J-A06029-17
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
WALNUT STREET 2014-1 ISSUER, LLC, IN THE SUPERIOR COURT OF
BY AND THROUGH THE BANCORP BANK, PENNSYLVANIA
ITS SERVICER AND AGENT,
Appellee
v.
MICHAEL S. PEARLSTEIN,
Appellant No. 2557 EDA 2016
Appeal from the Order Entered July 7, 2016
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term, 2016 No. 01672
BEFORE: PANELLA, SHOGAN, and RANSOM, JJ.
MEMORANDUM BY SHOGAN, J.: FILED JUNE 22, 2017
Appellant Michael Pearlstein (“Pearlstein”) appeals from the order
denying his petition to open the confessed judgment obtained by Walnut
Street 2014-1 Issuer, LLC (“Walnut”), through its predecessor-in-interest
and agent The Bancorp Bank (“the Bank”). We affirm.
Pearlstein is the sole member of the General Partnership of Empire
Schuylkill, L.P. (“Empire”), which owns a shopping mall in Frackville, PA
(“the Property”). On May 5, 2007, Empire and the Bank entered into a
series of transactions to finance the purchase, maintenance, and operation
of the Property (“Original Loan Agreement”). Pursuant to the Original Loan
Agreement, Empire borrowed $27,200,000 from the Bank. The parties
entered additional transactions in 2009 and 2010.
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In late 2010, Empire was prepared to sell the Property. To retain the
Property as collateral for its loans to Empire, the Bank sought and obtained a
guaranty from the United States Department of Agriculture (“USDA”). In
submitting its application for the USDA guaranty, the Bank valued the
Property at $30,372,821, despite a recent appraisal of $15,150,000 by
Quinn & Associates. The USDA accepted the Bank’s application and issued a
guaranty (“USDA guaranty”).
Empire and the Bank modified the Original Loan Agreement in
February of 2011 (“Amended Loan Agreement”), at which time Pearlstein
signed a personal guaranty agreement with the Bank (“Personal Guaranty”).
The Personal Guaranty covered three notes: Amended and Restated Note
for $17,300,000, which was reduced to $5,000,000; Term Note A for
$5,862,789; and Term Note B for $4,093,211 (“Notes”).
As of January 21, 2015, the Property had lost several anchor tenants,
and Empire had obtained an appraisal that valued the Property at
$5,300,000. Subsequently, Empire lost more tenants, and the fair market
value of the Property dropped to an estimated $2,000,000. The Bank did
not notify the USDA of Empire’s declining financial state.
The Bank sold the Amended Loan Agreement, Notes, and Personal
Guaranty to Walnut on or about December 30, 2014. Prior to this sale, the
Bank had not previously enforced Empire’s non-payment defaults of Current
Ratio, Minimum Tangible Net Worth, and Debt to Equity. Nonetheless,
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pursuant to a warrant of attorney provision in the Amended Loan
Agreement, Walnut confessed judgment against Empire on January 20,
2016, for the non-payment defaults. Empire did not challenge the confessed
judgment.
On March 17, 2016, Walnut confessed judgment against Pearlstein on
the Personal Guaranty. Pearlstein filed a petition to open judgment
(“Petition to Open”) on May 16, 2016, raising defenses of fraudulent
inducement, non-occurrence of default, waiver/estoppel, and breach of
contract.1 Walnut filed an answer on June 27, 2016 (“Answer”). The trial
court denied the Petition to Open on July 7, 2016, finding that Pearlstein did
not raise any meritorious defenses. The trial court also denied Appellant’s
July 15, 2016 motion for reconsideration on August 2, 2016. This appeal
followed. The trial court did not direct Pearlstein to file a statement of errors
complained of on appeal pursuant to Pa.R.A.P. 1925(b). For purposes of
complying with Pa.R.A.P. 1925(a), the trial court relied on its memoranda in
support of the orders denying the Petition to Open and denying
reconsideration. Order and Memorandum Opinion, 7/7/16; Memorandum
Opinion, 8/1/16.
____________________________________________
1
Walnut submits—and we agree—that Pearlstein has not appealed the trial
court’s rejection of several other defenses, i.e., Walnut’s lack of standing to
confess judgment against Pearlstein, the Bank’s breach of the Amended
Loan Agreement, the Bank’s breach of its duty of good faith and fair dealing,
and Walnut’s breach of the warrant of attorney. Walnut’s Brief at 15 n.4.
