At 20.12 hours on 25 Jan 1944, U-278 fired a spread of three FAT torpedoes at convoy JW-56A in snow squalls about 115 miles from the North Cape and claimed the sinking of two ships with 7000 tons each after hearing two detonations and sinking noises. In fact, both torpedoes hit the Penelope Barker (Master John Paul Kounce) in station #12 on the port side. One struck in the #5 hold, blew off the hatch cover and beams, destroyed the port lifeboats and knocked the port AA gun out of its tub. The other hit in the engine room, toppled the stack, damaged the bridge area and engine compartment. The eight officers, 35 crewmen, 28 armed guards (the ship was armed with one 5in, one 3in and eight 20mm guns) and one passenger (a Royal Navy doctor, who was on board to treating one of the armed guard for appendicitis) began to abandon ship in two lifeboats, but the ship sank by the stern within ten minutes so that some men were forced to jump overboard. Some time before the ship sank, the armed guard officer and the doctor went below to assist trapped seamen, both men were lost. In all, one officer, nine crewmen, five armed guards and the passenger were lost. The survivors were picked up 40 minutes later by HMS Savage (G 20) and taken to Murmansk.

The Penelope Barker had left New York in convoy HX-270, arriving at Loch Ewe on 26 Dec 1943. She had left Loch Ewe on 12 Jan 1944 for Iceland, where she arrived seven days later.