APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, D.C. Civil No. 84-1108, District Judge: Honorable Clifford Scott Green
Before: ADAMS and WEIS, Circuit Judges, and HARRIS*fn* , District Judge
MEMORANDUM OPINION OF THE COURT
The issue in this bankruptcy case is the priority of liens against real estate owned by the debtor. Pertinent facts were stipulated and are discussed in detail in the bankruptcy judge's opinion and that of the district court. The circumstances need only be summarized here.
William Penn Savings & Loan Association held the first mortgage on the property. Included in the terms was a provision that William Penn would release any individual lot from the lien of the mortgage upon payment of $60,800.
At a later date, when additional financing was required, Fidelity Bank agreed to advance $600,000 on certain conditions. As part of the arrangements, Penn became party to an amendment agreement stating, inter alia, that the owner and Penn would not "extend or modify" their original agreement as it "concern[s] the amount required for releases, without the written consent of Fidelity . . . ." Fidelity later assigned its rights to another.
After the debtor defaulted and filed a petition under Chapter 11, three lots were sold and the liens were transferred to the funds realized. Penn contended that Fidelity's assignee was not entitled to the benefit of the release clause because of a provision in the original agreement between the owner and Penn. That section stated that "the parties do not intend the benefits of this Agreement to inure to any third party . . . ."
The bankruptcy court determined that under the terms of the Amendment Agreement, the parties intended Fidelity to have the power to enforce the release provision. Moreover, the fact that the debtor had defaulted before the lots were sold did not deprive Fidelity of its rights. In support of his conclusions, the bankruptcy judge cited both the Superior Court and the Pennsylvania Supreme Court opinions in Reilly v. City Deposit Bank & Trust Co., 118 Pa. Super. 222, 179 A. 886 (1935), rev'd 322 Pa. 577, 185 A. 620 (1936).
Having reached that determination, the bankruptcy judge directed the following distributions:
1. Out of the proceeds of each lot sold, the first $60,800 is to be paid to Penn.
2. The balance is to be paid to Glenn Noret, the holder of a mechanics' lien.
3. Any balance remaining is to be paid to Fidelity's assignee until its ...