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JOSEPH W. BERENATO v. BELL SAVINGS AND LOAN ASSOCIATION (04/11/80)

filed: April 11, 1980.

JOSEPH W. BERENATO, JR. AND PAUL W. BERENATO AND JOSEPH W. BERENATO, JR. AND DOROTHY H. BERENATO, H/W AND PAUL W. BERENATO AND MARIE L. BERENATO, H/W
v.
BELL SAVINGS AND LOAN ASSOCIATION, APPELLANT



No. 3031 October Term, 1978, Appeal From The Order of the Court of Common Pleas of Philadelphia County, November Term, 1977 - No. 1171

COUNSEL

Samuel Rappaport, Philadelphia, for appellant.

William W. Spalding, Philadelphia, for appellees.

Wieand, Louik and Robinson, JJ.*fn* This decision was reached following the death of Robinson, J.

Author: Louik

[ 276 Pa. Super. Page 601]

This appeal involves the question of whether a mortgagee is entitled to retain a prepayment "penalty" or "premium" when the mortgage is paid off in advance as the result of a sale of the mortgaged property necessitated by the mortgagor's adverse business circumstances.

The agreement underlying the present case is a mortgage executed on October 17, 1973, between Berenato (mortgagor) and Bell (mortgagee). Included in the terms of the mortgage was a clause allowing Berenato to prepay the mortgage as follows:

"MORTGAGOR may have the privilege of making payment on account of mortgage obligation as follows: DURING the first five years of the term of the mortgage, any prepayment will be subject to one year's interest on the unpaid balance. . . ." (R. 21a)

After making the regular installment payments until November 1, 1976, Berenato became in default on the loan. Bell entered a judgment by confession on the Bond and Warrant on April 12, 1977. Execution on the judgment was issued, and notice of sheriff sale was sent out. The pending sheriff sale was stayed upon payment of the arrears. This payment was arranged by First Pennsylvania Bank, a creditor of Berenato having a security interest in the heavy equipment installed on the premises by virtue of a loan made to Berenato. At this point Bell's records indicate that the mortgage account was returned to good standing. Further monthly payments on the mortgage account through First Pennsylvania kept it current and in good standing.

In the meantime, to protect its interest in the personally guaranteed loan with Berenato, First Pennsylvania sought a buyer for the property. With respect to these matters, Berenato contended that he had no control. In any event, on September 1, 1977, Berenato settled with a buyer arranged by First Pennsylvania, whereupon Bell submitted a

[ 276 Pa. Super. Page 602]

    pay-off statement for the mortgage, including the sum of $10,746.27 for the prepayment premium. Berenato paid the premium amount under protest and subsequently sued for its return. Plaintiffs' Motion for Judgment on the pleadings was granted and defendant's Motion for Summary Judgment was denied.

The trial court ruled in favor of Berenato. The Court reasoned that because Bell had entered judgment on the Bond and Warrant, and proceeded through execution and notice of sheriff sale, so long as the execution of the judgment was still outstanding and unsatisfied, Berenato was in a situation where he was compelled to sell the property in order to satisfy his obligation to Bell. The trial court felt that these circumstances made the sale and subsequent prepayment of the mortgage "involuntary" within the ...


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