HomeMy WebLinkAbout91-3732 CivilPROVIDENT NATIONAL BANK, IN THE COURT OF COMMON PLEAS OF
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. CIVIL ACTION LAW
GARY L. NALBANDIAN, DOROTHY
NALBANDIAN, HAROLD L.
LIEBENSON, ELAYNE LIEBENSON,
M. RICHARD KLEIMAN, JACKIE
KLEIMAN and JAMES HOFFER, NO. 3732 CIVIL 1991
Defendants
III
IN RE. MOTION FOR�JUDGMENT ON THE MADINGS
OF PROVIDENT NATIONAL BANK
BEFORE SHEELY, P.J.,1 and OLER, J1.
ORDER OF COURT
AND NOW, this �;r d day of June, 1992, 1pursuant to the
accompanying Opinion, the Motion of Plaintiff Provident National
Bank for judgment on the pleadings is GRANTED.
BY THE COURT,
J.
Darryl J. May, Esq.
Linda S. Menrad, Esq.
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attorneys for Plaintiffs
Dusan Bratic, Esq.
101 Office Center, Suite A
101 South Route 15
Dillsburg, PA 17019
Attorney for Defendants Gary L.
Nalbandian, Dorothy Nalbandian,
Harold L. Liebenson, Elayne Liebenson,
M. Richard Kleiman, and Jackie
Kleiman
President
decision.
Judge Sheely did not
participate
in this
Edward C. Roberts, Esq.
119 East Market Street
York, PA 17401
Attorney for Defendant Hoffer
PROVIDENT NATIONAL BANK, IN THE COURT OF COMMON PLEAS OF
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. CIVIL ACTION LAW
GARY L. NALBANDIAN, DOROTHY
NALBANDIAN, HAROLD L.
LIEBENSON, ELAYNE LIEBENSON,
M. RICHARD KLEIMAN, JACKIE
KLEIMAN and JAMES HOFFER, NO. 3732 CIVIL 1991
Defendants
MU IUN 1"UR t J UDUMENT UN THE YLL''Pi
OF PROVIDENT NATIONAL BANK
BEFORE SHEELY, P.J.,1 and OLER, J1
OPINION AND ORDER OF COURT
OLER, J.
In this action between a commercial lenders', (Plaintiff) and
seven guarantors (Defendants) on a construction (loan made by the
lender to the borrower, a Pennsylvania limited partnership, the
Plaintiff has moved for judgment on the pleadings, following
default of the borrower, to enforce a Guaranty an& Surety Agreement
executed by the Defendants in favor of the Plaintiff. At issue is
the question of whether the Plaintiff lender 1, is entitled to
judgment on the pleadings to enforce its right to receive payment
under the Guaranty Agreement, notwithstanding thellseveral defenses
and counterclaims asserted by the guarantors, ,where under the
express terms of the Guaranty Agreement the guarantors absolutely,
unconditionally, and irrevocably assumed liability for the payment
and performance of all obligations of the borrower upon default by
the borrower. For the reasons set forth below, we hold that the
express language of the parties' contractual documents
i
1 li
President Judge Sheely did not participate in this
decision.
No. 3732 Civil 1991
unequivocally establishes Provident's right to judgment against the
guarantors following default by the borrower.
FACTS AND PROCEDURAL HISTORY
On February 26, 1987, Skyport Properties (hereinafter
"Skyport"), a Pennsylvania limited partnerships entered into a
Construction Loan and Security Agreement (hereilnafter the "Loan
Agreement") with Provident National Bank (hereinafter "Provident"),
whereby Provident agreed to loan Skyport up to $1,400,000.00
(hereinafter the "Loan") for the construction of la shopping center
in Hampden Township, Cumberland County, Pennsylvania. [Plaintiff's
Complaint 1 4; Answer and New Matter of Gary L. Nal,lbandian, Dorothy
L. Nalbandian, Harold L. Liebenson, Elayne Liebenson, M. Richard
Kleiman and Jackie Kleiman, 1 4; Amended Answer and New Matter of
James M. Hoffer, 1 4.]2
The Loan was evidenced by a Note ( hereinafter the "Note") from
Skyport to Provident, dated February 26, 1981. [Plaintiff's
Complaint 1 5; Answer and New Matter of Defendants Nalbandian et
al., 4 5; Amended Answer and New Matter of Defendant Hoffer, 4 5.]
Under the terms of the Note, Skyport was obligated to make monthly
interest payments beginning March 1, 1987, until ;February 28, 1988
(hereinafter, the "Maturity Date"), when the entire amount owing
under the note would be due and payable. [Plain tiff's Complaint,
z
Where applicable, the responsive pleading will be referred
��
to as Answer and New Matter of Defendants Nalbandian et al." and
"Amended Answer and New Matter of Defendant Hoffer."
2
No. 3732 Civil 1991
Exhibit B (Note) at 2; Answer and New Matter of Defendants
Nalbandian et al., 1 5; Amended Answer and New Maltter of Defendant
Hoffer, 1 5.]
Paragraph 14a of the Loan Agreement provided for an eighteen -
month extension of the Maturity Date until August 31, 1989 (the
"Extended Maturity Date"), and for an additional twelve-month
extension from the Extended Maturity Date until August 31, 1990
(the "Second Extended Maturity Date"). [Plaintiff's Complaint,
Exhibit A (Loan Agreement), Q 14a; Exhibit B (Note), Q b; Answer &
New Matter of Defendants Nalbandian et al., Q 4;'iil Amended Answer &
New Matter of James M. Hoffer, 1 4.] While the guarantors contend
in the pleadings that the two permitted exteno ions were at the
option of Provident, the express language of both the Loan
Agreement and Note clearly provides that said twlo extensions were
at the option of Skyport and not Provident. [Plai0tiffIs Complaint,
Exhibit A (Loan Agreement), Q 14a; Exhibit B (Dote), 4 b; Answer
and New Matter of Defendants Nalbandian et al., 414; Amended Answer
and New Matter of Defendant Hoffer, 1 4.]