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On appeal, Pearlstein raises the following issues for our consideration:
1. Did the trial court err by prematurely requiring
evidence of the defenses without the issuance of a rule to show
cause, the opportunity to take discovery and the opportunity to
present evidence in support of the defenses, especially where
the trial court found that Pearlstein alleged some legally valid
defenses?
2. Did the trial court err in denying the Petition before
allowing discovery and the opportunity to present evidence
where Pearlstein alleged in a verified Petition all of the factual
elements necessary to establish the meritorious defense of
fraudulent inducement, to which the parol evidence rule does not
apply?
3. Did the trial court err by denying the Petition before
allowing discovery and the opportunity to present evidence
where Pearlstein alleged in a verified Petition all of the factual
elements necessary to establish the meritorious defenses of the
non-occurrence of an alleged default and waiver and/or estoppel
of the alleged defaults, which defenses are not vitiated by the
non-waiver provision in the parties’ agreement?
4. Did the trial court err by denying the Petition before
allowing discovery and the opportunity to present evidence
where Pearlstein alleged in a verified Petition all of the factual
elements necessary to establish the meritorious defense of
breach of contract, which Pearlstein had standing to raise as a
party to the agreements and based on his role as guarantor for
other agreements?
Pearlstein’s Brief at 4.
“A petition to open a confessed judgment is an appeal to the trial
court’s equitable powers.” Crum v. F.L. Shaffer Co., 693 A.2d 984, 986
(Pa. Super. 1997).
It is committed to the sound discretion of the hearing court and
will not be disturbed absent a manifest abuse of that discretion.
Ordinarily, if a petition to open a judgment is to be successful, it
must meet the following test: (1) the petition to open must be
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promptly filed; (2) the failure to appear or file a timely answer
must be excused; and (3) the party seeking to open the
judgment must show a meritorious defense....
Century Surety Co. v. Essington Auto Center, LLC, 140 A.3d 46, 53 (Pa.
Super. 2016) (quoting Mother’s Restaurant, Inc. v. Krystkiewicz, 861
A.2d 327, 336 (Pa. Super. 2004) (en banc)); Neducsin v. Caplan, 121
A.3d 498, 505 (Pa. Super. 2015), appeal denied, 131 A.3d 492 (Pa. 2016).
“Judicial discretion requires action in conformity with law on facts and
circumstances before the trial court after hearing and consideration.
Consequently, the court abuses its discretion if, in resolving the issue for
decision, it misapplies the law or exercises its discretion in a manner lacking
reason.” Neducsin, 121 A.3d at 506 (quoting Miller v. Sacred Heart
Hosp., 753 A.2d 829, 832 (Pa. Super. 2000) (internal citations omitted)).
In adjudicating a petition to open a confessed judgment, the trial court
is charged with “determining whether the petitioner presented sufficient
evidence of a meritorious defense to require submission of that issue to a
jury.” Ferrick v. Bianchini, 69 A.3d 642, 647 (Pa. Super. 2013) (citing
Homart Development Co. v. Sgrenci, 662 A.2d 1092 (1995)). “When
determining a petition to open a judgment, matters dehors the record filed
by the party in whose favor the warrant is given, i.e., testimony,
depositions, admissions, and other evidence, may be considered by the
court.” Graystone Bank v. Grove Estates, LP, 58 A.3d 1277, 1282 (Pa.
Super. 2012).
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Because the Petition to Open was timely, no one challenges the first
two requirements for opening a confessed judgment; rather, Pearlstein
focuses on the trial court’s determination that the Petition to Open did not
present any meritorious defenses warranting issuance of a rule to show
cause. In his first issue, Pearlstein complains that the trial court disposed of
the Petition to Open based solely on the initial pleadings without “affording”
him the opportunity to develop any evidence in support of his defenses.
Pearlstein’s Brief at 17. Pearlstein asserts that the trial court propagated
error by not following the procedure set forth in Pa.R.C.P. 2959(b) and (e).
