decided: June 15, 1972.
Appeal from order of Court of Common Pleas of Clearfield County, Oct. T., 1970, No. 477, in case of E. Eugene Monnoyer v. James A. Gaffney.
Anthony S. Guido, for appellant.
Robert B. Maine, with him Maine and Fennell, for appellee.
Wright, P. J., Watkins, Jacobs, Hoffman, Spaulding, Cercone, and Packel, JJ. Opinion by Watkins, J. Dissenting Opinion by Packel, J. Cercone, J., joins in this dissent.
[ 222 Pa. Super. Page 170]
This is an appeal from the order of the Court of Common Pleas of Clearfield County refusing to open judgment entered by confession in favor of E. Eugene Monnoyer, plaintiff-appellee, and against James A. Gaffney, the defendant-appellant.
This action arose out of an agreement between the parties whereby the plaintiff sold and the defendant purchased 308.3 shares of common stock of Community Consumer Discount Company of Dubois, Pennsylvania, for the purchase price of $101,000.00, with $51,000.00 as a down payment and the balance to be paid within twenty years with interest at 4% per annum in monthly installments on the 10th day of each and every month.
Pursuant to the agreement, the parties entered into a judgment note with regard to the balance of the purchase price, which judgment note contained the usual clause of confession with warrant of attorney together with acceleration of payments in the event of the default of any payment.
The parties further entered into an Hypothecation Agreement for the payment of the balance of the purchase price whereby the payments were to be made to the DuBois Deposit National Bank, which provided that in the event of default, the Bank could if it desired seal the deposited collateral security and make application of profits in accordance with the agreement. The Hypothecation Agreement reads as follows:
May 8, 1961
"To: DuBois Deposit National Bank
"The undersigned hereby hypothecates, pledges and delivers to you stock certificates for 308.3 shares of the capital stock of Community Consumer Discount Company,
[ 222 Pa. Super. Page 171]
a Pennsylvania corporation having its principal office in the City of Dubois, Pennsylvania, which shares belong to the undersigned and shall be collateral to secure the obligation of the undersigned to E. Eugene Monmoyer in the principal amount of Fifty-one Thousand ($51,000.00) Dollars, evidenced by the note of undersigned bearing even date herewith, payable to the order of the said E. Eugene Monmoyer within twenty (20) years from said date in equal successive monthly principal payments, with interest at the rate of 4 1/4% per annum, on the 10th day of each month.
The undersigned stipulates that the said securities shall be subject to disposition by you in accordance with the terms and conditions of the agreement between the undersigned and E. Eugene Monmoyer dated May 2, 1961, under the terms of which the said 308.3 shares of the Community Consumer Discount Company capital stock were purchased by the undersigned. The undersigned further authorizes you, in the event of default in the payment of the said note or any installment thereof, to sell the said collateral or any part thereof at public or private sale and assign, transfer and deliver the whole or any part of said collateral to the purchaser freed and discharged of any equity or redemption. After deducting all legal or other costs and expenses of collection, sale and delivery, you shall apply the residue of the proceeds of such sale or sales to pay the obligation evidenced by said note, returning the surplus, if any, to the undersigned, but if there is a deficiency the undersigned shall remain liable for the amount unpaid."
The Judgment Note in question dated May, 1961, read:
"For Value Received, I, the undersigned, promise to pay to the order of E. Eugene Monmoyer, of the City of DuBois, Clearfield County, Pennsylvania, the sum of Fifty-one Thousand ($51,000.00) Dollars within
[ 222 Pa. Super. Page 172]
twenty (20) years from the date hereof in equal successive monthly principal installment, with interest at the rate of 4 1/4% upon the unpaid balance of principal, on the 10th day of each month at the principal office of the DuBois Deposit National Bank, DuBois, Pennsylvania, or at such other place as the payee shall designate in writing. The undersigned authorizes the Prothonotary or any attorney of any court of record, if this note or any installment is not paid when due, to appear for and confess judgment against him for the entire unpaid balance of principal and accrued interest, with or without declaration, with costs of suit, without stay of execution and with an attorney's fee of 5%, and releases all errors in connection with such action. The undersigned waives the right of inquisition of any real estate levied on, voluntarily condemns it and authorizes the prothonotary to enter such condemnation upon the writ of execution. The undersigned waives and releases all relief from all appraisement, stay and exemption laws now in force or hereinafter enacted.
"The undersigned shall have the right to anticipate payment of any part or all of the said principal sum at any time.
"This note is secured by a separate hypothecation agreement, dated concurrently herewith, between the undersigned and the payee."