On February 26, 1987, the same date on which Skyport and
Provident entered into the Loan Agreement, the nine individual
limited partners of Skyport (hereinafter "guarantors") agreed to
execute a Guaranty and Surety Agreement (hereinafter the "Guaranty
Agreement") in favor of Provident. [Plaintiff,6 Complaint, 1 8;
Exhibit A (Loan Agreement), S 9(a)(6); Answer ald New Matter of
i
3
�I�
No. 3732 Civil 1991
Defendants Nalbandian et al., 5 4; Amended Answer and New Matter of
Defendant Hoffer, 1 4.] Pursuant to the Guaranty Agreement, the
guarantors expressly, irrevocably, and unconditionally guaranteed
to Provident that "[i]f any Obligation is not paid or performed by
Borrower punctually when due, ... Guarantors wl�ill, upon Bank's
demand, immediately pay or perform such Obligation or cause the
same to be paid or performed." [Plaintiff's Complaint, Exhibit E
(Guaranty Agreement), Q 1; see also 15 3(d); Answer and New Matter
of Defendants Nalbandian et al., 1 5; Amended Answer and New Matter
of Defendant Hoffer, 1 5.] The Guaranty Agreement also provided
that the guarantors would be liable to the Bank fluor "all costs and
expenses, including without limitation reasonable counsel fees,
which may be incurred by Bank in the collection or enforcement of
the Obligations or of Guarantors' obligatillns under [the]
Agreement." [Plaintiff's Complaint, Exhibit E (Guaranty Agreement)
at 2; Answer and New Matter of Defendants Nalban4ian et al., 1 5;
Amended Answer and New Matter of Defendant Hoffer, Q 5.]
Pursuant to Paragraph 3(c) of the Guaranty Agreement,
Provident had the option of extending the Note and Loan Agreement
without the consent of or notice to the guarantors and without
impairing or releasing the obligations of the guarantors.
[Plaintiff's Complaint, Exhibit E (Guaranty Ag�eement), Q 3(c);
Answer and New Matter of Defendants Nalbandian et
Answer and New Matter of Defendant Hoffer, 1 5.]
4
al. , 1 5; Amended
By executing the
No. 3732 Civil 1991
Guaranty Agreement, the guarantors agreed that their obligations
"shall not be subject to any counterclaim, set-�ff, deduction or
I
defense based on any claim Guarantors may have aginst Borrower or
Bank, except payment or performance of the obligations."
[Plaintiff's Complaint, Exhibit E (Guaranty Agrieement), 15 3(f);
Answer and New Matter of Defendants Nalbandian et ',al., 4 5; Amended
Answer and New Matter of Defendant Hoffer, 1 5.]I
As provided for in the Loan Agreement, thelllMaturity Date of
the Note was extended until August 31, 1989, under the Extended
Maturity Date provision; it was extended again Il,until August 31,
1990, under the Second Extended Maturity Date provision; and it was
extended for a third time, until August 31, 1991, pursuant to a
Letter Agreement dated January 31, 1991, entered into between
Provident and Skyport. [Answer and New Matt�r of Defendants
Nalbandian et al., 11 12, 13; Amended Answer and New Matter of
Defendant Hoffer, 11 13, 14.]
As provided for in the Note, the first two extensions were
subject to the election of Skyport, and the third extension, by
Letter Agreement dated January 31, 1991, was made with the consent
of Provident. [Reply and Answer of Provident to New Matter of
Defendants Nalbandian et al., 11 12, 13; Answer and New Matter of
Defendants Nalbandian et al., 1 5; Amended Answerll,and New Matter of
Defendant Hoffer, 1 5.]
5
No. 3732 Civil 1991
Skyport has failed to pay all principal payable under the
note. [Plaintiff's Complaint, Q 7; Answer and New Matter of
Defendants Nalbandian et al., Q 7; Amended Answerlland New Matter of
Defendant Hoffer, Q 7.] However, Skyport has made all interest
payments due under the Note. ;[Answer and New Matter of Nalbandian
et al., Q 21; Amended Answer and New Matter of Defendant Hoffer,
Q 24; Reply and New Matter of Provident to New Matter of Defendants
Nalbandian et al., Q 21.]
By letter dated September 13, 1991, Provident notified the
guarantors of Skyport's default and made demand on the guarantors
for payment of Skyport's obligations. (Plaint iffIs Complaint,
Exhibit F (Letter Agreement) Q 9; Answer and New Matter of
Defendant Nalbandian et al., Q 9; Amended Answer land New Matter of
Defendant Hoffer, Q 9.]
On October 14, 1991, Provident filed this action against seven
of the nine guarantors of Skyport to enforce the Guaranty and
Surety Agreement and in its Complaint requested judgment in its
favor and against guarantors in the amount of $1,1516,316.67, which
amount includes the principal amount of the loan, $1,400,000.00,
plus interest to date. Six of the guarantors (Gary L. Nalbandian,
Dorothy Nalbandian, Harold L. Liebenson, Elayoe Liebenson, M.
