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decided: December 29, 1978.


Nos. 752, 753, 754 October Term, 1978, Appeals from the Orders dated December 29, 1977, by the Court of Common Pleas of Montgomery County, Pennsylvania, Civil Action Nos. 76-8240, -8241, and -8243.


Jeffrey A. Less, Philadelphia, for appellants.

Henry W. Sawyer, III, Philadelphia, for appellee, Institutional Investors Trust.

Jacobs, President Judge, and Cercone and Lipez, JJ.

Author: Jacobs

[ 266 Pa. Super. Page 264]

The three appeals consolidated for argument and decision in this case arise from separate orders by the court below dismissing appellants' petition to open three confessed judgments. The issue we must decide is whether the lower court abused its discretion by refusing to open the judgments after it found that appellants failed to produce sufficient evidence to submit the case to a jury. For the reasons that follow, we find no error, and therefore affirm the orders appealed from.

In December, 1973, Institutional Investors Trust (IIT) loaned $16,800,000 to appellants for development of apartments, a shopping center, and a country club. Due to a restriction on the amount IIT could lend on a single note, four separate notes and mortgages evidencing the aggregate loan amount were executed. Each mortgage encumbered four tracts of land owned by appellants. One of the notes, the $9,000,000 apartment house loan, was subsequently purchased by Fidelity Bank, leaving IIT as holder of the three remaining mortgage notes.

Howard A. Gellis, an IIT trustee, stated in deposition that at the time the loans were made, IIT was aware of a deficit in the income from the properties, even though the occupancy rate was 94% for the apartments and 90% for the shopping center. Gellis also indicated that IIT realized the loans could only be repaid if the apartments were converted to tenant ownership. To this end, paragraph 3.13 of the loan agreement between the parties provides in part that none of the Cedarbrook Companies shall change its business, except

[ 266 Pa. Super. Page 265]

    to convert the apartments to cooperative apartments or condominium units as authorized.*fn1

The contemplated conversion to cooperative or condominium ownership was not accomplished, however, because Prudential Insurance Company, the senior mortgagee on the apartment house tract, would not grant the necessary approval. As a result, Merriam devised a conversion plan designated "unilease," providing for a long-term lease by tenants with an option to purchase after thirty-five years.*fn2 Prudential approved the unilease plan, whereupon appellants sought covenants of non-disturbance from IIT.*fn3 IIT consented to the non-disturbance agreements, subject to certain

[ 266 Pa. Super. Page 266]

    conditions.*fn4 When the conditions were not satisfied, the covenants were not given, and the unilease plan became unmarketable. Without conversion of the apartments, the loans fell into default, and IIT confessed judgment on the three notes on May 28, 1976. Appellants petitioned to open the judgments, and after a hearing in the court below, the petition was dismissed.*fn5 This appeal followed.

Pa.R.C.P. 2959(e) provides in part that a confessed judgment shall be opened if evidence is produced by the judgment debtor which, in a jury trial, would require submission of the issues to a jury. We examined the evidentiary

[ 266 Pa. Super. Page 267]

    standard in Greenwood v. Kadoich, 239 Pa. Super. 372, 376, 357 A.2d 604, 606 (1976), and said:

[T]he standard of sufficiency here is that employed on consideration of a directed verdict, the facts must be viewed in the light most favorable to appellant and we must accept as true all evidence and proper inferences therefrom supporting [the] defense . . . and must reject the adverse allegations of appellee.

See also Kardos v. Morris, 470 Pa. 337, 368 A.2d 657 (1977).

In their petition to open, appellants allege that IIT breached its obligation under the loan documents to permit conversion of the apartments to tenant ownership, and thereby directly caused the loan default. We cannot agree. Our examination of the relevant contractual provisions leads us to agree with the court below that IIT was under no obligation to approve the unilease plan, and that the evidence presented by appellants, viewed in their favor, would have been insufficient to avoid a directed verdict.

We recognize the fact that all parties to the loans were aware that conversion of the apartments was essential to avoid default by appellants; appellee does not dispute this fact.*fn6 Under these circumstances, therefore, IIT could not unreasonably withhold its approval of condominium or cooperative conversion, and subsequently take advantage of a failure of performance caused by it. See, e. g., Nanty-Glo Borough of American Surety Co., 316 Pa. 408, 411-12, 175 A. 536 (1934); 5 Williston, Contracts ยง 677 (1961).

However, the record before us demonstrates that the contemplated conversion of the apartments to cooperative or condominium ownership was frustrated by Prudential Insurance Company, the senior mortgagee, and not by IIT.

[ 266 Pa. Super. Page 268]

Appellants, nonetheless, do not allege that IIT failed to approve cooperative or condominium conversion. Rather they contend that appellee failed to grant the covenants of non-disturbance by attaching onerous conditions to their approval thereof, and thereby effectively rejected the unilease plan. We read the record otherwise. Once the contemplated conversion failed through no fault of IIT, the unilease plan was proposed by the Cedarbrook Companies. Although the plan was novel and untested, and therefore beyond the original contemplation of the parties, IIT conditionally agreed to the plan, in spite of its fears that the apartments might be encumbered by the long-term rights of unilease holders.*fn7

Appellants, however, did not fulfill the conditions attached to IIT's approval, and now urge us to consider parol evidence in support of their contention that the unilease plan was a type of condominium conversion contemplated by the original agreement. We find, however, that these assertions are barred by the parol evidence rule, and cannot therefore be considered on a motion to open a confessed judgment. See generally, First Pennsylvania Bank N. A. v. Weber, 240 Pa. Super. 593, 360 A.2d 715 (1976).

As a consequence, we find from the record before us that IIT did not prevent conversion of the apartments to cooperative or condominium ownership, and that IIT was not required under the agreement to approve unilease conversion. Moreover, the failure of unilease conversion leading to default on the loans was caused by appellants' failure to fulfill IIT's conditional approval thereof, and insufficient evidence was presented to take these issues to a jury.

Finally, appellants have alleged the existence of a defense to their default in cash flow payments under the

[ 266 Pa. Super. Page 269]

    loan agreements, and contend that the judgment should be opened to permit proof of that defense. The crux of this contention arises from sections 2.24 and 23 of the loan agreement, which provide that IIT is not entitled to cash flow payments until the senior creditor is paid. Claiming insufficient cash flow, appellants contend IIT was not entitled to payment thereof, and therefore no default occurred. Regardless of the merits of appellants' position on this issue, we need not decide the question, because of the admitted default on interest payments which provided a clearly sufficient basis for the entry of judgment.

For all of the foregoing reasons, the orders appealed from are affirmed.

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