Id. According to Pearlstein, the averments in his Petition to Open should
have triggered the trial court’s action in issuing a rule and allowing
discovery. Pearlstein’s Brief at 21.
Pennsylvania Rule of Civil Procedure 2959 governs a petition to open a
confessed judgment and provides, in relevant part, as follows:
(a) Relief from a judgment by confession shall be sought by
petition. . . . [A]ll grounds for relief whether to strike off the
judgment or to open it must be asserted in a single petition. . . .
(b) If the petition states prima facie grounds for relief the court
shall issue a rule to show cause and may grant a stay of
proceedings. After being served with a copy of the petition the
plaintiff shall file an answer on or before the return day of the
rule. The return day of the rule shall be fixed by the court by
local rule or special order.
* * *
(e) The court shall dispose of the rule on petition and answer,
and on any testimony, depositions, admissions and other
evidence. The court for cause shown may stay proceedings on
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the petition insofar as it seeks to open the judgment pending
disposition of the application to strike off the judgment. If
evidence is produced which in a jury trial would require the
issues to be submitted to the jury the court shall open the
judgment.
Pa.R.C.P. 2959(a), (b), and (e). We have explained that:
Pa.R.[C.]P. 2959(e) sets forth the standard by which a court
determines whether a moving party has properly averred a
meritorious defense. If evidence is produced which in a jury trial
would require the issues to be submitted to the jury the court
shall open the judgment. Furthermore, the court must view the
evidence presented in the light most favorable to the moving
party, while rejecting contrary evidence of the non-moving
party. The petitioner need not produce evidence proving that if
the judgment is opened, the petitioner will prevail. Moreover,
we must accept as true the petitioner’s evidence and all
reasonable and proper inferences flowing therefrom.
In other words, a judgment of confession will be opened if
a petitioner seeking relief therefrom produces evidence which in
a jury trial would require issues to be submitted to a jury. The
standard of sufficiency here is similar to the standard for a
directed verdict, in that we must view the facts most favorably
to the moving party, we must accept as true all the evidence and
proper inferences in support of the defense raised, and we must
reject all adverse allegations.
Neducsin, 121 A.3d at 506–507 (internal citations and quotation marks
omitted). Under this rule:
a court can no longer weigh the evidence in support of the
defense, but must only determine whether there is sufficient
evidence to allow the issue to go to a jury. The facts must be
viewed in the light most favorable to the petitioner, and a court
must accept as true all evidence and proper inferences therefrom
supporting the defense and must reject the adverse allegations
of the plaintiff.
Van Arkel & Moss Properties, Inc. v. Kendor, Ltd., 419 A.2d 593, 596
(Pa. Super. 1980) (internal citations omitted).
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Here, Walnut filed a complaint in confession of judgment, and
judgment was entered. Pearlstein filed the Petition to Open. At that point,
Pa.R.C.P. 2959(b) instructs the trial court to review the Petition to Open only
and determine if it states prima facie grounds for relief. However, Walnut
filed its Answer before the trial court made a finding. Then, based on the
Petition to Open and the Answer, the trial court refused to open the
judgment. Technically, therefore, Pearlstein’s procedural challenge has
merit. See City of Pittsburgh v. ACDI, 488 A.2d 333, 334 (Pa. Super.
1985) (“[The] threshold requirement of subsection (b) must be met before
the other procedures outlined in Rule 2959 are to take place.”).
Nevertheless, because we find support in the record for the trial court’s
finding that Pearlstein failed to present prima facie grounds for relief in the
Petition to Open, we conclude that the technical violation of Pa.R.C.P.
2959(b) in this case does not warrant opening the judgment. Thus,
Pearlstein’s first issue does not merit relief.
In his remaining issues, Pearlstein argues the Petition to Open contains
sufficient factual averments to support prima facie grounds for relief based
on four defenses. In his second question presented, Pearlstein claims the
Petition to Open establishes that the Bank fraudulently induced him to
execute the Amended Loan Agreement based on its misrepresentations
about obtaining the USDA guaranties. Pearlstein’s Brief at 22. According to
Pearlstein, the Bank made a representation to him which was material to the
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transaction; the representation was made falsely, with knowledge of its
falsity or reckless disregard as to its veracity, and with the intent of
misleading Pearlstein into relying on it; Pearlstein relied on the
misrepresentation and was proximately injured as a result. Id. (citing
Eigen v. Textron Lycoming Reciprocating Engine Div., 874 A.2d 1179,
1187 (Pa. Super. 2005)).