The defendant paid all the installments as required by the contract on the due date with the exception of the installment due in May, 1970, which was made one day late and the installment due in November, 1970, which was made seven days late.
The burden was clearly on the defendant to meet his contractual obligation on the due date and unless the circumstances were such that a course of conduct by the plaintiff lulled him into a false sense of security as to irregular payments, he must take the consequences for any default. From a practical standpoint, the defendant
[ 222 Pa. Super. Page 173]
should have known that a great change in interest rates took place from 1961 to 1970 and the Court may take judicial notice of that fact, so that the defendant should have been especially alert. There is nothing inherently illegal in the plaintiff exercising his option to enter judgment in the case of default by the defendant even if the reason is to try to obtain a higher rate of interest for his investment. It was good business under the very terms of the contract.
The plaintiff wrote to the defendant on the seventh day of default as follows:
"November 17, 1970
Mr. James A. Gaffney
206 South State Street
"At 11:08 a.m., on November 17, 1970, I caused judgment to be entered against you in the Court of Common Pleas of Clearfield County, Pennsylvania, at No. 477, October Term, 1970, pursuant to the provisions of your judgment note to my order dated May 8, 1961, in the original amount of $51,000.00. The judgment was entered for the principal amount of $26,987.50, attorney's commission of five (5) percent or $1,349.37, interest at 4 1/4% from October 10 to November 10, 1970, or $95.58, interest at 4 1/4% on $26,987.50 from November 10 to November 17, 1970, and interest after November 17, 1970, at the rate of six (6%) per cent per annum on the principal balance of $26,987.50.
This notice is sent to you to comply with Pennsylvania Rule of Civil Procedure No. 2958, effective January 1, 1970."
The plaintiff then filed a complaint which alleged, inter alia, that "The defendant is in default in the principal and interest installment due under the terms of said judgment note on November 10, 1970, in the
[ 222 Pa. Super. Page 174]
amount of $308.08" and demanded judgment for the accelerated balance. The plaintiff then entered judgment by confession on the warrant of attorney in the judgment note. The defendant then petitioned for a rule to show cause why the judgment should not be opened which was denied by the court below. This appeal followed.
The court below refused to permit testimony that prior to the default of November, there had been a one-day default when the Bank had warned the defendant that the delay in payment was "dangerous". The defendant attempted to use the plaintiff's indulgence in the one-day default as a course of conduct that lulled the defendant into a false sense of security and that the Bank had been instructed not to give notice of default. This is fatuous, in view of the warning.
The court below said:
". . . we are constrained to find for plaintiff in that to do otherwise would be to radically change the contract between the parties without legal or factual foundation to do so. In Home Credit Co. v. Preston, 99 Pa. Superior Ct. 457, it was declared and held as follows:
"The defendant gave a note on December 9, 1927, payable eighteen months after date, in monthly installments. It contained the following provision: 'Failure to meet any payments when due shall render the installment feature of this obligation void and the remaining balance shall become immediately due and payable;' and authorized, in event of default, any attorney to appear and confess judgment." At page 461, the Court said: "'Maturity' is defined in Bouvier's Law Dictionary, Vol. 2, Third Revision, 1914, p. 2122, as 'the time when a bill or note becomes due.' Under the terms of the note we are considering, it matured in eighteen months, if payments were made as required, but in the event of a failure to meet any of the payments when
[ 222 Pa. Super. Page 175]
due, the remaining balance became immediately due and the note then matured."
The case of Knable v. Bradley, 430 Pa. 153, 242 A.2d 224 (1968), upon which the defendant relies is inapposite. In that case the irregular payments were made over a period of three years without complaint and unlike the instant case, the result was a forfeiture while here it is merely an acceleration of payment. There is nothing in the contract or in the Hypothecation Agreement calling for notice by the Bank to the defendant. The notice by the Bank was a gratuitous action and had no binding effect on the plaintiff. This is particularly true in that the past notice was not of the due date but of default.
The contention that a creditor is bound to refer to the collateral before proceeding to judgment is without merit. The creditor has two remedies: one, by suit and one against the collateral. Ritter v. Henning, 10 Pa. Superior Ct. 458, 463 (1899).
As to the argument concerning the fact that the late check, although not cashed, was not returned and so amounted to payment is also without merit. Such a ruling would constitute a waiver of the right to enforce payment of the amount due. There was no agreement to that effect and the petition to open does not aver it. Paying a less sum will not defeat a claim for the balance in the absence of an expressed or implied agreement to that effect. Lovekin v. Fairbanks Morse Co., 282 Pa. 100, 102, 127 Atl. 450 (1925).