Richard Kleiman, and Jackie Kleiman) joined together and filed an
Answer with New Matter. Guarantor James M. Hoffer filed a separate
Answer with New Matter and later an Amended Answe� with New Matter.
D
No. 3732 Civil 1991
The Defendant Guarantors, jointly or severally, raise several
affirmative defenses and/or counterclaims' to Provident's
Complaint, summarized as follows:
(a) Bad Faith. Defendant guarantors allege, inter alia,
that Provident knew that Skyport would need permanent financing;
that Skyport has been willing to amortize the loam with Provident;
and that Provident has the present ability to extend the maturity
date or amortize the loan with Skyport; buil that Provident
nonetheless has refused to do so, contrary to its customary and
prior commercial dealings. Defendant Hoffer avers that Provident
is estopped from obtaining judgment against, him and seeks
compensatory damages. All other Defendant! guarantors seek
injunctive relief and both compensatory and punitive damages.
[Answer and New Matter of Defendants Nalbandian let al., ff 32-41;
Amended Answer and New Matter of Defendant Hoffer, 11 35-43.]
(b) Breach of Fiduciary Obligation; All Defendant
guarantors allege that a fiduciary relationship existed between
Skyport and Provident and that Provident breached said obligation
' Pursuant to
Pa. R.C.P. 1031, counterclaims shall be set
forth in the Answer under a separate heading "Counterclaim."
Because defendants Nalbandian et al. pur ort to assert
counterclaims under the heading of defenses, i is difficult to
determine which of the defenses are intendod to constitute
counterclaims. However, Pa. R.C.P. 126 provid$s that the court
shall construe the rules liberally in the intere4t of fairness and
judicial economy and that the court may disregard any error or
defect of procedure which does not affect the substantial rights of
the parties. Goodrich Amran 2d §126:1 (1991). Accordingly, we
will address each defense and purported counterclaim separately.
7
No. 3732 Civil 1991
by failing to assist Skyport in the extension ofjcredit or in the
procurement of permanent financing, purportedly contrary to
Provident's customary policies and dealings with borrowers.
[Answer and New Matter of Defendants Nalbandian t al., 11 42-44;
Amended Answer and New Matter, of Defendant Hoffer, 44 44-46.]
(c) Impossibility of Performance. All Defendant
guarantors aver that performance of obligations under the Guaranty
Agreement is strictly impossible and impracticable because of the
extreme difficulty of obtaining commercial financing and that
enforcement of the Guaranty Agreement will cause unreasonable
difficulty, expense or loss to the guarantors.11[Answer and New
Matter of Defendants Nalbandian et al., 11 45-4�; Amended Answer
and New Matter of Defendant Hoffer, 11 47-48.]
(d) Equitable Estoppel. All Defendant guarantors aver
that Provident is estopped from obtaining judgment against the
guarantors by virtue of Provident's conduct in 'ts dealings with
Skyport regarding the loan. [Answer and New Mather of Defendants
Nalbandian et al., QQ 47-48; Amended Answer and New Matter of
Defendant Hoffer, 11 49-50.]
(e) Deceptive and Unfair Trade Practices. All Defendant
guarantors except Defendant Hoffer allege that Provident's conduct
regarding the loan constitutes a violation of the Unfair Trade
Practices and Consumer Protection Law, Act of D cember 17, 1968,
P.L. 1224, §S 1 et seq., 73 P.S. §§ 201-1 et seq. (1971), entitling
0
No. 3732 Civil 1991
the guarantors to treble damages, attorney's fees, court costs and
expenses. [Answer and New Matter of Defendants Nalbandian et al.,
It 49-50.]
Defendant guarantor Hoffer raises two counterclaims, as
follows:
(a) Bad Faith. Defendant Hoffe a predicates his
allegation of bad faith on the same operative facts upon which the
other Defendant guarantors base their defense bf bad faith and
alleges that as a proximate cause thereof Defendant Hoffer has been
damaged "in ways that cannot be calculated in detail at this time,"
but which may include loss of property, damage) to his business
reputation, and legal costs. [Amended Answer and New Matter of
Defendant Hoffer, 44 51-53.]
(b) Breach of Fiduciary Obligation. (Defendant Hoffer
bases his allegation of breach of fiduciary obligation on the same
operative facts upon which the other Defendant guarantors premise
their defense of breach of fiduciary obligation and alleges that as
a proximate cause thereof he has been damaged "in ways that cannot
be calculated in detail at this time," but which may include loss
of property, damage to his business reputation, and legal costs.
[Amended Answer and New Matter of Defendant Hoffer, 11 54-56.]
On March 12, 1992, Provident filed a Motion for Judgment on
the Pleadings in its favor and against all def endllant guarantors in
the amount of $1,516,316.67, plus accrued and a�cruing interest,
D
No. 3732 Civil 1991
attorney's fees and costs. The case was argued before the Court on
March 26, 1992.
ISSUE AND HOLDING OF THE COURTI
The issue before the Court is whether (judgment on the
pleadings in favor of a commercial lender and against the
guarantors of a loan is proper where the guarantors have admitted
the facts essential to prove the default of the borrower and their
liability on the guaranty, which by its express terms is absolute,
unconditional, and irrevocable, notwithstandingseveraldefenses
and counterclaims asserted by the guarantors.
For the reasons set forth in this opinion, we hold that the
express language of the parties' contractual) documents (Loan
Agreement, Note, and Guaranty Agreement) unequivocally establishes
Provident's right to judgment against the guarantors. Furthermore,
with regard to the several defenses and/or countelkrclaims raised by
the guarantors, we conclude that the guarantors are contractually
precluded from asserting the defenses and/or counterclaims, and
that even if the parties' contract did not bar 11 such assertions,
those defenses and/or counterclaims would fail as a matter of law.
