our review as enunciated in Universal Camera Corp. v. N. L. R. B., 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951), and a host of subsequent cases, we have no doubt that on each of the subsidiary points as well as on the main conclusion, explicit and implicit in the Board’s findings, the evidence is not only substantial but virtually irresistible, in supporting the ultimate order which we are asked to enforce. No doubt, particular items, for example, in connection with the functions of Collins, are ambiguous or perhaps even of a nature commonly performed by supervisory employees, but the total picture is clearly such as to show that Collins was the equivalent of a “straw boss.” Nor can anyone doubt that the kind of reactions expressed by the chief executive officers and supervisors of the Company displayed that degree of hostility to union organization which every employee, sophisticated or naive, understands to be, as we understand it to be, an interference with his freedom of choice.

Insofar as the Company suggests that the proceeding before the N.L.R.B. is vitiated by the alleged bias and prejudice of the administrative trial judge, we have examined with care the record and find that the canard is wholly without merit.

Petition for enforcement of the order of the N.L.R.B. granted as prayed.


author: BRIGHT, Circuit Judge. ROSS, Circuit Judge

text:
    INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA, U.A.W., and its Local # 125, Appellees, v. INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION, THERMOTECH DIVISION, a Delaware Corporation, and Rainbow Plastics Products, Inc., a Minnesota Corporation, Appellants.
    No. 74-1316.
    United States Court of Appeals, Eighth Circuit.
    Submitted Oct. 16, 1974.
    Decided Jan. 8, 1975.

      John C. Zwakman, Minneapolis, Minn., for appellants.
    Robert J. Tennessen, Minneapolis, Minn., for appellees.
    Before HEANEY, BRIGHT and ROSS, Circuit Judges.
   BRIGHT, Circuit Judge.

The United Auto Workers (Union) initiated this action against International Telephone and Telegraph Corporation (ITT or Company) to compel arbitration of certain grievances between Union-represented employees and the Company.

The Company, claiming that no valid collective bargaining agreement now exists between the two parties, argues that it need not arbitrate the employees’ grievances. The district court rejected the Company’s contentions and ordered the entire matter to arbitration, including the threshold issue of the existence of the bargaining agreement. The Company appeals from this ruling.

We examine the factual background. In 1969, the National Labor Relations Board certified the United Auto Workers as the bargaining representative for production and maintenance workers of Rainbow Plastic Products, Inc. (Rainbow), located at Golden Valley, Minnesota. At the time of certification, Rainbow was a wholly-owned subsidiary of Thermotech Industries, Inc. (Thermo-tech). Thermotech owned another subsidiary, Cosum Corporation (Cosum), also located at Golden Valley, Minnesota. In 1970, ITT acquired Thermotech, including its subsidiaries, and these corporations became ITT’s Thermotech Division. The Thermotech subsidiaries in part engaged in the manufacture of plastic products. The Union, although representing Rainbow employees, had not represented the employees at Cosum.

The Union and Rainbow entered into a collective bargaining agreement on November 20, 1972, expiring two years later on November 18, 1974. That agreement described the employer as Rainbow Plastic Products, Inc., of Golden Valley, Minnesota. During negotiations for the 1972 agreement, the Company advised the Union that it contemplated closing both the Rainbow and Cosum facilities and transferring their functions to a new plant in Lakeville, Minnesota, some 40 miles away. These plans reached fruition during the following year and the Rainbow and Cosum plants were closed in November 1973, and their operations transferred and consolidated in a new facility at Lakeville.

Prior to this shutdown, the Union and the Company had entered into a separate letter agreement, dated January 15, 1973, which stipulated that present Rainbow employees who desired employment at the new facility would receive “preferential hiring” privileges and, if hired, would be entitled to seniority based on their initial employment with Rainbow. For employees not retained, the Company agreed to grant severance pay benefits. Approximately 40 Union-represented Rainbow employees transferred to the new plant, although 13 voluntarily terminated their employment by December 1, 1973. Thus, at the time of the hearing in the district court, 27 of the 110 workers employed at the Lakeville facility were former Rainbow workers.

Soon after the Lakeville facility opened the Union, pursuant to the 1972-1974 bargaining agreement, filed grievances dealing primarily with wages and seniority rights on behalf of several of the 27 former Rainbow workers. Although the bargaining agreement between the Union and Rainbow contained a specific procedure to resolve grievances, including arbitration, the Company rejected these grievances and refused arbitration. The Union then brought the present action.

On this appeal, the Company presents two main contentions. First, it contends that the January 15, 1973, letter, referred to earlier, clearly and unambiguously served to terminate the then-existing collective bargaining agreement; and that even if the district court found the bargaining agreement and the January 15 letter to be unclear on the termination issue, the court erred in deferring the issue of contract termination to the arbitrator. Second, the Company contends that the trial court erred in determining that the bargaining agreement was not specifically limited in application by its geographic terms to the plant at Golden Valley, Minnesota.

I.

We examine the contract termination issue and the dispute between the parties centering on the January 15, 1973, letter from the Company to the Union. The letter, directed by the Company to the Union’s principal negotiator, Francis Jeffrey, was signed on behalf of the Company by Eugene M. Booker, President of Thermotech, and by Jeffrey on behalf of the Union. The text reads as follows:

