Court Opinion

ID: 9486515
Source: CourtListenerOpinion
Date Created: 2023-08-05 11:50:48.633505+00
Date Added: 2024-06-11T17:51:45.992097
License: Public Domain

STAPLETON, Circuit Judge,
dissenting:
The existence and extent of a surety’s obligations are determined by the suretyship agreement. As the Supreme Court held in Royal Indemnity Co. v. United States, 313 U.S. 289, 61 S.Ct. 995, 85 L.Ed. 1361 (1941), even where the surety’s promise is to pay a taxpayer’s tax obligation, the obligations of the surety are limited to those that arise by virtue of the contract it entered. Where, as here, the subject of the suretyship is the principal’s performance under a contract, the obligations of the surety are determined, and therefore limited, by the terms of the contract to be performed. It follows from Royal Indemnity that this is true even where the subject matter of that contract is the payment of delinquent taxes.
Wheeling-Pitt contracted to pay the sum of its overdue taxes and interest in installments over a period of time. The contract expressly provided that each installment payment would include the interest that would accrue on the unpaid portion of the principal sum during the installment period. The contract committed Wheeling-Pitt only to pay the stipulated periodic payments and, in the event of a default and acceleration, to pay the entire balance of such payments. Wheeling-Pitt’s performance of these obligations is all American undertook to guarantee.
Wheeling-Pitt’s contract says nothing about pre-judgment interest due in the event of a default under the agreement. If Wheeling-Pitt, following default, has a duty to pay prejudgment interest on the accelerated principal at a rate specified in the Internal Revenue Code, that duty arises from the Code and not from its contract with the Internal Revenue Service. It necessarily follows that American is not hable for interest at the rate claimed by the United States, and I would so hold.