Also citing Eigen, the trial court disposed of Pearlstein’s fraud-in-the-
inducement defense as follows:
In this case, Pearlstein has offered no evidence showing
that the Bank, with an intent to mislead, falsely made a material
representation upon which Empire relied, and that Empire
suffered an injury proximately caused by such reliance.
Pearlstein has offered none of the . . . elements which are
required for submission to a jury, and for this reason his
[fraudulent inducement] challenge to the confessed judgment is
rejected.
Order and Memorandum Opinion, 7/7/16, at 6. Moreover, in denying
Pearlstein’s motion for consideration, the trial court observed that:
various documents executed by Empire and Pearlstein were fully
integrated contracts. Specifically, the Amended, Restated and
Consolidating Loan Agreement executed by Pearlstein stated as
follows:
Integration. This Agreement and the other
Loan Documents constitute the sole agreement
of the parties with respect to the subject
matter hereof and thereof and supersede all
oral negotiations and prior writings with
respect to the subject matter hereof and
thereof.28
28
Amended, Restated and Consolidating Loan
Agreement, Exhibit 1–D of the answer in
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opposition to the petition to open, § 9.10
(emphasis supplied). Also, USDA Form 4279–
14 titled Unconditional Guarantee, states that
Pearlstein, “Guarantor,” “may not use an oral
statement to contradict or alter the written
terms of the Note of this Guarantee….” Exhibit
1–J to the answer in opposition to the petition
to open.
The [c]ourt also notes that under Pennsylvania law—
Once a writing is determined to be the parties’
entire contract, the parole [sic] evidence rule applies
and evidence of any previous oral or written
negotiations or agreements involving the same
subject matter as the contract is … inadmissible to
explain or vary the terms of the contract.29
29
Youndt v. First Natl. Bank of Port Allegany,
686 A.2d 539, 546 (Pa. Super. 2005) (citing
Yocca v. Pittsburgh Steelers Sports, Inc., 854
A.2d 425, 436 (Pa. 2004)).
In this case, parol evidence precluded Pearlstein as a
matter of law from asserting the defense based on fraud-in-the-
inducement; therefore, the allegations based on this defense did
not state prima facie grounds for relief… .
Memorandum Opinion, 8/1/16, at 8–9.
On appeal, Pearlstein claims the Bank represented that it would
“submit complete and accurate information to the USDA in support of its
application” for guarantees. Pearlstein’s Brief at 23. Pearlstein accuses the
Bank of “knowingly and intentionally overstat[ing] the value of the Property
to the USDA” and not correcting “its earlier misrepresentation.” Id.
Pearlstein also asserts that without the Bank’s “representations and
verifications as to the accuracy of the information provided to the USDA,” he
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“would have never agreed to the Amended Loan Agreement or the
Guaranty” but would have terminated Empire’s relationship with the Bank
and sold the Property, as planned. Id. As for the trial court’s parol evidence
analysis, Pearlstein argues that, because he was not party to the Amended
Loan Agreement, the Personal Guaranty was not fully integrated, and neither
the Amended Loan Agreement nor the Personal Guaranty “‘directly deal’ with
[the Bank’s] obligations with respect to the application process for the USDA
Guaranties, the parol evidence rule would not bar evidence of [the Bank’s]
misrepresentations.” Id. at 26.
In response, Walnut argues that Pearlstein “failed to allege facts
beyond mere conclusions,” which “do not rise to the level of a prima facie
claim for fraudulent inducement[.]” Walnut’s Brief at 25, 26. Specifically,
Walnut points out Pearlstein’s failure to aver “what the actual statement
attributable to the Bank is, who said it, when it was said or why it was
false.” Id. at 27. Similarly, Walnut challenges Pearlstein’s averments
regarding the Bank’s intent to mislead, Pearlstein’s reliance, and Pearlstein’s
injury, as mere conclusions unsupported by the record. Id. at 28–33. With
regard to Pearlstein’s averment of injury, Walnut notes that the Amended
Loan Agreement actually reduced Pearlstein’s overall liability by $12,300,000
and that Empire could have sold the Property at any time. Id. at 32.
