The opinion of the court was delivered by: MARSH
On September 5, 1963, a Cessna Skyhawk airplane owned by Robert Steensen as trustee for WTAE Flying Club (WTAE) was destroyed. After litigation in the State Court, WTAE obtained a judgment against its insurer, United States Aviation Underwriters, Incorporated, in the sum of $8,547. Michigan Bank, National Association (Bank) claimed part of the proceeds of the judgment as holder of a promissory note and chattel mortgage executed by Steensen, the latter designating the Cessna as security. WTAE claimed the entire proceeds of the judgment. The insurer instituted interpleader proceedings against the claimants pursuant to Title 28 U.S.C. § 1335, and paid the face amount of the judgment plus interest in the total sum of $9,155.39 into the registry of the court.
In due course the insurer was discharged of all liability to the claimants, and allowed costs and attorneys' fees in the amount of $315 out of the fund.
The controversy between the claimants was tried by the court. The court makes the following
1. WTAE is an unincorporated association, the members of which, including Robert Steensen and Lawrence Klein, trustees ad litem, are citizens of the Commonwealth of Pennsylvania.
2. The Bank is a Michigan corporation and has its principal place of business in Detroit, Michigan.
3. The amount in controversy exclusive of interest and costs exceeds the sum of $500.
4. In January, 1963, Robert Steensen on behalf of WTAE, purchased from Aero Enterprises, Inc. (Aero), a dealer in aircraft at LaPorte, Indiana, a Cessna Skyhawk airplane for the sum of $7,400. Aero took as a trade-in WTAE's Aircoupe and gave Steensen credit for $3,000 toward the purchase price of the Cessna. Steensen signed a chattel mortgage in favor of Aero to insure the payment of the remainder. A few days later, on January 28, 1963, Steensen had issued to Aero a check in the amount of $4,435, representing the balance due on the Cessna and a $35 registration fee (WTAE Exh. G) and Aero returned its chattel mortgage to him. In July, 1963, Aero sent him the bill of sale for the Cessna; it showed type of encumbrance "none". (WTAE Exh. D). Steensen did not have a lien search made.
5. Since Steensen had paid for the plane with his own funds, WTAE desired to borrow money to reimburse him. For this purpose in June, 1963, Steensen telephoned the Bank and orally applied for a $5,000 loan to WTAE offering the Cessna as security. He told Lawrence McElhone, a Vice President of the Bank in charge of the Aircraft Department, or a subordinate, that he, Steensen, had paid for the Cessna in full with his own funds and that the loan was desired by WTAE to reimburse him. McElhone persuaded Steensen to execute the mortgage and note because the Bank was reluctant to loan money to an unincorporated club. (T. p. 91). Steensen agreed.
7. On June 28, 1963, Steensen sent to the Bank an Aircraft Credit Statement (Bank Exh. A) in which the space entitled "Existing Lien on Aircraft" was left blank.
8. The Bank approved the loan and Steensen's credit. Steensen received from the Bank an Aircraft Check Sheet (WTAE Exh. B) and an aircraft chattel mortgage with promissory note attached in the sum of $6,124.80. (Bank Exh. B). Complying with instructions, Steensen executed and returned to the Bank the chattel mortgage and note, and the white copy of Form FAA-500, the bill of sale he had received from Aero which stated that there were no encumbrances. (T. pp. 93-94, 59-60). Also enclosed was a check payable to the Federal Aviation Agency for $8 (WTAE Exh. H) for recording the bill of sale and the mortgage, a check payable to the Bank for $6.50 for title search fee (WTAE Exh. I), an insurance policy with loss payable clause in favor of the Bank (Bank Exh. F), a financial statement, and the serial number of the Cessna.
9. Subsequently, the Aircraft Check Sheet was returned to Steensen with certain items checked off (WTAE Exh. C), being those items previously sent to the Bank. Accompanying the check sheet was a Letter of Authorization
on which Steensen was to state the name of the person to whom the proceeds of the loan were to be paid. On this Letter of Authorization Steensen filled in his own name and address as the person to whom the proceeds were to be paid and mailed it to the Bank, along with the Aircraft Check Sheet. The Bank received the check sheet but denies it received the Letter of Authorization.
10. On July 31, 1963, the Bank received a telefax (Bank Exh. D) from a title company notifying it that the Cessna was "titled to Aero Enterprises, Inc." and that a mortgage existed in favor of Appliance Buyers Credit Corporation (ABC) in the amount of $6,000. The title search (Bank Exh. C) revealed that Aero had purchased the Cessna from Kentucky Air Transport, Inc. on December 10, 1962 and that its bill of sale was recorded January 3, 1963; that ABC's $6,000 lien was dated December 8, 1962 and recorded January 3, 1963.
11. On July 31, 1963, the same day it received the telefax, the Bank sent $5,000, the proceeds of the loan, by check (Bank Exh. E) payable to "Aero Enterprised, Inc. and Buyers Credit Corporation " to satisfy the $6,000 lien. The check noted that it covers "Steensen, Robert D. 1961 Cessna Skyhawk." The release of lien was received by the Bank and filed with the Federal Aviation Agency.
12. Although McElhone swore that he sent the $5,000 check to Aero "at the specific instructions of the Defendant [Steensen] and with the full authority of the Defendant," (paragraph 9 of Answer to New Matter, In the Court of Common Pleas, Allegheny County, Pennsylvania, No. 2488 July Term, 1964, admitted into evidence, T. pp. 129-132) the check was actually mailed to ABC, and the payment was made without the knowledge of Steensen. (T. pp. 46-50). Neither did the Bank make any inquiry of Aero as to the amount owing on the $6,000 lien. (T. pp. 50-51).
13. The following letter to ABC accompanying the $5,000 check was admitted in evidence. (T. pp. 127-129).
"Appliance Buyers ...