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UNITED STATES FIDELITY AND GUARANTY COMPANY v. UNITED PENN BANK AND PHOENIX INDUSTRIES. APPEAL UNITED PENN BANK (04/24/87)

filed: April 24, 1987.

UNITED STATES FIDELITY AND GUARANTY COMPANY
v.
UNITED PENN BANK AND PHOENIX INDUSTRIES. APPEAL OF UNITED PENN BANK



Appeal from Judgment of the Court of Common Pleas, Civil Division, of Lackawanna County, No. 84 Civil, 1528.

COUNSEL

Arthur L. Piccone, Wilkes-Barre, for appellants.

Anthony J. Piazza, Jr., Scranton, for appellee.

Wieand, Cercone and Hoffman, JJ.

Author: Wieand

[ 362 Pa. Super. Page 442]

The dispute in this case is between United States Fidelity & Guaranty Company (USF & G), a corporate surety which was called upon to make good a contractor's nonpayment of

[ 362 Pa. Super. Page 443]

    the purchase prices for certain materials and supplies, and the United Penn Bank, a lending institution which held a perfected security interest in the same goods. After Phoenix Industries, Inc. (Phoenix), the contractor, had defaulted in the repayment of its loan to the bank, both the bank and USF & G asserted claims against the contractor's inventory. The trial court, in an interpleader proceeding, held that USF & G had a superior interest in the inventory and awarded to it the proceeds of a sale thereof. The bank appealed.

Between 1978 and 1980, United Penn Bank made various loans to Phoenix, a construction contractor. On July 28, 1981, the parties entered into a loan agreement which consolidated all outstanding loans and established a future line of credit. Pursuant to this agreement, Phoenix executed two promissory notes in favor of the bank: one for the amount of the consolidated indebtedness and the other to evidence an indebtedness for monies to be advanced pursuant to the new line of credit. As security, Phoenix gave the bank a security interest in all inventory and accounts of Phoenix, including future inventory and accounts thereafter acquired. The bank perfected its security interest by filing financing statements in Lackawanna County on July 30, 1981, and in the office of the Pennsylvania Secretary of State on September 1, 1981. In May, 1983, the bank renewed the line of credit which it had previously extended to Phoenix. Advances made by the bank pursuant to the new credit line were evidenced by a third promissory note which Phoenix executed and delivered to the bank on May 1, 1983.

Phoenix was thereafter awarded a contract to perform roofing and sheet metal work on a federal project to renovate the Chamberlain Munitions Plant in Scranton, Pennsylvania. Before Phoenix could begin work on the project, it was required, under federal law,*fn1 to obtain performance and payment bonds. To satisfy this requirement, Phoenix made application to USF & G, which, on October 24, 1983, issued

[ 362 Pa. Super. Page 444]

    the performance and payment bonds which enabled Phoenix to begin work on the Chamberlain project.

Phoenix thereafter ordered materials which were necessary for performance of the Chamberlain job. On October 26, 1983, Phoenix ordered insulation from Apache Building Products Company (Apache), which Apache delivered to Phoenix's plant on March 16, 1984. Phoenix also ordered and received roofing supplies from GAF Roofing Materials Company (GAF). Because of growing financial difficulties, Phoenix was unable to pay for the materials delivered by Apache and GAF.*fn2 Consequently, a demand for payment was made by Apache and GAF to USF & G in accordance with the terms of the payment bond which USF & G had issued on behalf of Phoenix.

On March 31, 1984, Phoenix defaulted on one of the promissory notes which it had executed in favor of the bank. Consequently, all promissory notes became immediately due and payable. On April 3, 1984, the bank confessed judgment against the subcontractor on one of the 1981 notes and caused the Sheriff of Lackawanna County to levy upon various items of personal property held by the subcontractor, including the materials which had been supplied by Apache and GAF for use on the Chamberlain project. These goods were scheduled for sheriff's sale on May 4, 1984.

On the day prior to the sheriff's sale, USF & G filed a sheriff's interpleader claim in which it objected to the sale of insulation and roofing materials delivered by Apache and GAF. With respect thereto, USF & G contended that Apache and GAF had acquired a "secured ownership interest" in the material which each had delivered to Phoenix. The claim was later amended by USF & G to assert its own security interest in the inventory by virtue of the surety bonds which it had issued to Phoenix for the Chamberlain project. The bank contested USF & G's claim but agreed that the disputed goods should be excluded from the sheriff's

[ 362 Pa. Super. Page 445]

    sale pending determination of the sheriff's interpleader action.

After hearing, the Lackawanna County Sheriff determined that although USF & G possessed a superior ownership interest in the insulation which had been sold to Phoenix by Apache, the bank's interest in the roofing material supplied by GAF had priority. Both the bank and USF & G filed exceptions to the sheriff's decision, and an appeal was subsequently filed by the parties in the Court of Common Pleas of Lackawanna County. Thereafter, the bank and USF & G entered into an escrow agreement pursuant to which the disputed property was sold, with the proceeds being deposited in an interest bearing escrow account at First State Bank in Scranton, Pennsylvania, to await decision of the pending litigation.

Following trial without jury, the court found that USF & G's interest in the inventory was superior to the security interest held by the bank, and the proceeds from the sale of the inventory were awarded to USF & G. Exceptions were filed and dismissed. In doing so, the trial court expressly relied upon a decision of this Court in Himes v. Cameron County Construction Co., 289 Pa. Super. 143, 432 A.2d 1092 (1981), aff'd, 497 Pa. 637, 444 A.2d 98 (1982) and ...


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