No. 2786 October Term 1978, No. 2807 October Term 1978 Appeals from the Orders of the Court of Common Pleas, Tioga County, Civil Action Equity, at No. 8 Civil Division 1976.
Thomas A. Beckley, Harrisburg, for appellants.
William A. Hebe, Wellsboro, for appellees.
Spaeth, Stranahan and Sugerman, JJ.*fn*
[ 279 Pa. Super. Page 104]
This is an appeal from an order denying any recovery by unpaid subcontractors against an owner. The subcontractors claim that they are entitled to recovery because the owner, by accepting their work, has been unjustly enriched.
On May 16, 1974, appellees Sanford Freeman and Daniel Handler executed a mortgage in favor of Hamilton Investment
[ 279 Pa. Super. Page 105]
Trust, the trustees of which are also appellees, as security for a loan of $1,350,000 for the construction of a shopping plaza in Wellsboro, Pennsylvania. The mortgage had a provision that allowed the parties to "increase or decrease from time to time [the total amount of the indebtedness], but the total unpaid balance secured at any one time by this Mortgage shall not exceed a maximum principal amount of twice the principal amount stated in the promissory note." Para. 16, Mortgage Agreement at 6. The mortgage incorporated by reference an unrecorded construction loan agreement, which included the following provisions. Of the total amount of the loan, $75,000 was for the acquisition of the premises, and $1,275,000 was for the construction of the improvements. Para. 1, Section 4, Construction Loan Agreement. Advances were to be made periodically, not more often than monthly, Para. 8, Section 4, Construction Loan Agreement, and were to represent 90% of various calculations of the value of the work done at a particular stage of the project. Para. 1, Section 4, Construction Loan Agreement. Any money withheld by the lender during construction would be paid upon satisfaction of the conditions necessary for final payment, which included certification by the lender's architect that the work had been done satisfactorily and the necessary certificates had been obtained from various government agencies. Para. 6, Section 4, Construction Agreement. In order for the borrower to receive a particular advance, it would have to apply to the lender, stating the amount and nature of the costs and giving satisfactory evidence that they were incurred. Para. 3, Section 4, Construction Loan Agreement. Moreover, the lender's architect would have to certify that the work on account of which the advance was sought had been done in a "good and workmanlike manner." Para. 5, Section 4, Construction Loan Agreement. The lender was not obliged to make any advance unless it believed that "all work usually done at the state of construction when the advance is requested has been done in a good and workmanlike manner and all material and fixtures usually furnished and installed at that time had been furnished and installed." Para. 2,
[ 279 Pa. Super. Page 106]
Section 4, Construction Loan Agreement. The lender had the option to disburse the funds to a title insurance company as disbursing agent or directly to the contractors, suppliers, or laborers, instead of to the borrower. Para. 9, Section 4, Construction Loan Agreement.
Hamilton made its first advance on the construction loan on May 29, 1974, and continued to make advances during the remainder of 1974, and in 1975. In June of 1975, one of the buildings in the shopping plaza was substantially completed, and the structural steel work for another of the buildings was half completed. Deposition of Joseph Carl Walsh, April 28, 1977 at 21. On June 6, Freeman and Handler and Hamilton entered into a new construction loan agreement, which, like the original construction loan agreement, was unrecorded. The new agreement reduced the amount of the loan to $1,100,000 because one of the major tenants had pulled out and a new tenant did not want as much space. Deposition of Joseph Carl Walsh, April 28, 1977 at 9. The agreement also stipulated that Hamilton would not have to advance any money beyond $1,050,000 until Freeman and Handler had found a tenant for some of the space that had been left vacant by the major tenant's departure. The agreement left open the possibility that the financing might go as high as $1,200,000 if Freeman and Handler obtained a written commitment for long-term financing from an institutional lender.
At the time of the June 6 agreement, Hamilton had advanced $648,000. On June 10, Hamilton advanced $162,005.56, of which $87,005.56 went to a title company that had been engaged to clear up existing liens on the property. In July, August, and September, respectively, Hamilton advanced $70,000, $110,000, and $105,000 to Freeman and Handler. Deposition of Joseph Carl Walsh, April 28, 1977 at 17. As of the last advance, on September 22, Hamilton had advanced a total of $1,049,342.69 towards the project.*fn1 On
[ 279 Pa. Super. Page 107]
January 26, 1976, Hamilton instituted mortgage foreclosure proceedings against Freeman and Handler because they had failed to make interest payments on August 1, 1975, September 1, 1975, October 1, 1975, November 1, 1975, December 1, 1975, and January 1, 1976. Sometime after instituting the foreclosure proceedings, Hamilton completed the project. A sheriff's sale was held on June 23, 1976, at which time Hamilton purchased the property for $500,000. Hamilton expended a total of $1,202,138.60 on the property, both before and after it acquired it.
Appellants are 11 subcontractors out of a group of 16 who performed work on the project in 1974 and 1975 and were never paid by Freeman and Handler. Exhibit B of the Stipulated Facts contains the following record of their work:
Name of Plaintiff Work Commenced Work Completed
Frederic M. Gee September , 1975 October 4, 1975
Sherwin Williams Co. August 31, 1975 October 29, 1975
Fingerlakes Glass Corporation September 1, 1975 October 17, 1975
Peskin Sign Company September 2, 1975 October 16, 1975
Temple & Peffer September , 1974 October 12, 1975
Unloading Corporation September 3, 1975 October 16, 1975
J. Screed, Inc. June , 1974 October 27, 1975
Leva Bros. Tile & Marble Co.,
Inc. December 20, 1974 October , 1975
Mancini & Klimchuck Co., Inc. September 24, 1975 October 21, 1975
Enjem's, Inc. July 14, 1975 October 31, 1975
R.S.E., Inc., d/b/a Wellsboro
Asphalt Co. July 10, 1975 October 25, 1975
The record makes it clear that of the subcontractors on the project, only one, Rosenthal Chadwick, Inc., which was granted relief by the court below and is not a party to this appeal, had more than an extremely limited knowledge of the financing between Freeman and Handler ...