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February 11, 1969

Sara Jane MULLETT and Arnold D. Wilner, Defendants, and Sanford M. Lampl, Receiver, Joined as Party Defendant

The opinion of the court was delivered by: GOURLEY

 This is a civil non-jury proceeding and is presented on stipulated facts.

 Broman Construction Company entered into a contract with the Pennsylvania Department of Highways to build a road in Clearfield County. Maryland Casualty Company was the surety and Sara Jane Mullett indemnified Maryland Casualty Company. Broman Construction Company got into financial problems and although it completed the construction work, left a large number of bills for labor and material unpaid. It was agreed by the surety, Mullett, and the insolvent that moneys then due from the State Highways Department be paid to Arnold D. Wilner, Esquire, under agreement to be used to pay claims on the Clearfield job. The money was, in fact, received by Wilner but before it could be used for the intended purposes, Sanford M. Lampl was appointed receiver for Broman Construction Company and made claim on Wilner for the funds. Maryland Casualty Company has since paid claims far in excess of the money held by Wilner in payment of labor and material claims on the Clearfield job. This payment was made at the direction of Broman and was made to Wilner who was then attorney for Sara Jane Mullett, hereinafter called "Mullett," a creditor of Broman. Wilner agreed to an arrangement whereby the assets and receivables becoming available would be disbursed in payment of bills for which the surety might be liable under the provisions of the payment and performance bonds furnished to Broman for its contract with the Commonwealth of Pennsylvania. The entire fund paid to Wilner still remains in Wilner's custody.

 Is the Receiver of the insolvent Broman Construction Company or the surety of said insolvent entitled to the fund in the amount of $22,385.25 held by Wilner which he received from the Commonwealth of Pennsylvania as a payment on the contract of Broman Construction Company, the contractor with the Commonwealth?

 The Court has conducted a full and complete hearing, considered all briefs, evaluated the applicable law and concludes that the funds in the possession of the stakeholder are the property of the Receiver and not the surety for the insolvent contractor.

 The plaintiff's thesis of recovery under the doctrine of equitable subrogation is not applicable to the instant factual situation. To apply the Pennsylvania doctrine of equitable subrogation it is necessary that

(1) the surety had made payments on obligations of the principal, or
(2) the funds were still in the hands of the obligee on the bond, or
(3) the funds had been paid out of the hands of the obligee or the owner at a time after the right of the surety had attached as a result of having made payments on behalf of the principal.

 Jacobs v. Northeastern Corporation, 416 Pa. 417, 206 A.2d 49, 11 A.L.R.3d 1220; Pearlman v. Reliance Insurance Co., 371 U.S. 132, 83 S. Ct. 232, 9 L. Ed. 2d 190. In the instant case the surety was a party to the arrangement in which the Commonwealth of Pennsylvania paid over the fund to Wilner who was acting on behalf of Broman, the contractor, for the explicit purpose of satisfying creditors of Broman arising out of the Broman contract with the Commonwealth. This was, as the Receiver points out, in reality a payment to Broman and for his benefit. Prior to any distribution to Broman's creditors for these specified bills arising out of the contract with the Commonwealth, a receiver for Broman was appointed. Since the funds have been and are being held by a stakeholder for the insolvent Broman, they are in reality the funds of the insolvent and are part of the estate which should be used for the benefit of the creditors of said insolvent. To aware the fund to the surety would unquestionably create a preference which clashes with the basic and fundamental purposes of receiverships.

 Appropriate Findings of Fact and Conclusions of Law are entered.


 1. By Stipulation filed September 19, 1968, the within action was settled but one issue remained to be decided. By Order dated September 19, 1968, the within action was removed from the Jury Trial List and the case was set down for non-jury trial for decision of the one remaining issue.

 2. The aforesaid issue involves the sum of $22,385.25 (hereinafter called the Fund) which is held by the defendant, Arnold D. Wilner, (hereinafter called "Wilner") which is claimed by the plaintiff and by Sanford M. Lampl, (hereinafter called the "Receiver"). It is and always has been acknowledged that Wilner has no personal right to ...

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