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COMMONWEALTH PENNSYLVANIA EX REL. WILLIAM J. SHEPPARD v. CENTRAL PENN NATIONAL BANK (07/20/77)

decided: July 20, 1977.

COMMONWEALTH OF PENNSYLVANIA EX REL. WILLIAM J. SHEPPARD, INSURANCE COMMISSIONER, STATUTORY LIQUIDATOR FOR GATEWAY INSURANCE COMPANY, PLAINTIFF
v.
CENTRAL PENN NATIONAL BANK, DEFENDANT



Original jurisdiction in case of Commonwealth of Pennsylvania ex rel. William J. Sheppard, Insurance Commissioner, Statutory Liquidator for Gateway Insurance Company v. Central Penn National Bank.

COUNSEL

G. David Rosenblum, with him Astor & Weiss, for plaintiff.

Richard M. Shusterman, with him White and Williams, for defendant.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by President Judge Bowman.

Author: Bowman

[ 31 Pa. Commw. Page 191]

Plaintiff, William J. Sheppard, Insurance Commissioner and Statutory Liquidator for Gateway Insurance Company (Gateway) initiated this action in assumpsit within our original jurisdiction to recover certain monies (alleged to total $709,864.05) which

[ 31 Pa. Commw. Page 192]

    were previously held either by Gateway or by a related company allegedly in Gateway's behalf, in various accounts maintained with the defendant, Central Penn National Bank. Presently before us are the plaintiff's preliminary objections to the "new matter and setoffs and/or counterclaims" asserted by the defendant.

On July 12, 1974, plaintiff, as Insurance Commissioner, entered an order suspending the entire business of Gateway pursuant to Section 502 of The Insurance Department Act of one thousand nine hundred and twenty-one*fn1 (Act), 40 P.S. ยง 202, on the ground that the company was insolvent and in such condition that its further transaction of business would be hazardous to its policyholders, its creditors and to the public. On August 21, 1974, an Order was entered by this Court at No. 984 C.D. 1974, which, inter alia, declared Gateway insolvent, ordered its liquidation, vested title to all its books of account, records, property, contracts, rights of action and assets in the Insurance Commissioner as Statutory Liquidator, and enjoined all persons from instituting or prosecuting any action at law or in equity against Gateway.

Meanwhile, defendant had, on or about July 15, 16 and 17, 1974, debited the entire balances of all accounts of Gateway as well as various other related companies, pursuant, in Gateway's case, to a suretyship agreement (agreement) executed by Gateway on January 6, 1970. Under this agreement, Gateway became surety for all present and future obligations of Acme Assurance Agency, Inc. (Acme), a Pennsylvania corporation which acted as agent for Gateway and was, like Gateway, a wholly owned subsidiary of Fisco, Inc. (Fisco). The agreement also afforded the defendant a lien upon all of Gateway's funds, monies, balances and other property at any time in defendant's possession, together

[ 31 Pa. Commw. Page 193]

    with the full right to apply, set off or credit the same against Gateway's liability. On September 20, 1973, defendant had loaned Acme $2,500,000.00 which was secured by the aforementioned agreement as well as similar agreements executed by Fisco and other related companies and was evidenced by a demand note in the amount of the loan plus interest.

Upon learning of the suspension order of July 12, 1974, defendant made demand upon Gateway and the other companies for immediate payment in the amount of $2,500,000.00 plus accrued interest and immediately began exercising its right of setoff under the various suretyship agreements.*fn2 It was the defendant's action of setting off the amounts in the various accounts that precipitated this action by the plaintiff to recover those amounts. In its answer, defendant has denied any improper action on its part and, in addition, has asserted, in nine separate counts, various "Setoffs and/or Counterclaims" (hereinafter referred to as simply "counterclaims") based on the suretyship agreement and on the alleged wrongful actions of Gateway and its agents, officers and employees in inducing defendant to make the loan to Acme. Defendant requests judgment in its favor in ...


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