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BRANDYWINE LANES v. PITTSBURGH NATIONAL BANK (11/11/71)

SUPERIOR COURT OF PENNSYLVANIA


decided: November 11, 1971.

BRANDYWINE LANES, INC., APPELLANT,
v.
PITTSBURGH NATIONAL BANK, APPELLANT

Appeals from order of Court of Common Pleas, Civil Division, of Allegheny County, Jan. T., 1963, No. 818, in case of Brandywine Lanes, Inc. v. Pittsburgh National Bank.

COUNSEL

Edgar J. Cooke, with him Joseph N. Mack, for plaintiff.

James M. Arensberg, with him Everett K. Dilworth, and Tucker, Arensberg & Ferguson, for defendant.

Wright, P. J. Watkins, Montgomery, Jacobs, Hoffman, Spaulding, and Cercone, JJ. Opinion by Hoffman, J.

Author: Hoffman

[ 220 Pa. Super. Page 364]

This action in replevin without bond involves a complicated factual situation which has already resulted in one appellate decision. Brandywine Lanes, Inc. v. Pittsburgh National Bank, 437 Pa. 499, 264 A.2d 377 (1970).*fn1 The relevant history of this case dates back to 1955. In that year one Bernard J. Tolan (Tolan) signed a ten-year lease with the defendant Pittsburgh National Bank's (Bank) predecessor for the use of a certain building. Intending to operate a restaurant-bowling alley, Tolan purchased, subject to various security interests, twenty-six bowling lanes and a quantity of bar and restaurant equipment. He then began business operations.

In 1961 the business ran into financial difficulties and Tolan was unable to pay the rent and defaulted on his installment payments on both the bowling alleys and the bar and restaurant equipment. As a result, each of the equipment vendors obtained judgments for possession of the equipment in which they had security interests.

In the midst of this financial crisis, two men, John R. Dean (Dean) and R. D. Schulz (Schulz) entered

[ 220 Pa. Super. Page 365]

    the picture. In order to alleviate the financial crisis, they caused the plaintiff corporation, Brandywine Lanes, Inc. (Brandywine), to be incorporated with Dean, Schulz and Tolan each owning a one-third interest in it. The corporation and the newcomers borrowed funds and settled the claims which the vendors had in the alleys and restaurant and bar supplies.*fn2 Brandywine then entered into a "memorandum of understanding" with the Bank, whereby Brandywine would rent the building for two years, still subject to Tolan's original lease. The corporation thereupon began operating the business.

Friction soon developed between Tolan and the two other owners of Brandywine. Arrangements to buy out Tolan (the "escrow agreement") were unsuccessful. Meanwhile, the corporation was in financial difficulty. It closed down operations and relinquished possession of the premises. Tolan, however, remained in possession and ran the restaurant. The Bank attempted to oust him under the 1955 lease for nonpayment of rent, but Tolan's possession under that lease was continued by various court orders.

When Dean, Schulz and an employee of the Bank made a physical inventory of the leased premises, pursuant to the escrow agreement, which subsequently fell through, certain items of personalty were found to be missing. The locks of the building were changed by the real estate manager of the bank. Then, as the lower court found "[a] key to the premises was tendered to Messrs. Dean and Schulz and this tender was refused. At this time the [Bank] was in at least a de facto, if not de jure, possession of the premises and its contents. This changing of the locks was accomplished on August

[ 220 Pa. Super. Page 36629]

, 1962." Tolan later accepted a key tendered by the Bank.

After collapse of the escrow agreement, on October 18, 1962 Brandywine entered its lawsuit in replevin without bond against the Bank. Subsequently, a Bank representative who was checking the premises, discovered that Tolan had entered into an agreement with a certain contractor who was in the process of removing the bowling alleys. Although eleven of the twenty-six alleys were still in place, the Bank took no action and did not inform Brandywine.

Eventually, the Bank was able to oust Tolan and regain total possession of the leased premises. This building was later sold with the restaurant and bar equipment still inside.

The instant action in replevin without bond was tried by a judge sitting without a jury. The court found that Brandywine at all relevant times held complete legal title to the bowling alleys (and their related equipment) as well as to the bar and restaurant equipment. The court also held that Brandywine was entitled to immediate possession and control of the alleys, their related equipment and the bar and restaurant equipment. Further the court found that as it affected "the interests of the parties concerned in this matter, possession of the bowling alleys and the restaurant and bar equipment was in the [Bank]."

The court entered the following order:

"(a) The plaintiff, Brandywine Lanes, Inc., is entitled to recover immediate possession of the eleven bowling alleys [which were taken after the bank became aware of the fact that Tolan was in the process of having them removed] and restaurant and bar equipment and fixtures from the defendant, Pittsburgh National Bank; and

[ 220 Pa. Super. Page 367]

"(b) That the money value of the bowling alleys and the restaurant and bar equipment and fixtures is $31,750.00; and

"(c) That the plaintiff, Brandywine Lanes, Inc., is entitled to special damages in the sum of $12,065.00 which it has sustained from the defendant, Pittsburgh National Bank; and

"(d) That the plaintiff, Brandywine Lanes, Inc., is entitled to interest from the date of the entry of the judgment, to-wit, August 8, 1969, at the lawful rate."

Both parties appealed from this order. Brandywine argues, inter alia, that it should have received the value of all the bowling alleys in place. The Bank contends that Brandywine is not the "owner" of either the bowling alleys or the restaurant and bar equipment and further that Brandywine only has a right to possession, not damages.*fn3

These contentions must be considered in relation to the decision of the Supreme Court of Pennsylvania in the first Brandywine case. In that appeal the Court had before it the question of whether Brandywine acquired ownership of the alleys when the corporation was formed. The same evidence that was presented in the instant action was fully considered in the earlier appeal. At that time the Court specifically held that

[ 220 Pa. Super. Page 368]

    the assignment to the corporation of the security interest and judgment for possession of the bowling alleys did not constitute conveyance of the complete legal title to the alleys. It only gave Brandywine "a security interest and the right to 'maintain replevin to recover the property.'" 437 Pa. at 502, 264 A.2d at 379.