January 15, 1973
Dear Jeff [Francis Jeffrey]:
Pursuant to our discussion with you and members of the bargaining committee at Rainbow Plastics on January 8, I am summarizing the points we agreed to in that meeting and requesting that you acknowledge the agreement by signing in the space provided below.
AGREEMENT BETWEEN ITT THERMOTECH DIVISION RAINBOW PLASTICS OPERATIONS AND U.A.W. LOCAL 125
The complete agreement regarding the closing down of the Rainbow operation and the effects of that move on the unionized employees of that unit is included below:
1. For those employees so desiring, preferential hiring will be given to any present Rainbow employee who wishes a job at the new Lakeville facility. In that connection for any employee so hired, he will retain his original date of employment as his seniority date for purposes of determining the extent of his benefits and other such matters.
2. For those current employees not employed at the Lakeville facility, a severance allowance will be paid equal to the vacation amount they were eligible for on May 1, 1973.. In order to be eligible for such a payment, an employee must be working continuously through the 24th of August, 1973. Any employee who terminates or leaves for any reason prior to that date will not be eligible for severance allowance.
3. The union will provide a list to the company declaring those employees who wish to be hired at the Lakeville facility. Such a list must be submitted to the company no later than July 1, 1973. Any employee whose name does not appear on such list shall not receive consideration for transfer. Any person whose name appears on the transfer list and who does not accept a transfer when offered by the company shall forfeit whatever severance pay he may otherwise have hereunder.
This agreement represents the full and final agreement between the parties and includes all matters discussed regarding the shut down of the Rainbow Plastics operation and the termination of the agreement and the effects of such shut down on the employees included in the bargaining unit represented by Local 125 of the United Auto Workers.
/%/ FRANCIS JEFFREY /s/ EUGENE M. BOOKER

The district court decision recognized that a duty to arbitrate between the Company and the Union would not survive a clear and unambiguous termination of the underlying collective bargaining agreement. But the district court found that the intent of the parties was ambiguous on termination and held the question of termination to be for the arbitrator.

In its argument, the Company focuses on the concluding paragraph of the January 15 letter in arguing that the parties expressed an intent to terminate or rescind the bargaining agreement. We agree with the district court that the letter agreement is not so unequivocal as to call for a ruling that as a matter of law the parties intended a termination of all rights under the collective bargaining agreement. We confine our discussion to whether the arbitrator or the district court should be called upon to construe the agreements.

On the question of who should determine the issue of contract termination, the district court said:

In view of the well recognized virtues of arbitration and the unclarity surrounding the purported termination of the instant bargaining agreement, the Court cannot say with assurance that the contract has been terminated as a matter of Federal labor law. Rather, this is a determination best left to the arbiter. * * * Having this decision be made by the arbiter is in furtherance of Federal labor policy favorable to submitting doubtful questions to arbitration. N.E.2d 884 (1966). In these two cases the courts ruled that the specific terms of the arbitration clauses were broad enough to encompass a dispute going to the issue of contract termination.

The district court cited no case directly supporting this holding.

The governing principles of law on arbitration are well established. Na-' tional labor policies favor arbitration as a means of settling labor-management disputes and all doubts should be resolved in favor of arbitrability. United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960); United Steelworkers of America v. Warrior & Gulf Nav. Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); United Steelworkers of America v. American Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960). But since arbitration is a matter of contract, a party cannot be required to submit to arbitration any dispute that he has not agreed to have arbitrated. Gateway Coal Co. v. United Mine Workers of America, 414 U.S. 368, 374, 94 S.Ct. 629, 38 L.Ed.2d 583 (1974); United Steelworkers of America v. Warrior & Gulf Nav. Co., supra, 363 U.S. at 582, 80 S.Ct. 1347.

It is also clear that whether an employer is bound to arbitrate is normally a threshold matter to be determined by a court on the basis of the contract entered into by the parties. Operating Engineers Local 150 v. Flair Builders, Inc., 406 U.S. 487, 491-492, 92 S.Ct. 1710, 32 L.Ed.2d 248 (1972); John Wiley & Sons v. Livingston, 376 U.S. 543, 546-547, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 82 S.Ct. 1318, 8 L.Ed.2d 462 (1962). The district court found, however, that the issues of contract expiration or termination should be judicially resolved only in those cases “characterized by indisputable evidence” of expiration or termination; and where there is ambiguous language relating to an alleged termination, the threshold issue of contract expiration or termination should be submitted to arbitration. We disagree.

When a claim has been made that the collective bargaining agreement, which contains an arbitration clause, has terminated or expired, the courts of appeals have generally held these claims to be for judicial resolution regardless of whether the language in question can be characterized as ambiguous or unambiguous.

For example, in the following cases, the facts indicate a genuine ambiguity in the language involved, yet the courts in each case ruled that the issue of contract expiration or termination should be resolved judicially. Oil, Chemical & Atomic Workers Local 7-210 v. American Maize Products Co., 492 F.2d 409 (7th Cir.), cert. denied, 417 U.S. 969, 94 S.Ct. 3173, 41 L.Ed.2d 1140 (1974); International Ladies’ Garment Workers’ Union v. Ashland Industries, 488 F.2d 641 (5th Cir. 1974); United Auto Workers Local No. 998 v. B. & T. Metals Co., 315 F.2d 432 (6th Cir. 1963); United Mine Workers of America, District 22 v. Roncco, 314 F.2d 186 (10th Cir. 1963); Proctor & Gamble Independent Union v. Proctor & Gamble Mfg. Co., 312 F.2d 181 (2d Cir. 1962). The language under consideration in two other cases has been characterized as relatively unambiguous and there the courts have also ordered judicial resolution of the issue of contract expiration or termination. Teamsters Local No. 249 v. Kroger Co., 411 F.2d 1191 (3d Cir. 1969); M.K.&O. Transit Lines, Inc. v. Association of Street, Electric Railway and Motor Coach Employees, 319 F.2d 488 (10th Cir. 1963).

An exception to this general rule does exist, however, where the parties have agreed to arbitrate issues of contract termination or expiration. For example, in Electrical Workers Local No. 4 v. Radio Thirteen-Eighty, Inc., 469 F.2d 610 (8th Cir. 1972), the union sought arbitration of a dispute dealing with the dismissal of several employees who belonged to the union. The employer, however, claiming that the bargaining agreement had been terminated, refused to arbitrate. This court ordered the entire matter to arbitration, including the initial claim of the employer that the entire bargaining agreement had terminated. This court premised its ruling on the breadth of the arbitration procedures contained in the bargaining agreement which mandated arbitration “[i]n the event of a dispute, difference or disagreement * * * concerning the interpretation or application of the terms of this Agreement * * *. (Emphasis added).” 469 F.2d at 614. We there held that such a broad arbitration clause indicates an intent to arbitrate disputes relating to a purported termination or expiration of the bargaining agreement. See also United Rubber Workers Local 198 v. Interco, Inc., 415 F.2d 1208 (8th Cir. 1969); Winston-Salem Printing Pressmen’s Union v. Piedmont Publishing Co., 393 F.2d 221 (4th Cir. 1968). Cf. Prima Paint v. Flood & Conklin, 388 U.S. 395, 406, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).

