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In re Adrian Research and Chemical Co.

decided: August 25, 1959.


Author: Kalodner

Before McLAUGHLIN, KALODNER and STALEY, Circuit Judges.

KALODNER, Circuit Judge.

This is an appeal in a bankruptcy case from the Order of the United States District Court for the Eastern District of Pennsylvania affirming the Order of a Referee in Bankruptcy which denied the petitioner's claim status as a secured claim.

The single issue presented is whether the petitioner is deprived of the lien of his perfected secured claim because he took judgment against the debtor, issued execution and caused a levy to be made.

The facts are not in dispute. On September 10, 1957, the debtor, in consideration of an accumulation of rent arrearages in the amount of $7,600, entered into a security agreement with the petitioner, his landlord, creating a security interest in office, laboratory and plant equipment. The security arrangement was made pursuant to and perfected by compliance with, the Pennsylvania Uniform Commercial Code - Secured Transactions, Act of April 6, 1953, P.L. 3, Sec. 9-101 et seq., 12A P.S. Sec. 9-101 et seq.

Also, on September 10, 1957, as evidence of his obligation, the debtor executed and delivered to the petitioner a judgment note in the sum of $7,600, and judgment was entered thereon on September 12, 1957.

On March 12, 1958, because of the debtor's default, the petitioner issued execution on the judgment and caused a levy to be made on all of the debtor's personal property, which included the personal property covered by the security agreement. Bills were posted advertising the sheriff's sale.

A voluntary petition in bankruptcy was filed by the debtor on March 27, 1958, and on the receiver's application an order was entered in the bankruptcy proceeding on March 30, 1958, restraining the sheriff's sale.

Thereafter petitioner filed a reclamation petition in the bankruptcy proceeding. On September 22, 1958, the Referee denied the claim as a secured claim and allowed it as a general claim only. On September 30, 1958, petitioner filed his petition for review, and the Referee certified his Order for review to the District Court.

The District Court held, as did the Referee, that since the petitioner elected to issue execution and to levy on the assets of the debtor, he was barred from asserting a security interest to "retake" the personal property on the ground that the execution was inconsistent with the right to take possession: this conclusion was indicated by In re Elkins, D.C.E.D.Pa.1941, 38 F.Supp. 250, and In re Fitzpatrick, D.C.W.D.Pa.1923, 1 F.2d 445; nothing was found in the Pennsylvania Uniform Commercial Code to assist the petitioner. D.C., 169 F.Supp. 357.

The validity of petitioner's asserted lien is a question to be decided under Pennsylvania law, for it is not disputed that if petitioner has such a lien, he is in a protected position under the Bankruptcy Act, 11 U.S.C.A. ยง 1 et seq.

The petitioner contends that under Section 9-501 of Pennsylvania Uniform Commercial Code - Secured Transactions,*fn1 the execution and levy amounted to a foreclosure. The District Court and the Referee rejected this contention. In a new statutory framework,*fn2 we prefer not to engage in unnecessary interpretations where the final word rests with the local courts.*fn3 It is sufficient to state that if this contention of the petitioner is put to one side, at least the Code is not dispositive of the issue raised here.

The Pennsylvania courts have emphasized that distinct remedies may be used concurrently or alternately if they are consistent in purpose and kind; they must be inconsistent and not merely cumulative in order for the selection of one to operate as a bar to the pursuit of the other.Harper v. Quinlan, 1946, 159 Pa.Super. 367, 370-371, 48 A.2d 113. Again, lately it was said in Nuside Metal Products, Inc. v. Eazor Express, Inc., 1959, 189 Pa.Super. 593, at page 597, 152 A.2d 275, at page 278:

"Appellant also cites 18 Am.Jur., Election of Remedies, Section 12, to the following effect: 'Two modes of redress are inconsistent if the assertion of one involves the negation or repudiation of the other, as where one of them admits a state of facts and the other denies the same facts or where the one is founded upon the affirmance, and the other upon the disaffirmance, of a voidable transaction.' Such a situation may exist where a bailor has the right either to sue upon a note or to recover the property leased, in which event the exercise of either remedy acts as a waiver of the other. [Kelley Springfield] Road Roller Co. v. Schlimme, 220 Pa. 413, 69 A. 867; Jacob v. Groff, 19 Pa.Super. 144. However, in order to have the selection of one remedy operate as a bar to the pursuit of the other, or to compel an election between remedies, it must appear that the remedies sought to be enforced are inconsistent, and ...

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