Appeals from the Order of the Court of Common Pleas of Allegheny County in case of Almi, Inc., a Pennsylvania corporation, v. Dick Corporation, a Pennsylvania corporation, No. 3553 January Term, 1969.
Harry R. Levy, for Plotkin Brothers, Inc.
Jack W. Plowman, with him Plowman and Spiegel, for Dick Corporation.
Arthur L. Bailey, with him Gary R. Allen; Gilbert E. Andrews; Myron C. Baum, Acting Assistant Attorney General; and, of counsel, Richard L. Thornburgh, United States Attorney; and Thomas A. Daley, Assistant United States Attorney, for The United States.
Lester G. Nauhaus, with him Ralph J. Cappy, for Palkovitz and Palkovitz.
Lawrence J. A. Purpura, Assistant Attorney General, with him Herbert W. Hoffman, Assistant Attorney General, and Robert P. Kane, Attorney General, for Commonwealth.
President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Rogers.
This case requires consideration of the right of a surety*fn1 on promissory notes to set off the obligation as surety against the principal's funds, (1) where after becoming surety but before paying the notes the surety has been served with a writ of execution naming it garnishee of any funds of the principal coming into its possession, and (2) where after the date it became surety it was served with levies on the principal's property for federal taxes, the notice of liens for which had been filed after it became surety, and (3) where both before and after the date it became surety the Commonwealth of Pennsylvania had entered liens against the principal for unpaid unemployment compensation, and (4) where coincident with the surety's coming into possession of the principal's funds the principal's lawyer asserts a charging lien for having produced the funds. In addition to describing the right of the surety to set off, we must also determine the priorities of the United States,
the Commonwealth, and the principal's lawyer in funds insufficient to satisfy all of them. The problem is one which a teacher with a sadistic bent would be pleased to use to test a class he particularly disliked.
Dick Corporation (Dick) had a contract to construct a building for the University of Pittsburgh. In March 1968, Dick entered into a contract with Almi, Inc. (Almi) for the latter to perform certain plumbing work required of Dick under its building contract. Almi executed two promissory notes to the Lincoln Bank and Trust Company (Bank), the first on June 20, 1968 and the second on June 29, 1968. The notes aggregated in principal amount the sum of $11,000. The due date of each note was the day following its date of execution. Because the Bank was unwilling to rely upon Almi's ability to pay its debts, Dick was asked to and did endorse each note. The form of the endorsement was pertinently:
[T]he undersigned hereby jointly and severally guarantees to the holder hereof , successors, endorsers, transferees, or assigns, the punctual payment at the maturity of the said loan and hereby assents to all the terms and conditions of the said note. . . .
For value received the undersigned endorser(s), or either of us, do hereby empower any Prothonotary or any attorney of any court of record within the United States, or elsewhere, to appear and after one or more declarations filed, confess judgment in favor of the holder and against the undersigned, or either of us, if not paid at maturity. . . .
The undersigned endorser(s) waives, or severally waive, presentment for payment, demand, Page 31} protest, notice of protest and dishonor and non-payment of this note. (Emphasis added.)*fn2
Almi was in financial trouble when it executed the notes and failed to pay them. On February 6, 1969, the Bank confessed judgment against Almi on the two notes. On September 22, 1970 it confessed judgment against Dick.
Tax liens had been filed of record against Almi by the Commonwealth of Pennsylvania and the United States. The liens of the Commonwealth and the dates
on which they were filed with the Prothonotary of the Court of Common Pleas of Allegheny County were as follows:
1,139.03September 16, 1968
1,235.11November 25, 1968
The assessment dates of the tax liens of the United States and the dates on which notices of the liens were filed in ...