In applying these principles of labor law to the instant case, we hold that the district court erred in submitting the issue of contract termination to the arbitrator. The arbitration clause, although phrased broadly, arises in the context of the grievance procedures and we find no indication in the contract language that the parties ever intended the arbitration clause to apply to the overall issue of contract termination. Moreover, the issue of termination of the bargaining agreement rests on the construction of the January 15, 1973, letter agreement. This letter is a document separate from the bargaining agreement. We find no language in any of the pertinent writings indicating an intention that an arbitrator should interpret the meaning of the January 15 letter. The arbitration clause in the bargaining agreement specifically confines its effect to the “interpretation or application of the terms of this agreement.” (Emphasis added).

Thus, under the facts of this case, the district court should have resolved the issue of contract termination itself and, accordingly, we reverse and remand on this issue.

II.

The Company further argues that regardless of the outcome of the contract termination issue, because of a claimed geographic limitation in the existing collective bargaining agreement, the agreement applies only to the Rainbow plant in Golden Valley, Minnesota, and not to the new facility at Lakeville, Minnesota. For this proposition, the Company relies on two provisions of the bargaining agreement which specifically refer to Golden Valley, Minnesota. Article II of the agreement, entitled “Union Recognition,” reads in part:

The International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America, and its Local 125 are recognized by the Company as the sole bargaining agency for all production and maintenance employees employed at Rainbow Plastics Products in Golden Valley, Minnesota * * *[.]

The preamble to the agreement recites:

This agreement made and entered into this 20th day of November, 1972, by and between Rainbow Plastics Products of Golden Valley, Minnesota hereinafter referred to as the Company, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America; and its Local 125, UAW, hereinafter referred to as the Union * * *[.]

Additionally, the Company notes that the certificate of representation issued by the National Labor Relations Board authorizes the Union to represent “all production and maintenance employees of the Employer at its Wayzata Boulevard operation in Minneapolis, Minnesota * * *.” The Wayzata Boulevard location designates the Rainbow plant in Golden Valley.

The district court rejected the Company’s contention, relying on Zdanok v. Glidden Co., 288 F.2d 99 (2d Cir. 1961), aff’d on other grounds, 370 U.S. 530, 82 S.Ct. 1459, 8 L.Ed.2d 671 (1962). In Zda-nok, the employer moved his plant from Elmhurst, New York, to a newly established plant in Bethlehem, Pennsylvania. The employer refused to recognize the seniority provisions of the existing collective bargaining agreement written for plant facilities at Elmhurst, New York, as applicable at Bethlehem. In a divided opinion the Second Circuit held that the employees were entitled to seniority rights at the new plant. The district court in the instant case, in applying the Zdanok precedent, stated:

Here, as in Zdanok, designation of the only pertinent plant was done by identifying its address. In both cases there was no other language purporting to restrict the applicability of the contract in the event of a change of geographic location. Because of the union’s awareness of the probability of imminent relocation, the most “rational construction of the contract would seem to require that the statement of location was nothing more than a reference to the then existing situation, and had none of the vital significance which the defendant[s] would attach to it.”

The Company urges that we reject this reasoning, principally because Zda-nok has been specifically overruled in United Auto Workers Local 1251 v. Robertshaw Controls Co., 405 F.2d 29 (2d Cir. 1968). Robertshaw, as well as Oddie v. Ross Gear and Tool Co., 305 F.2d 143 (6th Cir.), cert. denied, 371 U.S. 941, 83 S.Ct. 318, 9 L.Ed.2d 275 (1962), and Wimberly v. Clark Controller Co., 364 F.2d 225 (6th Cir. 1966), has adopted the rule that employees covered by a collective bargaining agreement containing a geographic limitation to the existing plant do not become entitled to seniority rights under such an agreement on relocation or transfer of plant facilities to another state.

These precedents, however, do not directly apply to the situation here. First, the plant relocation is not to another state but rather to a location close to the Minneapolis metropolitan area. Second, the record in the instant case discloses that prior to the execution of the collective bargaining agreement of November 20, 1972, the contracting parties had discussed the possibilities of relocation. On this issue the bargaining agreement provides:

If, for any reason, it becomes necessary to relocate the Rainbow plant, the Company agrees to negotiate such terms as they may apply to the affected employees. [Article V, Clause 9.]

As we have already noted, the parties negotiated an agreement, dated January 15, 1973, covering preferential hiring upon relocation. The issue remains, as discussed earlier, whether that document terminated the collective bargaining agreement or whether the letter agreement and the bargaining agreement together articulate the rights of the Union’s former Rainbow workers now at the new Lakeville facility.

The Company argues its geographical limitation contention as an issue apart from a determination of whether the January 15th letter terminated the collective bargaining contract. Yet, the crucial overall question is whether the rights of Rainbow’s transferred employees now at the Lakeville plant are governed solely by the provisions of the January 15, 1973, document or by the 1972 collective bargaining agreement as modified by the January 15 document.

Under these circumstances, the question of the geographic limitation of the collective bargaining agreement is not separable from the overall question of contract termination but, rather, we believe that the two issues are inextricably intertwined.

Accordingly, on remand, the geographic limitation language in the bargaining agreement should be taken into account as evidence (with other evidence in the record) bearing on the question of whether the collective bargaining agreement has been terminated. If the district court rules affirmatively on that overall question, the action should be dismissed. But if its ruling is in the negative, the court’s order for arbitration of the underlying grievances will stand.

We remand for proceedings consistent with this opinion. The parties shall bear their own costs of this appeal.

ROSS, Circuit Judge

(dissenting).

I agree with the majority’s determination that it was the duty of the district court to décide the issue of contract termination rather than submitting it to the arbitrator. However, in my opinion, it is clear as a matter of law that the bargaining agreement applies only to the plant at Golden Valley, Minnesota and terminated upon the cessation of business by the company at that location.