Moreover, Walnut asserts that the parole evidence rule precludes Pearlstein’s
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reliance on the Bank’s purported misrepresentations to support his fraud-in-
the-inducement claim. Walnut’s Brief at 33–39. According to Walnut:
the integration clause in the Amended Loan Agreement applies
to the “parties” who are parties to the Loan Documents, rather
than to parties that are only parties to the Amended Loan
Agreement. Since the 2011 [Personal] Guaranty is included in
the definition of “Loan Documents,” and because Pearlstein is a
party to that agreement, the 2011 [Personal] Guaranty is a fully
integrated document.
Id. at 35 (footnotes omitted).
Upon review, we discern no manifest abuse of the trial court’s
discretion in denying the Petition to Open. Century Surety Co., 140 A.3d
at 53. Pearlstein’s averments of fraudulent inducement are vague,
speculative, and conclusory. Despite the documentation he supplied in
support of the Petition to Open, Pearlstein does not provide facts regarding
who made a material misrepresentation, what the material
misrepresentation was, how the material misrepresentation induced
Pearlstein to reasonably rely upon it, and how the material
misrepresentation caused him harm.
The Bank represented that it would obtain a USDA guaranty, and it
did. The Bank’s alleged failure to comply with certain requirements of the
USDA guaranty does not support Pearlstein’s claim of fraudulent
inducement. Moreover, Pearlstein could not have reasonably relied on the
Bank’s alleged misrepresentations for the various reasons discussed by
Walnut: Empire was obligated to obtain the USDA guaranty, not the Bank—
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Amended Loan Agreement, 2/2/11, at ¶¶ 5, 5.16; Pearlstein’s liability under
the Personal Guaranty was not conditioned on the USDA guaranty—Personal
Guaranty, 2/2/11, at ¶ 2; Pearlstein obtained an independent valuation of
the Property before he executed the Personal Guaranty—Petition to Open,
5/16/16, at Exhibit Q; and, as guarantor, Pearlstein waived any “value”
related defenses—USDA Form 4279-14, at ¶ 6. Walnut’s Brief at 29–30.
Nor does the Petition to Open include facts establishing that the Bank’s
alleged misrepresentations caused him harm. In fact, the Personal Guaranty
merely restated and reaffirmed Pearlstein’s liability dating back to Empire’s
original obligations for loans in 2007, 2009, and 2010. Under the Amended
and Restated Note, Pearlstein’s overall liability was reduced by $12,300,000.
Moreover, although Pearlstein speculates that he would have sold the
Property at a higher price rather than execute the Personal Guaranty in
2011, he did not aver in the Petition to Open that the loss of value in the
Property was caused by the Bank’s alleged misrepresentations.
Furthermore, nothing of record prevented Empire from selling the Property
rather than continuing its relationship with the Bank.
Lastly, we find support in the record for the trial court’s findings that
the Personal Guaranty was a fully integrated agreement and that parol
evidence of the Bank’s alleged misrepresentations regarding the USDA
guaranty is barred. The Amended Loan Agreement contains an integration
clause which refers to the Amended Loan Agreement and the other Loan
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Documents. Amended Loan Agreement at § 9.10. “Loan Documents” is
defined in the Amended Loan Agreement as follows:
[The] documents listed in Section 4.1 hereof, including without
limitation this Agreement, the Note, the Mortgage, the
Assignment, and all agreements, amendments, certificates,
financing statements, schedules, reports, notices, and exhibits
now or hereafter executed or delivered in connection with
any of the foregoing, as may be in effective from time to time.
Id. at ¶ 1 (emphasis supplied). Because Pearlstein executed the Personal
Guaranty in connection with the Amended Loan Agreement, it falls squarely
within the definition of Loan Documents and, therefore, it also falls within
the scope of the integration clause. Thus, the parol evidence rule bars
Pearlstein from introducing extrinsic evidence of the Bank’s alleged
misrepresentations. Furthermore, even if we agree with Pearlstein’s claim
that the USDA application and forms are also Loan Documents, the
integration clause and parol evidence rule preclude extrinsic evidence of the
Bank’s alleged misrepresentations regarding those documents. In sum,
Pearlstein’s fraudulent inducement defense does not warrant relief.
