Appeal, No. 218, April T., 1961, from judgment of County Court of Allegheny County, No. 1449 of 1959, in case of Hilliard Kreimer, trustee in bankruptcy of the estate of Edward J. Keller, v. Second Federal Savings and Loan Association of Pittsburgh et al. Judgment reversed.
James M. Arensberg, with him William J. Staley, and Patterson, Crawford, Arensberg & Dunn, for appellant.
Warren S. Reding, with him Reding, Blackstone & Sell, for appellee.
Before Ervin, Wright, Woodside, Watkins, Montgomery, and Flood, JJ. (rhodes, P.j., absent).
[ 196 Pa. Super. Page 646]
This case involves the right of the appellant, a materialman to recover as a third party beneficiary under a contract for the construction of a home executed on January 22, 1957, by the bankrupt as contractor, Mr. and Mrs. Robert K. McKillop as owners, and the defendant Second Federal Savings and Loan Association. Under the contract the price was fixed at $10,900 and the association agreed in Article 9, that "funds or security in its possession in the total amount of (10,900) ... shall be held by the Association and applied to the contract price above set forth, which sum shall be paid by the Association directly to those furnishing labor and for materials, as the case may be ..."
A no-lien agreement, executed by the owners and the contractor, was filed of record on January 26, 1957. The house was satisfactorily completed in September 1957, and the owners are not parties to this proceeding. On November 17, 1957, the contractor was adjudicated a bankrupt and this suit was commenced by the trustee in bankruptcy to recover the balance in the hands of the defendant association. The appellant, Nevin Lumber Company, Inc., interpleaded as a plaintiff, claims $1378.59 remaining due it for building materials used in the construction of the dwelling from the funds in the hands of the savings and loan association. The parties have filed a stipulation of facts providing that any funds over and above those properly payable to the interpleader plaintiff are payable to the trustee in bankruptcy. There is no indication that anyone else is interested in the fund.
The court below held that the trustee in bankruptcy was entitled to the entire fund, relying upon Articles 1 and 5 of the contract. Article 1 provides that "The contractor shall and will provide all the materials and perform all the labor for the erection and completion of the building ..." Article 5 stipulates that if the
[ 196 Pa. Super. Page 647]
contractor at any time fails properly to perform, "the Owner shall be at liberty to terminate the employment of the Contractor ... and to employ any other person or persons to finish the work and provide the material therefor; and in case of such discontinuance of the employment of the Contractor, he shall not be entitled to receive any further payment under the contract until the said work shall be wholly finished, at which time if the unpaid balance of the amount to be paid under the contract shall exceed the expense incurred by the Owner in finishing the work such balance shall be paid by the Owner to the Contractor; but if such unpaid balance shall not equal such expense, then the Contractor shall pay the difference to the Owner ..." The court reasoned that, in the light of these provisions, the phrase in Article 9 that the funds "shall be paid by the Association directly to those furnishing labor and for materials as the case may be" applies only to those who may be employed by the owner under Article 5 in the event that the contractor has failed properly to perform the work, and does not apply to subcontractors furnishing labor or materials to the original contractor. The court concluded that such a substitute contractor under Article 5 is the only third party beneficiary under the contract.
We do not agree with this interpretation of the contract. The language of Article 9 is clear that the savings and loan association shall pay the amounts due "directly to those furnishing labor and for materials as the case may be". While most of the payments made under the agreement were made to the contractor, at least one substantial payment, of almost half the amount due the appellant for the materials furnished by him, was ...