The union contract provides specifically that the union is “recognized by the Company as the sole bargaining agency for all production and maintenance employees employed at Rainbow Plastics Products in Golden Valley, Minnesota * * *.” (Emphasis supplied.) The certificate of representation issued by the National Labor Relations Board also contains a geographical limitation to the Golden Valley plant. The only reference in the contract to a possible change in location of the plant is in ARTICLE V dealing with seniority. Section 9 of that article provides that “[i]f, for any reason, it becomes necessary to relocate the Rainbow plant, the Company agrees to negotiate such terms as they may apply to the affected employees.” Such negotiations did, in fact, take place, resulting in the termination letter agreement dated January 15, 1973.

Under these circumstances I would adopt the rule that a collective bargaining agreement which by its terms is limited to one specific geographical location does not apply on relocation or transfer of plant facilities to a completely different location. Oddie v. Ross Gear and Tool Co., 305 F.2d 143, 148-149 (6th Cir.), cert. denied, 371 U.S. 941, 83 S.Ct. 318, 9 L.Ed.2d 275 (1962). See also Local 1251, UAW v. Robertshaw Controls Co., 405 F.2d 29, 31-33 (2d Cir. 1968); Wimberly v. Clark Controller Co., 364 F.2d 225, 228 (6th Cir. 1966); Woody v. Sterling Aluminum Products, Inc., 243 F.Supp. 755, 776 (E.D.Mo.1965), aff’d, 365 F.2d 448 (8th Cir. 1966), cert. denied, 386 U.S. 957, 87 S.Ct. 1026, 18 L.Ed.2d 105 (1967); Slenczka v. Hoover Ball and Bearing Co., 215 F.Supp. 761, 763-765 (N.D.Ohio 1963). This rule is even more appropriate where, as here, there is a merger of two plants in a third location resulting in the union representing only a small number of employees within a particular bargaining unit.

Rather than remanding this case for further proceedings, I would reverse the judgment of the district court with directions to enter judgment for the defendant company. Regardless of the outcome of the contract termination issue, the collective bargaining agreement should not be applicable in the new Lakeville, Minnesota facility.

      . International Union, United Automobile Aerospace and Agricultural Implement Workers of America and its Local # 125.

      . The named defendants are International Telephone and Telegraph Corporation, Thermo-tech Division, a Delaware corporation, and a subsidiary, Rainbow Plastics Products, Inc., a Minnesota corporation.

      . The district court opinion is unpublished. No. 4-73-Civil 550 (D.Minn., Mar. 13, 1974).

      . The grievance clause of the bargaining agreement reads in part as follows:
      ARTICLE XII
      GRIEVANCE PROCEDURE
      1. A complaint pertaining to the interpretation or application of the terms of this agreement shall first be discussed by the employee involved and his immediate supervisor and/or plant superintendent. Unless a grievance is submitted at this step within five (5) days of the alleged violation, the grievance shall be deemed to be without merit for consideration by the parties. If a properly lodged grievance is not resolved within two (2) working days, it may be reduced to writing and referred within an additional working day to:
      Step 1 — Between the employee, his shop steward, and the plant manager. If it is not satisfactorily resolved within five (5) additional working days, it may be referred to Step 2 with an additional two (2) working days.
      Step 2 — Between the chief steward, the Union business representative and the designated Company representative. If not satisfactorily resolved at this step within five (5) working days or a mutually agreed upon extension, it may be referred to arbitration, such arbitration should be scheduled within an additional ten (10) working days.
      ******

      . The district court opinion makes reference on a compare basis to Winston-Salem Printing Pressmen’s Union v. Piedmont Publishing Co., 393 F.2d 221 (4th Cir. 1968), and Burt Building Material Co. v. Teamsters Local 1205, 18 N.Y.2d 556, 277 N.Y.S.2d 399, 223

      . See note 4 supra.


author: ROBERT P. ANDERSON, Circuit Judge: IRVING R. KAUFMAN, Chief Judge

text:
    GAJON BAR & GRILL, INC., and James Francione, Plaintiffs-Appellees, v. Eugene KELLY, Individually and in his capacity as Police Commissioner of the County of Suffolk, State of New York, Defendant, and Paul J. Fitzpatrick, Individually and as Supervisor of the Town of Smithtown, and Vincent J. Trimarco, Individually and as Town Attorney of the Town of Smithtown, Defendants-Appellants, and Robert Hoss, Individually and as a member of the Suffolk County Police Department, and Emil Ortolani, Individually and as a member of the Suffolk Police Department, Defendants.
    No. 312, Docket 74-1791.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 4, 1974.
    Decided Dec. 5, 1974.

      Howard E. Pachman, Commack, N. Y., for defendants-appellants.
    Walter G. Steindler, Commack, N. Y. (Belli, Sarisohn, Creditor, Carner, Thier-man & Steindler, Commack, N. Y., on the brief), for plaintiffs-appellees.
    Before KAUFMAN, Chief Judge, and ANDERSON and MULLIGAN, Circuit Judges.
   ROBERT P. ANDERSON, Circuit Judge:

Smithtown, a municipality located in Suffolk County, New York, promulgated an ordinance (Local Law 1 — 1973) making it unlawful for any female to appear in a live public show “ . . .in such a manner that the portion of her breast below the top of the areola is not covered with a fully opaque covering.” Any person who aids and abets a violation of the local law also is subject to criminal sanctions.

Local police, on two separate occasions on March 16, 1974, arrested “topless” dancers who were performing at a nightspot owned and operated by appellee Ga-jon Bar & Grill, Inc. (Gajon). The manager of the establishment, James Fran-cione, also an appellee herein, was twice arrested and charged, as were the dancers, with violating. Local Law 1-1973. The cases were set down for trial in Suffolk County District Court.

The Town Supervisor enthusiastically greeted news of these arrests and vowed in the local press that Smithtown would not become “the topless capital of Suffolk County,” for which reason he pledged continued enforcement of Local Law 1-1973.

Although it had not been indicted for violating the ordinance, Gajon has ceased to provide topless entertainment at its Smithtown establishment because of the threat of future prosecution. Business has plummeted, allegedly as a result, and Gajon contends that insolvency is imminent.

