decided: July 12, 1978.
SIGNAL CONSUMER DISCOUNT COMPANY, PLAINTIFF,
ANTHONY L. BABUSCIO AND BARBARA L. BABUSCIO, ORIGINAL DEFENDANTS APPELLANTS, V. OLD REPUBLIC LIFE INSURANCE COMPANY, ADDITIONAL DEFENDANT APPELLEE
No. 132 April Term, 1978, Appeal from the Order of the Court of Common Pleas of Allegheny County, Civil Division, entered at Docket Entry GD 77-07035.
Edward A. Olds, Pittsburgh, for appellants.
Sidney Baker, Pittsburgh, for appellee.
Jacobs, President Judge, and Hoffman, Cercone, Price, Van der Voort, Spaeth and Hester, JJ. Spaeth, J., dissents.
[ 257 Pa. Super. Page 103]
This case presents an issue of first impression in Pennsylvania: do the Pennsylvania Rules of Civil Procedure permit a defendant in a mortgage foreclosure action to join an additional defendant whose purported liability to either the mortgagee or the original defendant is based upon an assumpsit claim? The lower court answered this question in the negative, sustained appellee's preliminary objections, and dismissed appellants' third party complaint. We affirm.
On March 31, 1977, Signal Consumer Discount Co. (hereinafter Signal) filed a complaint in mortgage foreclosure against appellants, Anthony and Barbara Babuscio, in the Allegheny County Court of Common Pleas. The complaint alleged that on December 6, 1974, Signal loaned appellants $5366.40; as security, appellants executed a mortgage with Signal as mortgagee on their residential property at 2824 Connecticut Avenue in Pittsburgh. After November, 1976, appellants failed to meet the monthly loan payment obligations; a principal balance of $3649.74 remained outstanding. Signal's mortgage foreclosure action requested this sum plus an attorney's commission of 15% of the unpaid balance.
On April 27, 1977, appellants filed an answer and new matter. Appellants admitted that they had secured a loan from Signal and executed a mortgage in its favor, but denied defaulting on their loan obligations. In new matter, appellants made the following allegations: Signal conditioned its extension of credit upon appellants' purchase of a disability insurance policy. Pursuant to a continuing business relationship, Signal referred appellants to appellee, Old Republic Life Insurance Co. (hereinafter Old Republic or appellee). On December 6, 1974, the same date as the loan and mortgage transaction, appellants purchased the required policy. This policy provided that if appellant Anthony Babuscio suffered total disability, Old Republic would pay
[ 257 Pa. Super. Page 104]
appellants' monthly loan obligations to Signal directly during incapacity.*fn1 When Anthony Babuscio suffered total disability in May 1976, Signal sought and accepted payment of the monthly loan obligation from appellee instead of appellants over the ensuing six month period. However, after November, 1976, despite the continuing and total nature of Mr. Babuscio's disability, Signal stopped demanding and receiving payments from appellee. In short, appellants' new matter charged that the mortgage transaction included three interrelated documents: the loan note, the mortgage, and the disability insurance policy. These documents, read together, imposed a contractual duty upon Signal to seek payment of monthly loan obligations from appellee rather than appellants in the event of Mr. Babuscio's total disability. Signal allegedly failed to observe this duty.
In its reply to appellants' new matter, Signal denied that it conditioned the loan upon appellants' purchase of a disability insurance policy from Old Republic; instead, Signal asserted that it had merely suggested the advisability of this insurance. When appellants indicated a desire to obtain disability insurance coverage, Signal suggested that they contact Old Republic. Signal conceded that, under the insurance contract, Old Republic would be primarily liable for payment of appellants' monthly loan obligations during periods when Mr. Babuscio suffered total disability. Further, Signal admitted that after it first learned of Mr. Babuscio's disability, it received and accepted $376.99 from Old Republic in partial payment of appellants' obligations. However, Old Republic stopped payment, and Signal did not protest, when the Babuscios failed to provide corroboration of the total disability claim. Finally, Signal averred that it did not have sufficient information to form a belief as to whether Mr. Babuscio's total disability had ceased prior to the initiation of its mortgage foreclosure action.
[ 257 Pa. Super. Page 105]
On June 3, 1977, appellants filed a third party complaint against appellee, Old Republic, which sought to join appellee as an additional defendant. This complaint alleged that Signal and Old Republic enjoyed an ongoing business relationship in which Signal, acting as Old Republic's agent, required its credit customers, including appellants, to secure an Old Republic disability insurance policy. Although the insurance policy required Old Republic to pay appellants' monthly loan obligations directly to Signal during Anthony Babuscio's total disability, Old Republic discontinued payments a few months after Babuscio suffered a totally incapacitating auditory illness. As a consequence, appellants' monthly loan obligations were not satisfied and Signal, pursuant to an acceleration clause in the mortgage document, demanded payment of the entire balance of the loan obligation. Appellants asked the lower court to find Old Republic solely liable to Signal or liable over to appellants for the amount of the unpaid balance plus any attorney's commission owed to Signal.