Dissenting Opinion by Packel, J.:
For more than nine years the appellant had made regular monthly payments on a 20-year obligation to pay $51,000 with interest at 4 1/4%. Because of a seven-day delay in making the 114th payment, the appellee, whose conduct had some relationship to the delay,
[ 222 Pa. Super. Page 176]
caused the confession of judgment against the appellant. Thereby, the appellee changed its long term asset, carrying an interest rate of 4 1/4%, to an immediately payable asset in a much higher interest market. The majority opinion refers to the appellee's conduct as good business but fails to discuss the pivotal issue as to whether or not the conduct of the appellee did not partake of dirty business.
The appellant had offered in the court below to show that the appellee had instructed the bank, to which the payments were to be made, that it should not follow its customary practice of notifying its customers when installment payments became due or overdue.*fn1 The legal significance of the proffered evidence is enhanced by the uncontradicted testimony that the bank received fees from both the appellant and the appellee in its role of serving them as a common agent.
It is familiar law that courts will not come to the aid of one who has led his promisee into default. See Knable v. Bradley, 430 Pa. 153, 157, 242 A.2d 224, 226 (1968); Nanty-Glo Borough v. American Surety Co., 316 Pa. 408, 411-412, 175 A. 536, 537 (1934). The latter case adopted the view of Professor Williston that "[i]t is a principal of fundamental justice that if a promisor is himself the cause of the failure of performance, either of an obligation due him or a condition upon which his own liability depends, he cannot take advantage of the failure."*fn2 In the same passage this eminent authority noted that it is just "as effective an excuse of performance of a condition that the promisor has hindered performance
[ 222 Pa. Super. Page 177]
as that he has actually prevented it." Accord, Restatement of Contracts, § 295 (1932).
It is good business practice for banks to notify their customers when an obligation has or is about to become overdue. The appellant wanted to show that this was the practice of the bank in this case and that the appellee, obviously for its own financial gain, instructed the bank that such notification should not be given to the appellant. Such planning manifestly was motivated to bring about a default. The bank had some months earlier telephoned the defendant on the very day that a monthly payment was due so that there was immediate payment thereafter. It is not unwarranted to conclude that but for the appellee's conduct, the bank would have notified the appellant so that there would have been prompt payment. Certainly, this Court should not lend itself to penalizing a debtor in order to benefit a creditor whose conduct has been a factor in a seven-day delay in the payment of a 114th installment, particularly where that conduct consisted of instructions to a common agent to refrain from performing a normal service.*fn3
In developing commercial law the judicial role is to aid in moulding standards which provide an orderly framework for transactions while carrying out the shared expectations of businessmen. One application of this larger principle is the protection which the law affords to justifiable reliance upon courses of commercial dealing through the doctrine of waiver or by rules of contract interpretation. It is too late in the day to purport to determine the outcome of the instant dispute by labeling the bank's practices as "gratuitous" and
[ 222 Pa. Super. Page 178]
concluding that, therefore, the plaintiff creditor might freely interfere with the defendant's relations with the bank, so as to induce default, and still be able to obtain judicial relief for such contract breach.
The grant of the power to confess judgment, not recognized in most jurisdictions and subjected to significant recent limitations in Pennsylvania,*fn4 is after all a matter of consent. It is basically an authorization and as such it must be given a reasonable interpretation in the light of the applicable facts. Would reasonable businessmen contemplate that a one day delay in a tenth payment constituted such a default as to authorize a confession which would seriously change the relationship between the parties? Is it any different if the delay is seven days on the 114th payment?
I think the refusal of the court below to open the judgment was an abuse of its discretion in failing to give equitable consideration to the action of the appellee in plotting for a default and in exercising a power to confess judgment in order to change materially the status of the parties by virtue of a few days delay.
*fn1 The majority opinion does not refer to the refusal of this offer of proof but incorrectly states that the court below refused to admit evidence concerning a late payment and the bank's response. Testimony regarding those matters, however, appear without objection at several places in the record.
*fn2 3 Williston, Law of Contracts, § 677 (Rev. Ed. 1936).
*fn3 "An agent employed by both parties to a transaction, with knowledge by them of his double employment, has the same duty to act with fairness to each that an agent has in dealing with his principal on his own account." Restatement of Agency, 2d, § 392, comment a.
*fn4 Swarb v. Lennox, 405 U.S. 191, 92 S. Ct. 767 (1972).