Francione, subsequent to his arrest but prior to trial, commenced an action under 42 U.S.C. § 1983 in the United States District Court for the Eastern District of New York, in which he was joined as co-plaintiff by Gajon. Plaintiffs sought a declaratory judgment that Local Law 1-1973 violates their rights of freedom of speech guaranteed by the First and Fourteenth Amendments to the United States Constitution. They also requested permanent injunctions prohibiting local officials from enforcing the ordinance against Gajon and from continuing the prosecution of Francione.

The District Court entered a declaratory judgment declaring that the local law was unconstitutional on its face and granted the injunctions. We hold that this was error under the circumstances of this case and we, therefore, do not pass on the merits of the constitutional claim.

Congress long ago promulgated a statute designed to limit federal court interference in state judicial proceedings. The principle of avoiding unnecessary friction between the state and federal jurisdictions still prevails, and a statute implementing the policy is still operative. Its present form, 28 U.S.C. § 2283, provides: “A court of the United States may not grant an injunction to stay proceedings in a State court . ” This proscription, otherwise absolute, has been circumscribed over the years by few statutory exceptions. One such exception exists for situations in which Congress has “expressly authorized” federal injunctive relief. An example is a case like the present one, which is brought under 42 U.S.C. § 1983 to safeguard federal rights against deprivation under color of state law. Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d 705 (1972); Boraas v. Village of Belle Terre, 476 F.2d 806, 811 (2 Cir. 1973), rev’d on other grounds, 416 U.S. 1, 94 S.Ct. 1536, 39 L.Ed.2d 797 (1974). The use of such power calls for consideration of the principles of equity, comity and Federalism, upon which the anti-injunction statute is based, which require that this power be exercised sparingly, which is to say only where it is “absolutely necessary” to stave off the threat of “irreparable . . . great and immediate injury” to the exercise of constitutional rights. Mitchum v. Foster, supra, 407 U.S. at 243, 92 S.Ct. 2151; see, Dombrowski v. Pfister, 380 U.S. 479, 85 S.Ct. 1116, 14 L.Ed.2d 22 (1965); Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908); Fenner v. Boykin, 271 U.S. 240, 46 S.Ct. 492, 70 L.Ed. 927 (1926); Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).

This policy is considered so important that, when state criminal proceedings are pending against the federal plaintiff, it has been held to limit the availability of declaratory relief (which is not mentioned in the anti-injunction statute) to situations where there is this same grave threat of irreparable injury to the exercise of constitutional rights. Samuels v. Mackell, 401 U.S. 66, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971). The District Court may, however, enter a declaratory judgment on the constitutional validity of a state statute at the behest of a party who, although affected by the operation of the statute, has not been indicted for violating it; whether it also can issue an injunction under such circumstances has yet to be resolved. See, Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974); Roe v. Wade, 410 U.S. 113, 93 S.Ct. 705, 35 L.Ed.2d 147 (1973).

Francione:

The Supreme Court, in a series of recent cases, has clarified the meaning of “irreparable . . great and immediate” injury to the free exercise of constitutional rights. In Younger v. Harris, supra, the Court held that it was improper for a federal court to enjoin a pending state prosecution merely because the federal plaintiff had been indicted under a statute which, on its face, violated the First and Fourteenth Amendments. The Court conceded that a prosecution under an unconstitutional statute “chills” the exercise of rights, and that this was the type of “injury” which the federal courts were primarily charged with preventing. Such injury, however, even though “great and immediate,” was not “irreparable,” in the Court’s opinion, when it can be eliminated by defense against the state prosecution. 401 U.S. at 46, 91 S.Ct. 746. And, it could be eliminated in Younger because the prosecution had been brought in good faith and not, as in Dombrowski v. Pfister, supra, for the purpose of harassment.

The prosecution in the Dombrowski case threatened to use evidence, previously held to have been seized illegally, to obtain an indictment for violation of a statute whose constitutional validity was, at best, suspect. Because no other evidence was available, there was no hope for success on the merits. The Supreme Court sanctioned the District Court’s intervention under such circumstances. As the Court made clear in Younger, such intervention was required to prevent the “irreparable” injury which would result from the continued existence of the state statute the constitutional validity of which, because of the evidentiary and other “collateral” defects in the prosecution, would not, otherwise, be adjudicated.

Federal injunctive relief, in short, is warranted where the injury to the free exercise of constitutional rights is “[greater than] that associated with the defense of a single prosecution brought in good faith . . . ” under a statute of doubtful constitutional validity. Younger v. Harris, supra, 401 U.S. at 48, 91 S.Ct. at 752. Such is the case when there are defects in the prosecution, other than the alleged unconstitutionality of the statute, which are sufficiently clear to warrant the inference of bad faith prosecution. The injury is then “irreparable” because the state court could not reach the merits of the federal claim.

In Samuels v. Mackell, supra, the Court held that federal declaratory relief also may not be granted where a state prosecution is pending and the injury to. the free exercise of the federal plaintiff’s constitutional rights is not “irreparable,” as defined in Younger.

It was contended, and the District Court so held, that, because of the following circumstances, Francione was entitled to declaratory and injunctive relief: (1) The repeated arrests of appellee Francione and others under the Smith-town ordinance, coupled with the Town Supervisor’s “demogogic statements” of his intent to eliminate topless dancing in the locality, evidence harassment and bad faith prosecution. (2) A United States District Court, prior to the commencement of criminal proceedings against Francione, had declared a similar ordinance banning topless dancing unconstitutional. The present prosecution, and threats of prosecution, therefore, constitute harassment because the State could not hope to achieve success on the merits.

Although, concededly, the Smith-town officials vigorously enforced Local Law 1-1973, Dombrowski does not sanction federal intervention every time the state vigorously enforces a statute of doubtful constitutional validity. And, the circumstances of this case do not reveal that type of prosecutorial bad faith which results in irreparable injury above and beyond that associated with the defense of a single prosecution. There is no reason to believe that the New York courts will not reach the merits of appellee’s federal claim; Younger and Samuels v. Mackell, therefore, require reversal of the District Court’s injunctive and declaratory interference in the pending prosecution of Francione.

