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KATHLEEN TOOLAN AND GERALD TOOLAN ON BEHALF THEMSELVES AND OTHERS SIMILARLY SITUATED v. TREVOSE FEDERAL SAVINGS AND LOAN ASSOCIATION (07/08/83)

decided: July 8, 1983.

KATHLEEN TOOLAN AND GERALD TOOLAN ON BEHALF OF THEMSELVES AND OTHERS SIMILARLY SITUATED, APPELLANTS,
v.
TREVOSE FEDERAL SAVINGS AND LOAN ASSOCIATION, APPELLEE



No. 81-3-470, Appeal from the Order of the Superior Court dated February 20, 1982 at No. 2790 October Term, 1978 affirming the Court of Common Pleas of Montgomery County, No. 77-21648

COUNSEL

Jeffrey S. Kahn, Norristown, for appellants.

John J. Kerrigan, Jr., Newtown, for appellee.

Roberts, C.j., and Nix, Larsen, Flaherty, McDermott, Hutchinson and Zappala, JJ. Roberts, C.j., concurs in the result of this matter. Larsen, J., dissents.

Author: Mcdermott

[ 501 Pa. Page 479]

OPINION

This is an appeal from an order of the Superior Court*fn1 affirming an order of the Court of Common Pleas of Montgomery County, sustaining appellee's demurrer to the appellants' complaint on grounds of federal pre-emption.

[ 501 Pa. Page 480]

The facts of this case are not in dispute.*fn2 In August, 1975, Gerald and Kathleen Toolan entered into a residential mortgage agreement with the Trevose Federal Savings and Loan Association (hereinafter "Trevose"), a federally chartered institution, authorized under the Home Owners' Loan Act of 1933 (hereinafter "HOLA").*fn3 That agreement contained a prepayment penalty clause which provided that "the Mortgagee is hereby given the option to demand and receive in addition to accrued interest, one hundred eighty (180) days interest on the amount of any prepayment which, together with other such prepayments made during the preceding twelve months (12), would exceed twenty per centum (20%) of the original principal debt."

On July 7, 1977, the Toolans paid the outstanding balance on their mortgage. This payment constituted a substantial prepayment in excess of twenty per cent of the original loan. Consequently Trevose demanded, and the Toolans paid, a prepayment penalty of $1,335.83.

On December 16, 1977 the Toolans filed a class action suit against Trevose,*fn4 alleging that Trevose violated Section 405 of the Loan Interest and Protection Law,*fn5 41 P.S. § 405, by imposing and collecting a penalty for prepayment of a residential mortgage.*fn6

[ 501 Pa. Page 481]

Trevose filed preliminary objections in the nature of a demurrer to that complaint, asserting that as a federally chartered savings and loan association it was governed by the Federal Home Loan Bank Board (hereinafter "Board"),*fn7 and not subject to Section 405, 41 P.S. § 405. Pursuant to its rule-making authority the Board had previously promulgated rules which specifically permitted prepayment penalties regardless of conflicting state law.*fn8 In response, appellants argued that the Board exceeded its ...


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