Appeal from the Order entered on July 15, 1987, in the Court of Common Pleas of Luzerne County, Civil Division, at No. 2543-C of 1984.
Andrew J. Primerano, Bloomsbury, for appellants.
David B. Hiscox, Wilkes-Barre, for appellee.
Brosky, Beck and Cercone, JJ.
[ 376 Pa. Super. Page 348]
In this case we decide under what circumstances sureties may be discharged from their obligation to a creditor where the sureties allege the creditor has impaired the collateral of the sureties.
The underlying action in this case is one of foreclosure, based on a mortgage made by the appellants, Anthony Reggie and his wife Jennie Rose ("the Reggies"), in favor of appellee bank dated January 17, 1980. The Reggies claimed below that the mortgage is unenforceable in Pennsylvania since it was induced by fraud and/or misrepresentation and was not supported by consideration. This mortgage was part of a refinancing of an alleged deficiency which resulted from a foreclosure of a related property.
Central to the determination of the validity of the mortgage in this complex case is the question of whether the bank had an obligation to apply the proceeds of the related foreclosure sale in a certain order to the liens on that property. The trial court granted summary judgment to the bank, finding that the bank had no duty to apply the proceeds of the related foreclosure in such a way as to avoid foreclosing on the Reggies' home. We find that the trial court erred in granting summary judgment to the bank, and remand this case for proceedings consistent with this opinion.
The facts of the case are complex and lengthy. Three properties are involved: 1) 16 Johnson Street ("the Reggies' home"), which is the residence of the Reggies; 2) 326 Spring Street ("Spring Street property"); and, 3) 620 Luzerne Avenue ("Luzerne Avenue property"). In 1973, the son and daughter-in-law of the Reggies, along with the Reggies, allegedly executed a bond*fn1 and mortgage in favor of the bank for the amount of twenty-one thousand dollars ($21,000.00) ("Spring Street mortgage"). As admitted by the bank, the purpose of this mortgage and loan was to
[ 376 Pa. Super. Page 349]
enable the son and daughter-in-law to purchase and make improvements to the Spring Street property. This mortgage constituted a first lien against the Spring Street property. The bank required additional collateral, however, so the Reggies pledged their home as collateral. This pledge became a third lien on the Reggies' home. In 1974, the son and daughter-in-law purchased the Luzerne Avenue property for twelve thousand dollars ($12,000.00). Again, the Reggies, with their son and daughter-in-law, executed a mortgage, this time as security for a debt of twenty thousand dollars ($20,000.00) (the increase over the purchase price amounted to a loan for improvements). This mortgage became a first lien on the Luzerne Avenue property and a fourth lien on the Reggie home, which the Reggies once again pledged as collateral.
In 1975, this mortgage on the Luzerne Avenue property was refinanced by the son and daughter-in-law, who executed a bond and mortgage in their names only. As a result, the 1974 Luzerne Avenue mortgage was marked "satisfied" by the bank. The mortgage executed as part of the refinancing ("the 1975 mortgage") became a first lien against the Luzerne Avenue property and a second lien on the Spring Street property. The amount refinanced was thirty-one thousand dollars ($31,000.00).
In 1978, the bank commenced an action in mortgage foreclosure against the son and daughter-in-law based upon the 1975 mortgage. Judgment in the amount of thirty-five thousand forty dollars and eighty-two cents ($35,040.82) was awarded to the bank. At a subsequent sheriff's sale, the bank bought both the Spring Street and Luzerne Avenue properties. The bank alleges that the total indebtedness secured by the 1975 mortgage and the Spring Street mortgage was fifty-eight thousand three hundred seventy-seven dollars ($58,377.00). The bank then sold the Spring Street ...