In his third issue, Pearlstein argues that a factual dispute exists as to
whether Empire was in default and, therefore, a rule should have been
issued and discovery allowed. Pearlstein’s Brief at 28. According to
Pearlstein, the Bank waived any defaults by remaining silent for five years
during the life of the Amended Loan Agreement; therefore, he posits, Walnut
is estopped from confessing judgment against him personally based on
Empire’s defaults. Id. at 29.
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In its memorandum addressing Pearlstein’s motion for reconsideration,
the trial court relied on a non-waiver provision in the Personal Guaranty to
dispose of Pearlstein’s waiver/estoppel defense:
In the complaint-in-confession-of-judgment, Walnut
asserted that Empire had defaulted by breaching three financial
covenants, and specifically the covenants identified as “Minimum
Tangible Net Worth,” “Current Ratio,” and “Debt-to-Equity
Ratio.” In the subsequently-filed [Petition to Open], Pearlstein
challenged Walnut’s aforementioned averments by advancing
two defenses: first, Empire had not violated the Current Ratio
covenant at the time Walnut declared a default; and second,
Walnut had failed on prior occasions to enforce the other two
covenants and was therefore estopped from declaring a default
thereunder.
The [c]ourt shall address the second argument—namely,
that Walnut is estopped from declaring a default. To this end,
the [c]ourt turned to the allegations made by Pearlstein in his
Petition to [O]pen. In that petition, Pearlstein had stated that
Walnut was aware of the alleged “violations” of the financial
covenants, yet—
despite being given many opportunities to raise any
issues concerning these covenants, Walnut’s
predecessor remained silent at the time it ought to
have spoken . . . and . . . took no action regarding
these covenants for a period of five years.
* * *
By remaining silent when they should have spoken,
Bank and Walnut waived their ability to assert a
default based on such covenants . . . and Pearlstein
can prove the meritorious defenses of waiver and
estopped.
After examining the afore-quoted allegations in Pearlstein’s
petition, the [c]ourt also turned to the language of the Personal
Guaranty which Pearlstein executed on February 2, 2011.33 That
document stated as follows in pertinent part:
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[t]he liability of the Guarantor hereunder [Pearlstein]
is absolute and unconditional, and shall not be
affected in any way be reason of (a) … the lack of
prior enforcement of any rights against any person
or persons … (c) any delay in enforcing or failure to
enforce any such rights … or (d) any delay in making
demand on the Guarantor for performance or
payment of the Guarantor’s obligations hereunder.34
33
“The task of interpreting a contract is
generally performed bty a court rather than by
a jury. The goal of that task is … to ascertain
the intent of the parties as manifested by the
language of the written instrument.”
Humberston v. Chevron USA, Inc., 75 A.3d
504, 510 (Pa. Super. 2013).
34
GUARANTY AND SURETYSHIP AGREEMENT, Exhibit
1-E to the answer in opposition to the petition
to open judgment by confession, § 2.
This clear and unambiguous language left the [c]ourt with
no doubt: Pearlstein, as personal guarantor of Empire, had
agreed that his liability could not be washed away by the Bank’s
or Walnut’s lack of prior enforcement of any of their rights, or by
their delay in asserting such rights. Based on the clear language
of the Personal Guaranty, this [c]ourt found that Walnut or its
predecessor had not waived their right to hold Pearlstein liable
as guarantor, and could not be estopped from confessing
judgment against Pearlstein. Therefore, this [c]ourt found that
Pearlstein had failed to state prima facie grounds for relief as to
the Minimum Tangible Net Worth and Debt-to-Equity Ratio
covenants, and for the reason this [c]ourt rejected Pearlstein’s
challenges. Since Pearlstein had failed to state prima facie
grounds for relief under two of the three alleged financial
defaults, this [c]ourt deemed it unnecessary to address whether
Empire had breached the Current Ratio covenant at the time of
default.
Memorandum Opinion, 8/1/16, at 9–10 (three internal footnotes and
emphasis omitted).
