Uhl Const. v. Fidelity & Deposit Co. of Maryland
| Decision Date | 22 February 1988 |
| Citation | 538 A.2d 562,371 Pa.Super. 520 |
| Court | Pennsylvania Superior Court |
| Parties | UHL CONSTRUCTION, a Pennsylvania Corporation, and Transamerica Insurance Company, a California Corporation, Appellant, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, a Maryland Corporation, Appellee. |
Russell C. Miller, Allison Park, for appellant.
Daniel J. Weis, Pittsburgh, for appellee.
Before MONTEMURO, POPOVICH and HESTER, JJ.
This appeal concerns a judgment entered by the Court of Common Pleas of Allegheny County holding Fidelity & Deposit Company of Maryland ("Fidelity") liable to Uhl Construction Company, Inc. ("Uhl") and Transamerica Insurance Company ("Transamerica") in the amount of $13,490.00. The events leading to this appeal began when the owners of the Reformed Presbyterian Home in Pittsburgh, Pennsylvania, 1 contracted with Uhl for structural restoration of the Reformed Presbyterian Home. Uhl acquired a labor and material payment bond from Transamerica. This bond named Uhl as principal and the owners of the Home as the obligee. By the specific terms of the bond, Transamerica, as surety, accepted joint and several liability with Uhl for the payment of both labor and material costs reasonably incurred by Uhl or any of Uhl's subcontractors in the completion of the restoration of the Home.
Uhl awarded a subcontract for the interior finishing work of the Home to Precision Building Systems, Inc. ("Precision"). Precision acquired a labor and material bond from Fidelity. 2 This bond named Precision as the principal and Uhl as the obligee. By the terms of this bond, Fidelity became the surety for payment of the labor and material costs incurred by Precision in the performance of its subcontract with Uhl for interior construction of the Home. During the course of its performance of the subcontract, Precision bought construction materials from Pittsburgh Builders Supply Company ("Pittsburgh"). The record before us contains copies of approximately forty-two sales invoices, dated between August and December of 1982, identifying with particularity the construction materials furnished by Pittsburgh to Precision for use in the Reformed Presbyterian Home job. 3 Precision performed some of the interior finishing work on the Home but was unable to complete its subcontract with Uhl. As a result of Precision's default, Uhl undertook the completion of Precision's subcontract.
On March 22, 1983, Pittsburgh filed a complaint against Uhl and Transamerica, seeking $42,000.00 for construction materials supplied by Pittsburgh to Precision for the Presbyterian Home job. Pittsburgh's cause of action was based upon the labor and material payment bond which Transamerica had issued to Uhl. Uhl and Transamerica brought Precision and Fidelity into the lawsuit as additional defendants. Thereafter, Uhl paid the $42,000.00 claim to Pittsburgh and received an assignment of Pittsburgh's claim. Trial Ct. Order, 10/3/84. On December 18, 1985, a non-jury verdict was entered by the Allegheny Court of Common Pleas, holding Fidelity liable to Uhl and Transamerica in the amount of $55,490.00. 4 Fidelity filed a motion for post-trial relief, challenging its obligation to pay the $42,000.00 in construction material cost. Fidelity contended that the labor and material bond was ineffective due to lack of delivery and, in the alternative, that Pittsburgh had been fully paid by Precision for materials used in the Presbyterian Home job but had "misapplied the funds received from Precision Builders to other jobs rather than the job involved in this case to the prejudice of a surety." Appellee's Motion for Post-Trial Relief, 1/3/86.
On June 23, 1986, the trial court entered an amended non-jury verdict reducing Fidelity's liability to $13,490.00. In its memorandum opinion, the court concluded that Fidelity's labor and material bond was effective. 5 Further, it was apparent that during the period of time in which Precision was working on the Presbyterian Home job, Precision made payments to Pittsburgh from the subcontract proceeds Precision received from Uhl. These payments from the Uhl subcontract proceeds completely covered the cost of materials which Precision had purchased and used in the Presbyterian Home job. However, Precision had a running account with Pittsburgh and owed Pittsburgh for materials which it had purchased and used in jobs it had undertaken prior to the Presbyterian Home job. As a result, when Pittsburgh received a payment from Precision, it applied the payment to the oldest outstanding debt in Precision's running account. It is undisputed that when Precision made payments from the subcontract proceeds it received from Uhl, Precision did not direct Pittsburgh to apply such payments to the debt from the Presbyterian Home job. Op. of Trial Court at 4. Thus, the $40,000.00 debt for materials supplied to Precision for the Presbyterian Home job remaining in Precision's account can be attributed to the manner in which Pittsburgh applied Precision's payments.