Although a United States District Court had granted a preliminary injunc-. tion in Salem Inn, Inc. v. Frank, 364 F.Supp. 478 (E.D.N.Y.1973), aff’d 501 F.2d 18 (2 Cir. 1974), on the ground that a similar ordinance was probably constitutionally invalid, New York State courts twice have upheld the constitutionality of similar local laws. People v. Moreira, 70 Misc.2d 68, 333 N.Y.S.2d 215 (1972); Brandon Shores, Inc. v. Village of Greenwood Lake, 68 Misc.2d 343, 325 N.Y.S.2d 957 (1971). In the face of such conflicting precedent, the prosecution in this case does not represent the same empty threat which was posed by the prosecution in Dombrowski. And, even if Local Law 1-1973 is unconstitutional on its face, that fact alone, as evidenced by Younger, does not justify federal intervention. The unambiguous defect in the prosecution’s case must be on a collateral issue, so as to preclude the possibility of an adjudication of the constitutional issue on its merits. Appellees allege no such collateral defect and the record reveals none. The injury to Francione’s free exercise of constitutional rights is not irreparable. We, therefore, reverse the declaratory judgment and vacate the injunction which the District Court granted.

Gajon:

Having determined that federal intervention in the pending state prosecution of Francione was improper, the question now arises whether Gajon was, nevertheless, entitled to declaratory and injunc-tive relief because it had not been subjected to state prosecution and no such case was pending.

The Supreme Court, in Steffel v. Thompson, supra, held that a federal court may enter a declaratory judgment when the state merely has threatened the plaintiff with prosecution, even if formal proceedings have been instituted .against a third party under the contested statute. This court has sanctioned the grant of an injunction in favor of a party who was not indicted until the person prosecuted and his co-plaintiffs, who were not prosecuted, had already filed suit in the District Court. Salem Inn, Inc. v. Frank, supra, Gajon contends that, even if, as we have held, the court below erred in extending relief to its co-plaintiff, these cases establish that the principles of equity, comity and Federalism, upon which we based that holding, do not apply to it. We disagree.

Younger v. Harris, supra, made clear that the longstanding rule proscribing federal interference in state court proceedings applies whenever the constitutional right at issue in the suit for an injunction or a declaratory judgment can be defended adequately in the criminal prosecution. The District Court may intervene only “when absolutely necessary for protection of constitutional rights.” Id., at 45, 91 S.Ct. at 751, quoting from Fenner v. Boykin, supra, 271 U.S. at 243-244, 46 S.Ct. 492. The rule and its exception are based on the traditional notion that equity does not act when there is an adequate remedy at law. Any interference, moreover, would reflect negatively upon the ability of state courts, which are charged with enforcing federal constitutional rights, to carry out their function and, hence, would violate the principles of comity and Federalism.

The plaintiffs in both Steffel v. Thompson and Salem Inn, Inc. v. Frank claimed injury to the free exercise of their own constitutional rights. Because no state criminal proceeding was pending in Steffel v. Thompson, intervention not only was “absolutely necessary” to protect constitutional rights, but “ . [could not] in that circumstance, be interpreted as reflecting negatively upon the state court’s ability to enforce constitutional principles.” Id. at 462, 94 S.Ct. at 1217. Although a state proceeding was brought against one of the federal plaintiffs after suit had been filed in the District Court in Salem Inn, Inc. v. Frank, the claim advanced by that party was identical to that of his co-plaintiffs, against whom no prosecution was pending and for whose protection, therefore, federal intervention was absolutely necessary. This court held that it would be inequitable to grant relief to one set of plaintiffs and not to the other. Moreover, to refrain from acting would open the possibility of conflicting judgments and, therefore, contribute to federal-state conflict, which the holding in Younger v. Harris was particularly designed to avoid. Finally, it was felt that granting relief to all the plaintiffs would result in the conservation of judicial energy.

Gajon sought, and was granted, equitable relief on the ground that the Smithtown ordinance chilled the exercise of its constitutional rights, to its substantial financial detriment. Gajon, however, is a corporation and the First and Fourteenth Amendments do not guarantee freedom of speech of corporations. Hague v. C. I. O., 307 U.S. 496, 514, 59 S.Ct. 954, 83 L.Ed. 1423 (1939).

Although Gajon did have standing to defend the First Amendment rights of its employees and patrons because of the adverse economic effect which it suffers as a result of the ban on topless dancing, the issue is whether the District Court should have granted it equitable relief. We hold that, under the circumstances of this case, it should not have acted and, accordingly, we reverse the declaratory judgment and vacate the injunction entered by the District Court.

The right which Gajon asserted in the federal suit was not its own but in part, at least, that of its manager, Francione, who, we have held, has the opportunity to defend it in the pending state proceeding. Any other person, for example a patron, whose exercise of First Amendment right to free speech is chilled by the Smithtown ordinance, and who has not been indicted, can seek equitable relief on his own. Federal intervention in favor of Gajon, in short, was not absolutely necessary for the protection of constitutional rights belonging to these others. Moreover, none of the factors of Salem, Inn, Inc. v. Frank, supra, is here present. There we sanctioned the grant of relief to the plaintiff against whom a state prosecution was .pending because we had affirmed the intervention in favor of his co-plaintiffs. Considerations of judicial economy, as well as equity, and the desire to avoid conflicting judgments militated in favor of that result. To extend declaratory and injunctive relief to Gajon, after we have held that the state has the right to proceed with the prosecution of Fran-cione without federal interference, would result in none of the benefits which induced our holding in that case.

The principles of the Younger line of cases are applicable to Gajon, and, because no special circumstances are present, the declaratory judgment and the order for injunctive relief granted by the district court are reversed.

