No. 814 October Term, 1977, Appeal from the Orders dated January 18, 1977, by the Court of Common Pleas of Montgomery County, Pennsylvania, Civil Action Nos. 76-21083 and 76-10511.
Henry W. Sawyer, III, Philadelphia, with him David P. Bruton, Philadelphia, for appellants.
Jeffrey A. Less, Philadelphia, with him Morris Gerber, Norristown, for appellees, Merriam & Wynne, Inc., Joint Ventures t/a, and John W. Merriam.
Alfred H. Wilcox, Philadelphia, with him John D. Dunmire, Norristown, for appellee, The Fidelity Bank.
Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price and Van der Voort, JJ. Spaeth, J., did not participate in the consideration or decision of this case.
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This appeal arises from the denial of appellant Institutional Investors Trust's (hereinafter IIT) petition seeking to intervene in execution proceedings against four tracts of land and to stay execution. The order appealed from also denied appellant's request for a preliminary injunction against the sheriff's sale proceeding. Both petitions for relief were denied by the court below on the basis that the
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issues raised were res judicata; the preliminary injunction was refused for the additional reason that appellant has an adequate remedy at law. The first issue for our determination is whether appellant was properly precluded from the relief it sought by principles of res judicata. For the reasons that follow, we hold that it was not, and therefore reverse the order of the lower court.
On December 14, 1973, IIT loaned $16,800,000 on a non-recourse basis to Cedarbrook Joint Venture, Cedarbrook Realty, Inc., and Witchwood, Inc. (hereinafter the Cedarbrook Companies). Four separate notes and mortgages evidencing the aggregate loan amount were executed, and each mortgage encumbered all four tracts of land owned by the Cedarbrook Companies.*fn1 As additional security for the loans, the Cedarbrook Companies provided a $5,000,000 letter of credit from The Fidelity Bank (hereinafter Fidelity), for which a second mortgage on other realty in Philadelphia could be substituted.
The foregoing loan structure was subsequently altered in November, 1974. IIT had pledged its interest in the loans as well as the $5,000,000 letter of credit to Chemical Realty Corporation (hereinafter CRC) as collateral for loan advances from CRC to IIT. When CRC expressed doubts about the letter of credit, CRC, Fidelity and IIT executed a Participation Agreement providing that the $5,000,000 letter of credit would be replaced by a commitment from Fidelity to purchase, in the event of default, a $5,000,000 junior share of the $9,000,000 Apartment House loan. The Participation Agreement also provided that if Fidelity were required to purchase this $5,000,000 share, it could also purchase the $4,000,000 senior share of the loan, and thereby become sole owner of the $9,000,000 loan. Additionally, this $9,000,000
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lien was made senior to the other three notes and mortgages by the terms of a Subordination and Lien Modification Agreement executed with the Participation Agreement.
Within the next twelve months, the four loans fell into default, and Fidelity honored its obligation to purchase the $5,000,000 share of the Apartment House Loan. At the same time, Fidelity exercised its option to purchase the remaining $4,000,000 share of that note, and assigned the senior $9,000,000 note and mortgage to Merriam.*fn2
On May 28, 1976, IIT confessed judgments against the Cedarbrook Companies on the three mortgage notes it had retained, and one month later, Merriam entered judgment by confession on the senior $9,000,000 note.*fn3 This action by Merriam thereupon ...