DISCUSSION
Pennsylvania Rule of Civil Procedure 1034 permits a court to
enter judgment on the pleadings. In passing on a motion for
judgment on the pleadings, the court may cInsider only the
pleadings themselves and any documents properly ttached thereto.
10
No. 3732 Civil 1991
Capuzzi v. Heller, 125 Pa. Commw. 678, 683, 5158 A.2d 596, 598
(1989). Judgment on the pleadings should not be entered unless
there are no material facts in dispute and, after accepting all of
the opposing party's well -pleaded facts as true,l the case is free
from doubt and trial would bq a fruitless exercise. Id. Where a
case turns upon the construction of a written contract, judgment on
the pleadings has been held to be appropriate, D.iAndrea v. Reliance
Savings and Loan Association, 310 Pa. Super. 5�7, 546, 456 A.2d
1066, 1070 (1983), where the contract relied upon is before the
court as a proper attachment to the pleadingst�. Groff v. Pete
Kingsley Building, Inc., 374 Pa. Super. 377, 383,tt 543 A.2d 128, 131
(1989).
A guaranty agreement is governed by the prin iples of contract
law. 38 C.J.S. Guaranty §3 (1943). In rev4wing a guaranty
contract, "it is the court's responsibility to tldetermine, and to
give effect to, the parties' plainly -stated intentions, as
ascertained by a fair and reasonable interpretation of the terms
they used and the language employed ...." Pennsy4vania House, Inc.
v. Barrett, 760 F. Supp. 439, 448 n.12 (M.D. Pa. 1991). Our
Supreme Court has held that " [ i ] t is not the pro�ince of the court
to alter a contract by construction or to make a new contract for
the parties; its duty is.confined to the interpretation of the one
which they have made for themselves, without reltard to its wisdom
or folly." Steuart v. McChesney, 498 Pa. 45, 51, 444 A.2d 659, 662
11
No. 3732 Civil 1991
(1982). Moreover, "when a written contract is clear and
unequivocal, its meaning must be determined by its content alone."
Department of Transportation v. Manor Mines, Inlc., 523 Pa. 112,
119, 565 A.2d 428, 432 (1989). Thus, a court must determine the
intent of the parties and give effect to all provisions in the
contract. id. With regard to the meaning of a contract's
language, in the absence of technical terminology, words used in
the contract will be given their plain and rdinary meaning.
Warren v. Greenfield, 407 Pa. Super. 600, 607, 59 A.2d 1308, 1311
(1991). When the words of a contract are unequivocal, "they speak
for themselves, and a meaning other than that expressed cannot -
and will not - be given to them." Id. at 607, 5�5 A.2d at 1312.
In the instant case, the preamble to the Guaranty Agreement
specifically recognizes that approval of the to n to Skyport was
conditioned on the execution and delivery of the Gluaranty Agreement
by the guarantors, all of whom are the limited!, partners of the
borrower.° Clearly, the guaranty was the quid pro quo for the
transaction. The language of the Guaranty Agrement clearly and
I
unequivocally establishes that the guarantors'', liability, upon
default by the borrower, was without limitation. Specifically,
paragraph 1 of the Guaranty Agreement provided that
a
Plaintiff' s Complaint, Exhibit E (Guaranty Agreement,
Preamble); Answer and New Matter of Defendants N lbandian et al.,
1 4; Amended Answer and New Matter of Defendant Hoffer, 44 4, 11.
12
No. 3732 Civil 1991
[g]uarantors hereby irrevocably and unconditionally
guarantee to Bank ... the due and punctual payment
and performance of all the obligations of Borrower,
... including without limitation the payment of
principal and any interest accruing thereon, under
the Note or the Loan Agreement ... or'iunder any
renewals, extensions or modifications'thereof....
If any Obligation is not paid or performed by
Borrower punctually when due, ... Guarantors will,
upon Bank's demand, immediately pay or perform such
Obligation or cause same to be paid or performed.'
Under Paragraph 3(c) of the Guaranty Agreement, entitled
"General Terms and Conditions," the guarantors expressly
acknowledged and agreed that their liability under the Guaranty
Agreement would not be impaired or released by, inter alia, any
extension of the Note. Moreover, Paragraph 3(d)Ifurther provided
that the guaranty was "absolute and unconditional " Finally, under
Paragraph 3(d), the guarantors expressly agreed that
[t]he Obligations of Guarantors hereunder shall not
be subject to any counterclaim, set-off, deduction
or defense based upon any claim Guarantors may have
against Borrower or Bank, except payment or
performance of the Obligations.
As provided for in Paragraph 14a of thee, Loan Agreement,
Skyport had the option of extending the February 1988, maturity
date for an eighteen -month period to August 31 1989 This =-.r+-
5
xt
s
Answer
Answer
n
II
Plaintiff's Complaint, Exhibit E (Guaranty Agreement) 1 1;
and New Matter of Defendants Nalbandian et al., 1 5; Amended
and New Matter of Defendant Hoffer, 1 5.
13
No. 3732 Civil 1991
sion was effected.' On or before August 31, 1980, again pursuant
to Paragraph 14a of the Loan Agreement, the maturity date of the
loan was extended a second time for one year tolIAugust 31, 1990.'