On July 20, 1977, Old Republic filed preliminary objections to appellants' third party complaint. Appellee asserted that appellants' assumpsit claim did not state a cause of action cognizable in a mortgage foreclosure action. On August 5, 1977, the lower court sustained appellee's preliminary objections and dismissed appellants' complaint. This appeal followed.*fn2
Appellants contend that Rule 2252 of the Pennsylvania Rules of Civil Procedure*fn3 permits appellee's joinder as
[ 257 Pa. Super. Page 106]
an additional defendant, even though Signal filed a mortgage foreclosure, rather than an assumpsit, action. Appellee responds that Rules 1141-1150 of the Pennsylvania Rules of Civil Procedure,*fn4 which govern mortgage foreclosure actions, displace Rule 2252 and preclude joinder of an additional defendant solely on the basis of an assumpsit claim. We believe that a close analysis of the text and spirit of Rules 1141-1150 confirms appellee's argument.
Appellee specifically directs our attention to four procedural rules pertaining to mortgage foreclosure actions; appellee asserts that these rules, read together, bar its joinder in the instant case. First, and most importantly, Rule 1141 defines a mortgage foreclosure action and delineates the interrelationship between specific rules on mortgage foreclosure actions and generally applicable civil procedural rules:
"(a) As used in this chapter, 'action' means an action at law to foreclose a mortgage upon any estate, leasehold or interest in land but shall not include an action to enforce a personal liability.*fn5
[ 257 Pa. Super. Page 107]
"(b) Except as otherwise provided in this chapter, the procedure in the action shall be in accordance with the rules relating to the action of assumpsit." (Emphasis added). Next, Rule 1144 requires a plaintiff-mortgagee to name certain parties, including the mortgagor and real owner, as defendants in a mortgage foreclosure action; according to appellee, a plaintiff's naming of a person who had merely assumed the mortgagor's obligation but is not in possession would be improper under this rule.*fn6 Third, Rule 1146 provides that a plaintiff-mortgagee ". . . may state in the complaint two or more grounds for foreclosure but may not state more than one cause of action." Read in conjunction with Rule 1141, this section prevents a mortgagee from joining a contractual claim on a mortgage bond to a mortgage foreclosure claim for the judicial sale of the mortgaged property. See Meco Realty Co. v. Burns, 414 Pa. 495, 200 A.2d 869 (1964); but see Kretschman v. Stoll, 238 Pa. Super.Ct. 51, 352 A.2d 439 (1975), allocatur refused, 238 Pa. Super. xxxvii (dictum).*fn7 See also Goodrich-Amram 2d, supra,
[ 257 Pa. Super. Page 108]
§ 1146 at 477. Finally, appellee cites Rule 1148 which permits a defendant to plead a counterclaim in a mortgage foreclosure action provided that the ". . . counterclaim . . . arises from the same transaction or occurrence or series of transactions or occurrences from which the plaintiff's cause of action arose." See also Porter v. Levering, 330 Pa. 392, 199 A. 482 (1938).*fn8 In sum, because a mortgage foreclosure action is strictly "de terris" in nature, neither a mortgagee-plaintiff nor a mortgagor-defendant can join a party who has no interest in the controverted property.
We agree with appellee that Rules 1141-1150, read together, preclude the joinder of a third party solely on the
[ 257 Pa. Super. Page 109]
basis of an assumpsit claim. The very definition of a mortgage foreclosure action under Rule 1141(a) excludes "an action to enforce a personal liability"; this restriction is essential to preserve the "de terris" identity of a mortgage foreclosure action and is equally binding on a mortgagee-plaintiff and a mortgagor-defendant.*fn9 Rule 1148, which allows a defendant to assert a contractual counterclaim arising out of a mortgage transaction against the mortgagee, constitutes the only exception to this rule. Because appellants' assertion of an assumpsit claim against a third party would nullify the explicit prohibition of Rule 1141(a) and because no other mortgage foreclosure rule sanctions this personal liability claim, we hold that the lower court correctly sustained appellee's preliminary objections and dismissed appellants' third party complaint.*fn10
SPAETH, J., dissents:
[ 257 Pa. Super. Page 110]
Appellee concedes, and the Majority does not dispute, that appellants may sue appellee in assumpsit and then request that the foreclosure and assumpsit actions be combined for trial. I see no distinction between that procedure and the procedure appellants attempted here.