The trial court found that "Pittsburgh knew that the funds paid to it by Precision had been furnished by Uhl for labor and materials supplied by Pittsburgh for the Reformed project." Op. of Trial Court at 3. Our thorough review of the briefs and record in the instant case reveals that it is uncontested that Pittsburgh knew that the source of Precision's payments was the proceeds of a bonded construction job. As a result of Pittsburgh's admitted knowledge, the trial court concluded that Pittsburgh had a duty to apply these payments to the debt arising from the Presbyterian Home job. Op. of Trial Court at 4. Therefore, the trial court concluded that Fidelity had no obligation to reimburse Uhl and Transamerica for the $42, 000.00 paid to Pittsburgh for construction materials. Uhl and Transamerica thereafter filed an appeal with this Court.
The issue that we must decide in this case can be expressed as follows:
Is the supplier of materials to a contractor in a bonded construction project under a duty to apply the contractor's payments to the debt relating to the bonded project, when the supplier knows that the contractor's payments are being made from the funds of the bonded project?
This specific issue is an issue of first impression in this jurisdiction. We find the trial court erred in concluding that the case of Toll-Barkan Co. v. Toll, 193 Pa.Super. 221, 164 A.2d 36 (1960) required the result reached by the trial court in the instant case. In Toll, a housing developer and a contractor had agreed on a bonus payment to the contractor in the event that a certain group of homes was completed within a one year period. During the construction process, the contractor received a series of progress payments from the developer. The developer did not designate how these payments were to be applied by the contractor, and the contractor applied them toward payment of the bonus. The contractor completed the group of homes within the one year period and then submitted a bill for $9000.00 which remained due on the construction of several of the homes. The developer contended that there had been no agreement for the payment of a bonus and that the contractor, as a creditor, did not have a right to apply progress payments to a disputed or contested debt. See Page v. Wilson, 150 Pa.Super. 427, 28 A.2d 706 (1942). The Toll court found that the contractor was within his rights as a creditor in applying the progress payments to the bonus payment due to him, reasoning that "after the trial judge found the bonus claim to be valid, the appropriation of the $10,000.00 to it was proper whether made by the court or as having been made previously by the claimant." Toll, supra 193 Pa.Super. at 226, 164 A.2d at 39. The court quoted the following as the controlling law guiding its decision:
The debtor has a right to make the application, in the first instance, and failing to exercise it, the same right devolves on the creditor. When no application is made by either party, the law determines how the payments are to be applied in accordance with equitable rules and principles, and primarily, it deems the payments to be made in discharge of the earliest liabilities of a running account--each item of credit is applied in extinguishment of the earliest debit items in the account; in other cases, it will apply payment, when not appropriated by either party, in the way most beneficial to the creditor, that is, to the debt least secured, unless to the prejudice of a surety.
Id. at 225, 164 A.2d at 38 (quoting Page v. Wilson, 150 Pa.Super. 427, 433, 28 A.2d 706, 709 (1942)) (emphasis added). Thus, it is a general rule in Pennsylvania law that where a debtor owes more than one debt to a creditor, the debtor has the first right to specify the particular debt to which a payment is to be applied. If the debtor does not exercise this right, the creditor may apply the money to one or more of the debts in any manner in which he chooses. If neither the debtor or the creditor has made an application of the payment, then the law will make an application. See Bolgen v. Progressive Composition Co., 430 Pa. 140, 242 A.2d 269 (1968); In re Woods' Estate, 350 Pa. 290, 38 A.2d 28 (1944); Pardee v. Markle, 111 Pa. 548, 5 A. 36 (1886); Page v. Wilson, supra.
In the case before us, we must determine whether Pittsburgh's right as a creditor of Precision to make an application of Precision's payments is an unqualified right. The only limit imposed by our courts upon a creditor's right of application was defined in Page v. Wilson, supra, where the court stated that a creditor may not apply payments to a disputed or contested debt and thus prevent a debtor from litigating the validity of the debt. Id. 150 Pa.Super. at 435, 28 A.2d at 710. See also Toll-Barkan Co. v. Toll, supra 193 Pa.Super. at 226, 164 A.2d at 39. The instant case does not involve a disputed or contested debt.
Other...
To continue reading
Request your trial