On or about August 31, 1991, Provident and Skyport negotiated and
agreed to extend the maturity date of the Notelli from August 31,
1990, to August 31, 1991, pursuant to a Letter Agreement dated
January 31, 1991.6 Upon the expiration of the last maturity date,
August 31, 1991, Skyport failed to pay to Provident all principal
and interest due under the Note. All of the Defendant guarantors
admit that Skyport is in default on the Note wi�h respect to the
principal due thereunder.9
Based on the express language of the Guarant Agreement as set
forth above, it is beyond peradventure that upon default by the
6 Answer and New Matter of Defendants Nalblllndian et al., QQ
12, 13; Answer and New Matter of Defendant Hofer, QQ 13, 14.
While the guarantors contend that Provident elected to extend the
Maturity Date until August 31, 1989, and later to August 31, 1990,
the loan documents expressly provide that the two extensions would
be permitted at the option of Skyport, the borrower. Plaintiff's
Complaint, Exhibit E (Loan Agreement), Q 14a; Answer and New Matter
of Defendants Nalbandian et al., Q 5; Amended Ans er and New Matter
of Defendant Hoffer, Q 5.
7 Id; see also Plaintiff's Complaint, Exh�bit B (Note),
Q (b).
6 Reply and New Matter of Provident tl New Matter of
Defendants Nalbandian et al., Q 14; see also Answer and New Matter
of Defendants Nalbandian et al., Q 14; Amendei Answer and New
Matter of Defendant Hoffer, Q 16; Plaintiff's Com olaint, Exhibit C
("Letter Agreement").
9 Answer and New Matter of Defendants Nalba than et al., Q 7;
Amended Answer and New Matter of Defendant Hoffe , Q 7.
14
No. 3732 Civil 1991
borrower, Skyport, Provident was entitled to lookllto the9 uarantors
for repayment of the Note according to the express terms contained
in the Guaranty Agreement. Such a right in Provident was clearly
the intent by the parties at the time the agrement was entered
into. Notwithstanding the express terms of th Loan Agreement,
Note, and Guaranty Agreement, the defendant guarantors nevertheless
I
seek to avoid liability under The Guaranty Agreement by asserting
several defenses and/or counterclaims.10 We w�ll address each
defense and counterclaim hereinbelow.
a. Bad Faith
The guarantors allege that Provident acted in bad faith by not
further extending the maturity date of the Loan Agreement or
otherwise agreeing to restructure the loan." Well disagree.
Section 205 of the Restatement (Second) of Contracts provides
that "(e]very contract imposes upon each party a duty of good faith
and fair dealing in its performance and its enforcement." Creeger
Brick and Building Supply, Inc. v. Mid-Stater, Bank and Trust
Company, SEDA, 385 Pa. Super. 30, 35, 560 A.2d 1151, 153 (1989) .
Similarly, a duty of "good faith" is imposed onl contracts which
come within the Uniform Commercial Code, 13 Pa. �.S. §1203, "good
I
10 See supra n.3.
11 Answer and New Matter of Defendants Nalbindian et al.,
QQ 32-41; Amended Answer and New Matter of Defenda
43, 51-53. it Hoffer, QQ 35-
15
No. 3732 Civil 1991
faith" being defined as "[h]onesty in the conduct or transaction
concerned." 13 Pa. C.S. §1201.
While Pennsylvania appellate courts have recognized a duty of
good faith in limited situations, such as between franchisor and
franchisee and between insurer and insured, the courts have refused
to impose a duty of good faith which would modify or defeat the
legal rights of a creditor. Creeger Brick andlBuilding Supply,
Inc. v. Mid -State Bank and Trust Company, SEDA, 3165 Pa. Super. 30,
36, 560 A.2d 151, 154 (1989). The Superior Cour held in Creeger
that
a lending institution does not violate',a
separate duty of good faith by adhering to
the express terms of its agreement wit the
borrower or by enforcing its legal and
contractual rights as a creditor. The duty
of good faith imposed upon contracting parties
does not compel a lender to surrender rights
which it has been given by statute or by the
terms of its contract. Similarly, it cannot
be said that a lender has violated a duty of
good faith merely because it has negotiated
terms of a loan which are favorable tolitself.
Id. at 36-37, 560 A.2d at 154.
In the instant case, the Defendant guarantors' affirmative
defense and counterclaim for bad faith is predicatled on Provident's
I
refusal to forbear from enforcing its legal rights under the Note
and Guaranty Agreement as well as its refusal to ',extend permanent
financing to Skyport. There is nothing in thel Loan Agreement,
Note, or Guaranty Agreement, however, to suggest even remotely
that it was the intention of the parties that t e financing from
16
I
No. 3732 Civil 1991
Provident to Skyport be anything but short -tern financing. The
Loan Agreement in Paragraph 14a explicitly provided that the loan
would become due and payable on February 28, 1988, but that the
maturity date could be extended two times at the option of Skyport,
to a final due date of August, 31, 1990. Such express language in
the contract belies any suggestion that the parties intended
permanent financing. As we noted above, whenl, the words of a
contract are unequivocal, "they speak for themselves, and a meaning
other than that expressed cannot - and will n t - be given to
them." Warren v. Greenfield, 407 Pa. Super. 600, 607, 595 A.2d
1308, 1312 (1991).
Furthermore, although the guarantors argue that Provident made
"representations, statements and undertakings [frim which] Skyport
was led to believe that they could successfully finance the
construction project and obtain permanent finanping",12 the Loan
Agreement, entered into on February 26, 1987, expressly provided
that the loan would become due and payable ore year later on
February 28, 1988, and the parties agreed that the Loan Agreement,
Note, Guaranty Agreement and all collateral documents, contracts,
and instructions would constitute the complete Memorandum of the
12 Answer and New Matter of Defendants Nalban than et al, Q 16;
Amended Answer and New Matter of Defendant Hoffer, Q 17.