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Pearlstein rebuts the trial court’s reliance on the non-waiver provision
of the Personal Guaranty in one-paragraph:
Instead of recognizing its error in failing to resolve the
Petition pursuant to Pa. R.C.P. 2959, in its opinion on
Pearlstein’s motion for reconsideration, the trial court found that
Pearlstein’s defense related to waiver of the default provisions
were precluded by the Guaranty’s “non-waiver” provision. In
reaching this conclusion, the trial court failed to recognize that,
under Pennsylvania law, a non-waiver provision may itself be
waived. See Gough v. Halperin, 159 A. 447, 448 (Pa. 1932);
McFarland v. Kittanning Ins. Co., 19 A. 796, 796–[7]97 (Pa.
1890); Imperial Fire Ins. Co. of London v. Dunham, 12 A. 668
(Pa. 1888). As [the Bank’s] conduct waived the default
provisions in the Amended Loan Agreement and the non-waiver
provision in the [Personal] Guaranty and “the issue of waiver is a
matter of fact to be shown by the evidence,” it was improper for
the trial court to deny the Petition before giving Pearlstein the
opportunity to conduct discovery.
Pearlstein’s Brief at 30 (footnote and some citations omitted).
Walnut replies that the Personal Guaranty “waiver provision is clear
and unambiguous. Indeed, Pearlstein does not argue otherwise.” Walnut’s
Brief at 42. According to Walnut, Pearlstein’s obligation to repay the loans is
irrespective of:
“any delay in enforcing or failure to enforce any such
rights, even if such rights are thereby lost, or … any delay
in making demand on the Guarantor for performance or
payment of the Guarantor’s obligations.” The Amended
Loan Agreement similarly provides that “no failure or delay on
the part of the Bank in the exercise of any right, power, or
remedy shall operate as a waiver thereof …”, and that “no
waiver of any one or more of the provisions hereof shall
be effective unless set forth in writing and signed by the
parties hereto.”
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Id. (quoting Personal Guaranty, 2/2/11, at ¶ 2; Amended Loan Agreement,
2/2/11, at ¶¶ 9.1, 9.11) (emphases in original; internal citations omitted)).
Walnut submits that whether the Bank “remained silent as to Empire’s
insolvency or financial requirements is irrelevant to Pearlstein’s obligations
under the [Personal] Guaranty.” Id. at 43. Because Pearlstein waived all
claims, Walnut asserts, “the trial court correctly held that it did not need to
address Pearlstein’s defense that Empire was not in default of one of the
financial covenants – the ‘Current Ratio’ covenant.” Id. at 45.
Upon review, we discern no manifest abuse of the trial court’s
discretion in rejecting Pearlstein’s third defense. We have explained that:
[p]arties to a written contract may abandon, modify or change it
either by words or conduct. While an abandonment or waiver is
not ordinarily presumed in the absence of an express
agreement, if the conduct of the opposite party has been such as
to mislead one, to his prejudice, into an honest belief that such a
waiver or abandonment was either intended or consented to, it
will be presumed. Delay in pressing a claim may be evidence
relevant to the issue of a claim’s abandonment, but such delay
does not give rise to a conclusive presumption.
Barr v. Deiter, 154 A.2d 290, 293 (Pa. Super. 1959) (internal citations
omitted).
Here, the plain language of the Personal Guaranty and the Amended
Loan Agreement indicate that Pearlstein unconditionally waived any
objection to the Bank’s delay in enforcing its rights with regard to Empire’s
default on the financial covenants. Personal Guaranty, 2/2/11, at ¶ 2;
Amended Loan Agreement, 2/2/11, at ¶¶ 9.1, 9.11. Moreover, the Petition
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to Open contains no averments justifying a conclusion that the Bank acted in
such a way as to waive or abandon the non-waiver provision. Barr, 154
A.2d at 293. Consequently, we discern no basis on which to disturb the trial
court’s rejection of Pearlstein’s estoppel/waiver defense.
In his fourth issue, Pearlstein challenges the denial of his final
defense: The Bank, and Walnut as its successor, breached the USDA
guaranty by misrepresenting the Property’s value and Empire’s financial
weakness to the USDA. Pearlstein’s Brief at 31. According to Pearlstein, he
and Empire were parties to the USDA guaranty because the Bank applied for
them on behalf of Empire and Pearlstein; therefore, the trial court erred in
concluding that Pearlstein could not raise a breach-of-contract defense. Id.
