Appeal from Order of the Court of Common Pleas, Civil Division, of Allegheny County, No. GD 84-13958.
Walter F. Baczkowski, McKeesport, for appellant.
Janice L. Morison, Pittsburgh, for Rosenthal, appellees.
Gayle L. Godfrey, Pittsburgh, for Wiess, appellees.
Rowley, Wieand and Del Sole, JJ.
[ 355 Pa. Super. Page 292]
Where the obligation of a surety is absolute and unconditional, is it subject to extinguishment or reduction because the obligee has failed to exercise diligence in collecting accounts receivable which have been assigned by the principal debtor as security for the indebtedness? The trial court held that the creditor's failure to exercise diligence to enforce the accounts receivable constituted a defense to the surety's liability. Therefore, the court opened a judgment confessed against the surety after a default by the principal debtor. We reverse.
North American Trading Company (NATCO) is a Pennsylvania corporation which is wholly owned by Lowell M. Rosenthal, who serves as corporate president, and Wilfred A. Weiss, who acts as secretary-treasurer. Rosenthal and Weiss executed a written agreement guaranteeing repayment of all sums advanced and to be advanced by McKeesport National Bank to NATCO. In July, 1982, the bank extended to NATCO a line of credit for $200,000.00, in exchange for which NATCO executed and delivered to the bank a promissory note. NATCO and Indiana Boneless Beef Distributors, Inc., another corporation owned by Rosenthal and Weiss, also assigned accounts receivable to the bank to secure the loan.*fn1 A default in repayment occurred
[ 355 Pa. Super. Page 293]
in the summer of 1984,*fn2 and the bank made a demand on Rosenthal and Weiss for payment. When payment was not forthcoming, judgment was confessed against them on August 31, 1984 for $169,500.00, plus interest and attorney's fees, as authorized by their written agreement. On September 21, 1984, petitions to open or strike the judgment were filed. In defense of their liability, Rosenthal and Weiss alleged that the bank had not been diligent in collecting the accounts receivable which had been assigned as security for the loan. The trial court concluded that, if proved, this would constitute at least a partial defense to the assumed liability of Rosenthal and Weiss and opened the judgment. The bank appealed.
A petition to open judgment is an appeal to the equitable powers of the court. As such it is committed to the sound discretion of the hearing court and will not be disturbed absent a manifest abuse of discretion. Lincoln Bank v. C. & H. Agency, Inc., 500 Pa. 294, 456 A.2d 136 (1982). A judgment taken by confession will be opened in only a limited number of circumstances, and only when the person seeking to have it opened acts promptly, alleges a meritorious defense and presents sufficient evidence of that defense to require submission of the issues to the jury.
First Seneca Bank & Trust Co. v. Laurel Mountain Development Corp., 506 Pa. 439, 442-443, 485 A.2d 1086, 1088 (1984). That appellees' petition was promptly filed is not disputed. Rather, the issue in the trial court was whether Rosenthal and Weiss had alleged a meritorious defense to their contractually assumed obligation to pay the indebtedness owed by their corporation.
Appellees' evidence showed that appellant bank had been aware in June, 1984 that NATCO was experiencing financial difficulties. Despite this knowledge, the bank did not attempt to collect the accounts receivable which had been assigned to it as collateral security for NATCO's ...