17
I�
IIS
No. 3732 Civil 1991
agreement between Skyport as borrower and Provident as lender.l3
Accordingly, guarantors' defense and/or counterclaim of bad faith
cannot be said to be meritorious.
b. Fiduciary Obligation
To support its claim that Provident breathed a fiduciary
obligation to Skyport, guarantors assert that Skyport placed trust
and confidence in Provident to finance the projlct and, further,
that Skyport relied upon Provident to assist) Skyport in the
extension of credit or [the] obtaining [of] permanent financing for
i
the loan transaction ....14 Guarantors further allege that
Skyport "depend[ed] upon Provident to look out for Skyport's
interest with regard to the financing of the project, which
reliance Provident was aware of.i15 For the reasons that follow,
we cannot accept guarantors' defense and/or counterclaim that a
fiduciary relationship existed between Providenttand Skyport.
As a general rule, the test for determininglthe existence of
a confidential relationship is "whether it isl clear that the
parties did not deal on equal terms." In Re Es ate of Mihm, 345
Pa. Super. 1, 7, 497 A.2d 612, 615 (1985), citing�rowen v. Blank,
13 Plaintiff's Complaint, Exhibit
P . A, Loan greement, Q 44;
Answer and New Matter of Defendants Nalbandian et l., Q 4; Amended
Answer and New Matter of Defendant Hoffer, Q 4.
14 Answer and New Matter of Defendants Nalbindian et al.,
Q 43; Amended Answer and New Matter of Defendant Hoffer, Q 45.
is Answer and New Matter of Defendants Nalba dian et al, Q 15;
Amended Answer and New Matter of Defendant Hoffe Q 17.
18
No. 3732 Civil 1991
493 Pa. 137, 145, 425 A.2d 412, 416 (1981).'', A confidential
relationship is not confined to any specific association of the
parties; it is one wherein a party is bound to act for the benefit
of another, and can take no advantage to himself." Id. at 8, 425
A.2d at 416, citing Leedom v« Palmer, 274 Pa. 22, 25, 117 A. 410,
411 (1922).
As between a borrower and a lender, ordinarily a confidential
relationship does not arise. Federal Lank Bank of Baltimore v.
Fetner, 269 Pa. Super. 455, 461, 410 A.2d 344, 348 (1979). Unless
a commercial lender contractually obligates itse f to satisfy its
customers' desires, it is "entitled to advance i s own interests,
and it ... need not put the interests of [its cus omer] ... first."
Kham & Nate's Shoes No. 2, Inc. v. First Bank of hit.ing, 908 F.2d
1351, 1358 (7th Cir. 1990). A bank is not required to loan more
money than its contract requires. Id. As the Court of Appeals for
the 7th Circuit explained,
[k]nowledge that literal enforcement [ f a contract]
means some mismatch between the partie ' expectation
and the outcome does not imply a gener 1 duty of
'kindness' in performance, or of judic al oversight
into whether a party had 'good cause' o act as it
did. Parties to a contract are not each others'
fiduciaries; they are not bound to treat customers
with the same consideration reserved for their
families. Any attempt to add an overl y of 'just
cause' ... to the exercise of contract al privileges
would reduce commercial certainty and reed costly
litigation.
Id. at 1357.
W
No. 3732 Civil 1991
In the instant case, the claim of the guarantors that a
fiduciary/confidential relationship existed between Skyport and
Provident is not tenable. The entire understanding of the parties
is embodied in the Loan Agreement, Note, Guaran�y Agreement, and
other collateral documents, and nowhere in any of those documents
has Provident undertaken to look out for other parties' interests.
On the contrary, throughout the contract documelts, it is clear
that Provident was acting for the protection of its own interests.
For instance, without the prior written conse t of Provident,
Skyport could not, inter alia, borrow any other funds, convey
convey or
create any lien on the subject property," or issue or transfer any
interests in Skyport.18 Furthermore, Section II16 of the Loan
Agreement provides that "[Provident's] inspections are solely for
the protection of [Provident's] security and no a�tion or inaction
by [Provident] shall constitute any representation that the
Improvements comply with the Plans or that the IlImprovements are
sound or free from defects in material, design or workmanship or
that [Provident] approves thereof." Finall1, the clearest
16 Plaintiff's complaint, Exhibit A (Loangreement), X19•
Answer and New Matter of Defendants Nalbandian et :1J[4; Amended
Answer and New Matter of Defendant Hoffer, 1 4.
17 Plaintiff's Complaint, Exhibit ALoan Agreement)
Answer and New Matter of Defendants Nalbandian et 1 1 4; mended
d
Answer and New Matter of Defendant Hoffer, 1 4.
1a Plaintiff's Complaint, Exhibit A (LoanAgreement), S21;
Answer and New Matter of Defendants Nalbandian et al., 1 4; Amended
Answer and New Matter of Defendant Hoffer, 1 4.
20
i
No. 3732 Civil 1991
indication that Provident was advancing its own interests is the
fact that it required guarantors, as limited partners of Skyport,
to sign a Guaranty Agreement, thereby ensuring pa�ment to Provident
in the event of default by Skyport. Such a contractual undertaking
hardly comports with a confidential relationship. Accordingly,
guarantors' defense and/or counterclaim of breachll of fiduciary duty
must fail.