Walnut responds that Pearlstein lacks standing to assert a claim based
on the USDA guaranty because any cause of action arising out of the USDA
guaranty is between the Bank and the USDA; Pearlstein is not a third-party
beneficiary under the USDA guaranty; the USDA guaranty was additional
collateral for the Bank; Pearlstein was not harmed by any alleged breach of
the USDA guaranty; and Pearlstein was the primary guarantor on the Notes.
Walnut’s Brief at 47–48.
The trial court’s opinion mirrors Walnut’s reasoning:
Preliminarily, the [c]ourt notes that—
the petitioning party bears the burden of
producing sufficient evidence to
substantiate its alleged defenses … The
defenses raised must be valid ones.11
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11
Haggarty v. Fetner, 481 A.2d
641, 644 (Pa. Super. 1984)
(emphasis supplied).
Next, the [c]ourt shall examine the Loan Note Guarantee—a
document executed by the Bank—whereby the USDA specifically
guaranteed a portion of the loan made by the Bank to Empire.
This document states as follows:
in consideration of the making of the subject loan by
the above named Lender (the Bank), the United
States Department of Agriculture (“USDA”), pursuant
to the Consolidated Farm and Rural Development Act
… does hereby agree that … it will pay …
B. The [Bank] …
1. Any loss sustained by such Lender on
the guaranteed portion … or
2. The guaranteed principal advanced to
or assumed by [Empire] under said
notes….12
12
Loan Note Guarantee, UNITED
STATES DEPARTMENT OF AGRICULTURE—
RURAL DEVELOPMENT, Exhibit 7 of
plaintiff Walnut’s answer to the
petition to open the confessed
judgment.
This clear language leaves no doubt: the Loan Note
Guarantee is a contract between USDA as guarantor of the
loans, and the Bank as lender: nowhere in any of the documents
related to this transaction could this [c]ourt find that Pearlstein
was a party to such a contract. Having established that
Pearlstein was not a party to the Loan Note Guarantee, this court
additionally notes that under Pennsylvania law—
in a claim for breach of contract, the plaintiff
must alleged that there was a contract, the
defendant breached it, and plaintiff suffered
damages from the breach.13
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13
Discover Bank v. Stucka, 33
A.3d 82, 87 (Pa. Super. 2011)
[(emphasis original).]
In this case, Pearlstein may not remotely assert that he
was a party to the Loan Note Guarantee agreement, let alone
that he is a plaintiff entitled to assert thereunder a breach-of-
contract claim. For this reason, it is Pearlstein who has no
standing to assert that the Loan Note Guarantee was breached
by the Bank. As a result, Pearlstein may not rely on this
argument to invalidate the assignment from the Bank to Walnut.
Pearlstein has failed to bear the burden of producing a sufficient,
valid defense in . . . [this] challenge to the confessed judgment,
and for this reason the . . . challenge is rejected.
Memorandum Opinion, 7/7/16, at 4–5 (original brackets and one footnote
omitted).
Generally, a guarantor does not have standing to sue for breach of the
contract to which he was not a party. Accord Borough of Berwick v.
Quandel Grp. Inc., 655 A.2d 606, 608 (Pa. Super. 1995) (“[A]lthough the
borough signed the contract between the Authority and Buchart–Horn, it did
so only as a guarantor. It appeared to us … that the borough was not a
party to the contract.”). “To be considered a third-party beneficiary in
Pennsylvania it is necessary to show both parties to the contract had an
intent to benefit the third party through the contract and did, in fact,
explicitly indicate this intent in the contract.” Ira G. Steffy & Son, Inc. v.
Citizens Bank of Pennsylvania, 7 A.3d 278, 288 (Pa. Super. 2010).
In light of the law above, our review of the record supports the trial
court’s findings. Pearlstein was not a party to the USDA guaranty, nor a
third-party beneficiary of it; he was a guarantor of Empire’s financial
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performance under the Amended Loan Agreement. As such, Pearlstein lacks
standing to assert a breach-of-contract claim against the Bank based on the
USDA guaranty. Consequently, we discern no abuse of the trial court’s
discretion in denying the Petition to Open based on Pearlstein’s meritless
defense.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/22/2017
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