The Bank contends that the lower court was bound by this decision under the doctrines of stare decisis and collateral estoppel. Though this position undoubtedly has merit at least with respect to the bowling alleys,*fn4 we do not feel it necessary to reach this issue. Whether or not the decision of the Supreme Court in the first Brandywine case is binding precedent, there can be no doubt that under the provisions of the Uniform Commercial Code*fn5 Brandywine only had a security interest, not total ownership, in both the bowling alleys and the restaurant and bar equipment.

The record clearly reveals that at the time the corporation was formed, the only interests which were transferred, or attempted to be transferred, by the original holders of the security interests were the security interests themselves and an assignment of the judgments for possession.*fn6 We believe that both the majority

[ 220 Pa. Super. Page 369]

    and concurring opinions in the first Brandywine case support such a conclusion. While that case dealt only with the bowling alleys, a similar situation is presented with regard to the restaurant and bar equipment. As with the bowling alleys, it is clear that Brandywine has a security interest in the restaurant and bar equipment but that Brandywine does not have complete legal title.

The lower court thus erred in holding that Brandywine "owned" the bowling alleys and the restaurant and bar equipment, and in awarding Brandywine the full value of any of the property. However, as we have stated, Brandywine did have a security interest in and a right of immediate possession of the property by virtue of the assignment of the judgments. This security interest, though not full ownership, when coupled with a right of immediate possession, satisfies the requirements for maintaining an action in replevin*fn7 and entitled Brandywine to maintain the present replevin action against the Bank.

Under the Pennsylvania Rules of Civil Procedure Brandywine had a choice as to what form of action in replevin it would bring. Instead of posting a bond and having the property seized, Brandywine chose to bring an action in replevin without bond. This form of action was established by the Pennsylvania Rules of Civil Procedure, Rule 1073. The Procedural Rules Committee Note explains the purpose of the rule as follows: "Under this rule, the plaintiff in replevin has the option of having the sheriff seize the property at the

[ 220 Pa. Super. Page 370]

    commencement of the action or of permitting the property to remain in the possession of the defendant until a later time in the action or until after judgment is entered in favor of the plaintiff. If the plaintiff does not seek to gain possession of the property before the entry of judgment in his favor, he is not required to file a bond and affidavit of value. In this case, the action simply determines his right to the property and its value. Upon execution, the plaintiff has the option of obtaining the specific property or of issuing execution for its money value, even though it could be specifically recovered." (Emphasis added.)

Rule 1085(b) of the Pennsylvania Rules of Civil Procedure sets forth what a judgment after trial, for a party not in possession of the property, shall determine. The judgment in such a case, which includes the situation presented here, shall determine (1) the plaintiff's right to recover possession of the property; (2) the money value of the property in question, and; (3) the amount of any special damages sustained.

Under this rule the lower court correctly determined that Brandywine had a right to recover possession of the bowling alleys and the restaurant and bar equipment. The Bank was shown to have no interest in any of these goods, and as has been previously stated, Brandywine has a right to immediate possession.

However, the trial judge incorrectly found that Brandywine "owned" the alleys and bar and restaurant equipment and thus was entitled to recover the total value of all this property. This would result in a windfall for Brandywine since it only owns a security interest in the property. It is our view that the court should have awarded Brandywine the value of its security interests in the property in question.*fn8 Brandywine

[ 220 Pa. Super. Page 371]

    thus has the choice, upon execution of obtaining the specific property (which is no longer available) or of issuing execution for the value of its security interest.

Under Rule 1085(b), supra, the court must determine the money value of the property -- here the value of Brandywine's security interests. In regard to the bowling alleys, Brandywine maintains that it is entitled to its interest in all twenty-six of the lanes. With this conclusion we cannot agree. We believe that the lower court was correct in holding that the Bank is responsible only for the eleven alleys removed after it had actual notice that Tolan was taking the alleys.

At the beginning of the action, Brandywine chose not to file a bond and cause the alleys to be immediately replevied. If it had taken this course of action, Tolan would have had no opportunity to remove the alleys. Instead, Brandywine proceeded in replevin without bond and thereby agreed that the property should remain in the Bank's custody during the pendency of the action.

The record clearly reveals that the Bank made periodic inspections of the premises and that it was during such an inspection that Tolan was discovered to be removing the alleys. Up until that time the Bank acted reasonably and with due care for the property in its possession. After the inspection, it had actual notice that the lanes were being removed and thus had a duty to take greater care to see that the property in its custody was preserved. Since the Bank took no action to preserve the eleven remaining alleys, we believe that

[ 220 Pa. Super. Page 372]

    it thereby incurred liability to Brandywine for its interest in the eleven lanes. Additionally, considering the unique factual situation presented by this case, we believe that the court correctly concluded that equitable principles dictate this result.

We therefore affirm the lower court's decision that Brandywine is entitled to immediate possession of the property. We reverse that part of the decision of the trial court awarding Brandywine the full value of the property. The record is remanded for a determination of the value of Brandywine's security interest in the eleven bowling alleys and the restaurant and bar equipment and for an award based on such findings. Further, we believe that the court's award of special damages and interest, allowed under Rule 1085(b) of the Pennsylvania Rules of Civil Procedure, supra, is fair and equitable and we affirm that part of the court's award allowing special damages and interest.

Disposition

Order affirmed.


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