C. Equitable Estoppel
Guarantors aver that Provident's refusal t� restructure the
loan to provide permanent financing to Skyport and to forbear from
exercising its contractual and legal remedies is precluded by
"equitable estoppel.i19 We disagree.
The doctrine of equitable estoppel has been defined as that
which "prevents one from doing an act differently than the manner
in which another was induced by word or deed to expect.- Novelty
Knitting Mills, Inc. v. Siskind, 500 Pa. 432, 415, 457 A.2d 502,
503 (1983). The essential elements of equitable estoppel are an
inducement to act and justifiable reliance tllhereon to one's
detriment. The burden of proof is on the party asoerting equitable
estoppel to establish estoppel by clear, precise and unequivocal
evidence. Farmers Trust Co. v. Bomberger, 362 Pa. Super. 92,
19
Answer and New Matter of Defendants Nalb ndian et al,
15 47-48; Amended Answer and New Matter of Defenda t Hoffer, 11 49-
50.
21
IIS
No. 3732 Civil 1991
98-99, 523 A.2d 790, 793 (1987). "As a general rule, mere
or inaction is not a ground for estoppel unless here is a
speak or act .... There is no estoppel where both parties are
equally aware of the facts and where the failure to speak or act by
one party does not mislead the other." Id. at 99-100, 523 A.2d at
794.
In the instant case, the intent of thelrties is clearly
y
stated in their contractual agreement. Specifically, the agreement
provides that the purpose of the loan was Into finance the
construction of a shopping center; that a condillion precedent to
Provident's making the loan was the execution] by the limited
partners of Skyport of a Guaranty Agreement; that the loan would
mature on February 28, 1988, one year from the Illdate of the Loan
Agreement; that Skyport could, at its option, obtain two extensions
of the Maturity date; and that in the event of default by Skyport
guarantors would assume the obligation of repayment of the loan.
Upon the expiration of the second extension, and pursuant to a
Letter Agreement, Provident consented to extend the loan maturity
date for an additional twelve months. Howelver, the Letter
Agreement expressly provided that the parties' intentions had not
changed:
Neither this Letter Agreement nor any future
agreement made by Provident under the oan
Agreement, the Mortgage or the Note sh 11
constitute a waiver of any Event of De ault, or
any event which with the passage of ti a or the
giving of notice or both would constit to an
22
i
silence
duty to
No. 3732 Civil 1991
Event of Default nor obligate Provident to make
any further extension of the Maturity Date, nor
constitute a waiver of any of Provide�t's rights
or remedies.
20
There is no language in the contract documents or the Letter
Agreement which indicates that Provident inl any way misled
guarantors or that Skyport or guarantors changed their position
when Provident extended the loan. Accordingly, Provident cannot be
said to be estopped from enforcing its contractual remedies, and
guarantors' claim of equitable estoppel must fair..
d. Impossibility of Performance
Guarantors next allege that Provident is precluded from
enforcing the Guaranty Agreement because Skyp�rt's ability to
procure permanent financing has been render�d impossible or
impracticable due to unfavorable market conditions. 21 We hold that
Provident is not so precluded.
In Craig Coal Mining Company v. Romani, 355 Pa. Super. 296,
300, 513 A.2d 437, 439 (1986), the Superior Court recognized
Section 261 of the Restatement (Second) of Contracts, entitled
"Discharge by Supervening Impracticability." Sec tion 261 provides
that
[w]here, after a contract is made aIrt '
p� y s
20 Plaintiff's Complaint, Exhibit CLette
( r�Agreement), p. 1
(emphasis added); Answer and New Matter of Defendants Nalbandian et
al., 1 5; Amended Answer and New Matter of Defendant Hoffer, 4 5.
21 Answer and New Matter of Defendants Nalba dian et al, Q 46;
Amended Answer and New Matter of Defendant Hoffe , 1 48.
23
No. 3732 Civil 1991
performance is made impracticable without his
fault by the occurrence of an event t e non-
occurrence of which was a basic assum tion on
which the contract was made, his duty to render
that performance is discharged, unless the
language or the circumstances indicate the
contrary.
Restatement (Second) Contracts, §261 (1979) (emphasis added).
The Official Comments to Section 261 illustrate and clarify
those situations when discharge of performance is allowed. Comment
(b) provides that in order for a supervening eve 6t to discharge a
duty under Section 261, the non-occurrence of that event must have
been a "basic assumption" on which both parties made the contract.
The most common "basic assumptions" on which contracts are made are
the continued existence of a person or thing necessary for
performance, so that ordinarily the death of the person or
destruction of the thing effects a discharge. Comment (b)
continues, however, that while
application [of the "basic assumption"Iprinciple] is
also simple enough in the cases of market shifts or
the financial inability of one ofthe arties[,] ...
[t]he continuation of existing market onditions and
of the financial situation of the partes are
ordinarily not such assumptions, so th t mere market
shifts or financial inability do not uually effect
discharge under the rule stated in thi Section.
Comment (a) to Section 261 provides that, where by agreement
a party assumes a greater obligation, the principle of
impracticability of performance must yield so that the party's non-
performance is a breach even if it is caused by 'uch an event.
24
No. 3732 Civil 1991
Comment (c) provides that parties to a contract may, "by
appropriate lan ua e a agree to
g g , g perform in spite of impracticability
i
.... Even absent an express agreement, a court !may decide, after
considering all the circumstances, that a partyl1mpliedly assumed
such a greater obligation."