IRVING R. KAUFMAN, Chief Judge

(concurring):

I concur because I understand my brothers to hold that Younger may be applied against a corporation asserting derivatively a first amendment right which may otherwise be adequately protected, both in federal court and in a pending state criminal prosecution. I would hesitate to agree, however, that the principle Younger enunciates extends to cases where an institutional plaintiff exists primarily for the expression and defense of the right sought to be protected, see, e. g., NAACP v. Button, 371 U.S. 415, 428, 83 S.Ct. 328, 9 L.Ed.2d 405 (1963); New York Times Co. v. United States, 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971); Sierra Club v. Morton, 405 U.S. 727, 739, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972). Nor do I think that such a holding would be proper where there was a clear showing that no individual could adequately safeguard a widely held interest, either because a state prosecution portended indefinite delay, or because no one had a sufficient personal stake to warrant initiation of a federal action.

      . The full text of the ordinance, which was adopted by the Smithtown Town Board in January, 1973 under the authority of §§ 245.-01 and 245.02 of the New York Penal Law (McKinney’s Consol.Laws, c. 40, 1967), provides:
      “It shall be unlawful for any female to appear in public in such a manner that the portion of her breast below the top of the areola is not covered with a fully opaque covering. Any person shall be guilty of violating this section who, in any capacity, knowingly directs, gives, manages, participates in, prepares or presents, or who employs others so to do any live public show in which a female appears clothed or costumed in such a manner that the portion of her breast below the top of the areola is not covered with a fully opaque covering.”
      Any person found guilty of violating this local law is subject to imprisonment not to exceed fifteen (15) days, or a fine to be fixed by the court not to exceed two hundred fifty dollars ($250), or both. Ch. 15, § 3, Smithtown Entertainment Regulations.

      . Smithtown had adopted an ordinance in 1970 which was substantially similar to Local Law 1-1973. Appellee Francione had been arrested at the same premises on two occasions for violations of that 1970 ordinance. The charges against Francione later were dismissed, however, on the ground that the Town Board had adopted the provision prior to the effective date of the New York State enabling statute.

      . The record in this case does not indicate whether the trials in the cases against the dancers have been held, or whether the charges against them are still pending.

      . Paul J. Fitzpatrick, Supervisor of the Town of Smithtown, was quoted in the Long Island Press of March 20, 1974, as having stated, “We have no interest in being the topless capital of the County, State or the Country . ” and was similarly quoted in News-day of the same date.
      The Smithtown News, March 21, 1974, reports the comments of the Supervisor with reference to the incidents as follows:
      “The arrest was obviously an attempt to publicize the lounge and to embarrass those who are responsible for upholding the Town’s Laws. The Supervisor went on to say that he was pleased by the arrests and the fact that [the local police] had moved ‘with dispatch.’ ‘We are not interested in this type of entertainment in Smithtown; and if the proprietor wishes to provide it, then he should go someplace else and set up shop,’ said Fitzpatrick.”

      . The defendants in the action below were Eugene Kelly, Suffolk County Police Commissioner; Paul J. Fitzpatrick and Vincent J. Trimarco, Town Supervisor and Town Attorney, respectively; Robert Hoss and Emil Ortolani, members of the Suffolk County Police Department. Fitzpatrick and Trimarco are appellants herein.

      . The Act, adopted in 1793, unconditionally provided:
      “[N]or shall a writ of injunction be granted to stay proceedings in any court of a state . . . ” 1 Stat. 335, c. 22, § 5.

      . Three exceptions are provided in 28 U.S.C. § 2283:
      (1) “[where] expressly authorized by Act of Congress;”
      (2) “where necessary in aid of [the] jurisdiction [of the federal court];” and
      (3) where necessary “to protect or effectuate [the] judgments [of the federal court].

      . In New York Times Co. v. United States, 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971), the newspaper made a derivative claim under the First Amendment, which it denominated as the public “right to know.” It is clear that the Times was not asserting that the right was its own, but that, by virtue of its journalistic “scoop,” it was trustee of that right. See, Id, at 749, 91 S.Ct. 2140 (Burger, Chief Justice, dissenting).

      . Although the general rule is “that a litigant may only assert his own constitutional rights or immunities,” United States v. Raines, 362 U.S. 17, 22, 80 S.Ct. 519, 4 L.Ed.2d 524 (1960), a party facing economic injury as a result of the deprivation of the rights of others has standing to raise the constitutional issue. Pierce v. Society of Sisters, 268 U.S. 510, 535, 45 S.Ct. 571, 69 L.Ed. 1070 (1925); Barrows v. Jackson, 346 U.S. 249, 73 S.Ct. 1031, 97 L.Ed. 1586 (1953).

      . The fact that Gajon faces continued economic injury does not alter this result. In the delicate area of federal-state relations, District Courts may act, even if equitable relief would otherwise be appropriate, only when absolutely necessary to protect constitutional rights.
      Moreover, we doubt that Gajon would be entitled to injunctive relief in any case. Unlike Salem Inn, Inc. v. Frank, supra, where the federal plaintiff was actually indicted after he filed his suit for declaratory and injunc-tive relief, the plaintiff in this case was merely being threatened with prosecution. And, because Gajon had ceased to provide topless entertainment, it was being threatened with prosecution for its past conduct.
      In those cases where an injunction has been sought to restrain an imminent, but not yet pending, prosecution for past conduct, sufficient injury has not been found to warrant injunctive relief. See, Beal v. Missouri Pacific R. Co., 312 U.S. 45, 61 S.Ct. 418, 85 L.Ed. 577 (1941); Spielman Motor Sales Co. v. Dodge, 295 U.S. 89, 55 S.Ct. 678, 79 L.Ed. 1322 (1935); Fenner v. Boykin, supra. Although there is some question whether a showing of irreparable injury has been made where an individual demonstrates that he must forego constitutionally protected activity in order to avoid prosecution, Gajon is not being “chilled” in the exercise of its own constitutional right by the threat of future arrests. Compare Dombrowski v. Pfister, supra; Hygrade Provision Co. v. Sherman, 266 U.S. 497, 45 S.Ct. 141, 69 L.Ed. 402 (1925); and Terrace v. Thompson, 263 U.S. 197, 214, 216, 44 S.Ct. 15, 68 L.Ed. 255 (1923); with Douglass v. City of Jeannette, 319 U.S. 157, 63 S.Ct. 877, 87 L.Ed. 1324 (1943).