In the instant case, the guarantors may very well have
assumed, at the time they signed the Guaranty Agreement obligating
themselves to pay to Provident upon default; by Skyport all
principal and interest due under the Note, that market conditions
would remain such that Skyport would have no difficulty obtaining
permanent financing. However, as comment (b) points out, the non-
occurrence of events such as market shifts or the inability to pay
are ordinarily not "basic assumptions" upon which parties made a
contract. Moreover, even if they were "basic assuhmptions," Section
261 of the Restatement (Second) of Contracts provides that the
language of the parties' contract may indicate that even
impracticability of performance due to markeIt conditions or
inability to pay will not discharge the duty of plerformance. Such
express contractual language is found in the Guar4nty Agreement in
that guarantors "irrevocably and unconditionally' guarantee[d] to
[Provident] ... the due andunctual
p payment and performance of all
the obligations of [Skyport], ... including without limitation the
of
payments principal and any interest accruing �hereon ... under
25
No. 3732 Civil 1991
„22 Clearly,
because the
the Note or the Loan Agreement. .•-
guarantors' promise to pay upon default of Sk p
ort was "absolute
q ort o obtain permanent
„Zs the inability of Skyp
and unconditional, 1uarantors' express
financing cannot effect a discharge of q
obli ation to pay; off the construction loan if for any
contractual g reject guarantors'
k ort could not. Accordingly, we must
reason S yp impossibility or
defense and/or counterclaim based on
impracticability of performance.
e. Dece tive and Unfair Trade Practices
Finally,
guarantors allege hiolated the
le that Provident as v
Act of December
Unfair Trade Practices and Consumer Protection Law, b
§� 1 et seq. ,
17, 1968, P.L. 1224, 73 P.S. ISS 201-1 et seq•24 y
its refusal to restructure the loan to extend further the maturity
date or to provide permanent financing to Sky
ort. For the reasons
that follow, we are constrained to rej
eject this argument.
and to the scope of the UTPCPL, we note that there is
With re q
very
little case law addressing the issue of whether the UTPCPL
situations involving goods or sekvices not intended or
applies to
Agreement), 4 li
22 Plaintiff's Complaint, Exhibit E (Gu ranty Aq 5; Amended
Answer and New Matter of Defendants Nalbandlan5 t al., 1
Answer and New Matter of Defendant Hoffer,i 1;
23 Plaintiff ' s Complaint, Exhibit E ( Guaranty Agreement) ,
fendants Nalbandian et al., 1 5; Amended
Answer and New Matter of De
ter of Defendant Hoffer, 7[ 5•
Answer and New Mat
24 Hereinafter "UTPCPL".
26
No. 3732 Civil 1991
personal, family or household purposes. Inlll Commonwealth v.
Monumental Properties, Inc., 459 Pa. 450, 329 A.21d 812 (1984), the
Pennsylvania Supreme Court held that the UTPCPL extends to landlord
and tenant matters. Moreover, in Culbreth v. Lawrence J.
Miller,
Inc., 328 Pa. Super. 374, 477 A.2d 491 (1984), the Superior Court
held that transactions within the insurance indu try fall within
the ambit of the UTPCPL.
lending of money, With regard to transactions involving the
the UTPCPL has been found to cher the sale of
residential real estate. Gabriel
v. O'Hara, 368 Pa. Super. 383,
391-382, 534 A.2d 488, 492-493 (1987).
Finally, in Commonwealth v. Tolleson, 14 Pa.1 Commw. 72, 321
A - 2d 664 (1974) 25 the Commonwealth Court held i�hat the UTPCPL
however, that ase was decided
extended to business transactions;
prior to the addition in 1976 of Section 201-9.2 of the UTPCPL.
Under the title of "Private Actions," Section 201}-9.2 provides a
private cause of action "to an �
y person who purchases or leases
goods or services primarily for personal,fam.ill or household
Purposes ....i26 This limitation to
goods and serices primarily
personal in nature has been held to be a requirement under the
UTPCPL. Marra v. Bur9 dorf Realtors Inc. 726 F. S#
pp. 1000, 1008
(E.D. Pa. 1989). Accordingly, g �
g y, in light of the fact that Section
I
25
(1975). Affirmed on other grounds, 462 Pa. 193„ 340 A.2d 428
i
26
Act of December 17, 1968, P.L. 1224, §§ 1-9, 73 P.S.
§201-9.2(a) (1971) (emphasis added).
27
i
No. 3732 Civil 1991
201-9.2 was added to the UTPCPL two years afte Commonwealth
Tolleson, 14 Pa. Commw. 72 v.
321 A.2d 664 (1974), was decided, we
decline to extend the UTPCPL to the loan in the instant case which
was advanced for the construction of a shopping�
commercial rather than "personal, family enter, clearly a
or househ�ld" transaction.
ORDER OF COURT
AND NOW, this ;�� day of June, 1992, pursuant to the
accompanying Opinion, the Motion of Plaintiff Provident National
Bank for judgment on the pleadings is GRANTED. j
BY THE COURT,
s J. Wesle Oler Jr'.
J.
Darryl J. May, Esq.
Linda S. Menrad, Esq.
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attorneys for Plaintiffs
Dusan Bratic, Esq_
101 Office Center, Suite A
101 South Route 15
Dillsburg, PA 17019
Attorney for Defendants Gary L.
Nalbandian, Dorothy Nalbandian,
Harold L. Liebenson, Elayne Liebenson,
M. Richard Kleiman, and Jackie
Kleiman
Edward C. Roberts, Es
119 East Market Street
York, PA 17401
Attorney for Defendant Hoffer
W