      . At the hearing before Judge Bruchhausen on April 4, 1974, counsel for Fitzpatrick and Trimarco indicated that state proceedings against Francione were to take place on April 25 and May 2, 1974. Because of the action in the federal district court, those trials never took place.


author: PER CURIAM:

text:
    In the Matter of the BANKRUPT ESTATE of William Travis SMITH and Betty Faye Smith, Bankrupt. L. Breland HILBURN, Trustee, Appellant, v. SOUTHERN TRAILER DISTRIBUTORS, INC., and Trailer Credit Corporation, Appellees.
    No. 74-3771
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Feb. 28, 1975.

      Rice P. York, L. Breland Hilburn, Jackson, Miss., for appellant.
    James W. Smith, Jr., Pearl, Billy G. Bridges, Jackson, Miss., for appellees.
    Doug Wade, Jackson, Miss., for other interested parties.
    Before BROWN, Chief Judge, and GODBOLD and GEE, Circuit Judges.

       Rule 18, 5th Cir. See Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5th Cir., 1970, 431 F.2d 409, Part I.

   PER CURIAM:

William T. Smith and his wife Betty have filed a petition in voluntary bankruptcy. A major part of their personal property is a mobile home, the bone of contention here. Trailer Credit Corporation (Trailer), as assignee of Southern Trailer Distributors, Inc., claims priority as holder of a perfected security interest in the mobile home. The trustee in bankruptcy challenges Trailer’s preferred status, asserting that its security interest was never perfected under Mississippi law. The bankruptcy judge ruled in favor of the trustee, holding that Trailer’s security interest was unperfected, but was reversed by the district court.

Mississippi has adopted Article 9 of the Uniform Commercial Code, under which a security interest in property similar to that under consideration may be perfected by filing a financing statement in the proper location. The financing statement, commonly referred to as a UCC — 1 form, should contain, among other things, the name and a mailing address of the debtor. Miss.Gode Ann. § 75 — 9— 402(1). Here the financing statement filed by Southern Trailer Distributors, Inc. listed as the bankrupts’ mailing address only “SMITH, William T. & Betty: Jackson, Mississippi 39208.” The security agreement itself gives their address as “Route 4, Box-, Jackson, Mississippi 39208.” It is the contention of the trustee in bankruptcy that there is a deficiency in the mailing address as shown on the financing statement and that this deficiency prevented the perfection of the valid security interest. We disagree.

In Mississippi, financing statements once filed are indexed under the name of the debtor. The index contains, in addition to the name of the debtor, the file number of the financing statement and the address of the debtor given in the statement. Miss.Code Ann. § 75 — 9— 403(4). The financing statement, in turn, should properly contain the name and a mailing address of the debtor, the name of the secured party and “an address of the secured party from which information concerning the security interest may be obtained,” and “a statement indicating the types, or describing the items, of collateral.” Miss.Code Ann. § 75-9-402(1). However, “A financing statement substantially complying with the requirements of . . [§ 75 — 9— 402] is effective even though it contains minor errors which are not seriously misleading.” Miss.Code Ann. § 75-9-402(5).

At least one court has opined, in dictum, that the omission of the debt- or’s address from a financing statement would, as a matter of law, prevent such a statement from perfecting a security interest. In re Smith, 205 F.Supp. 27 (E.D.Pa.1962). Other, and we believe better reasoned, opinions have held that the omission of the debtor’s address does not necessarily have this effect. Rooney v. Mason, 394 F.2d 250 (10th Cir. 1968), In re French, 317 F.Supp. 1226 (E.D.Tenn.1970). We are faced with a less drastic situation, for here the entire address of the debtors has not been omitted. Rather the address, as given, is arguably incomplete. We believe that in most cases, including this, the listing of an incomplete address for the debtor is not seriously misleading and is a minor error. Though the practice is certainly not to be commended, a financing statement including such an address will usually be in substantial compliance with the requirements of UCC 9 — 402.

Article 9 contemplates a notice system designed to alert those who wish to deal with debtors that others may hold security interests in property which they are contemplating purchasing or taking as collateral. A filed and properly indexed financing statement should serve this function. If a financing statement containing an incomplete address of the debtor would not do so, it could not rightly perfect a security interest. However, this is not our case. A properly filed financing statement is effective for five years. Miss.Code Ann. § 75-9-403(2). “[A] filing which is made in the proper place in this state continues effective even though the debtor’s residence or place of business ... is thereafter changed.” Miss.Code Ann. § 75-9 — 401(3). Moreover, there is no requirement that, once filed, a financing statement be amended to show a change in the address of the debtor. Thus, it is clear that one utilizing the Article 9 notification system can in no case safely rely upon the address listed in the index or on the financing statement as reflecting the correct, present address of the debtor. It follows that the address required by the UCC — 1 form is not designed to locate currently or identify, for certain, the debtor. As a practical matter, ninety-nine times out of a hundred the debtor will have applied to and already be known to the party who wishes to deal with him. We believe the Code clearly contemplates that the correct names of the debtor and secured party and an adequate shorthand description of the collateral is what is required to put one on notice of a possible security interest. Although a correct address might provide confirmation that a debtor who has not moved is the debtor listed on a financing statement, an incorrect address does not destroy notice and cannot relieve the investigating party of delving further into the status of the collateral. This being the case, it would be a windfall to the unsecured creditors to hold here that Trailer should be denied its security interest.

Affirmed.

      . Apparently uncertain as to the proper place to file, Southern Trailer Distributors applied the belt-and-suspenders principle, filing both with the Secretary of State and with the Chancery Clerk of Rankin County.

      . In both of these cases the address of the secured party, as well as that of the debtor, was omitted.

      . The bankruptcy judge found that there were numerous William Smiths and William T. Smiths within the City of Jackson and that no particular debtor could be designated by the address supplied within the financing statement. A more useful finding would have been whether, as Trailer asserted below, there was only one W. T. Smith or William T. Smith living in the given zip code area, so that a letter mailed to the address given would in normal course have reached the debtors. Cf. Silvers, Trustee in Bankruptcy v. Gulf City Body & Trailer Works, 432 F.2d 992 (5th Cir. 1970).

      . The correct name of the debtor is necessary for indexing, as well as identity.