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[U] Manufacturers and Traders Trust Co. v. Germansville Feed and Farm Supply, Inc.

Superior Court of Pennsylvania

February 7, 2014



Appeal from the Order Entered August 1, 2013 in the Court of Common Pleas of Lehigh County Civil Division at No(s): 2013-N-814.




Germansville Feed and Farm Supply, Inc. (Germansville), Diane Schlauch, and Rodney Schlauch (collectively referred to as Appellants) appeal from the August 1, 2013 order denying their "Petition to Strike Confessed Judgment and for Stay of Execution Proceedings." We affirm.

The trial court aptly summarized the background underlying this matter as follows.

On or about October 29, 2001, Allfirst Bank loaned Germansville [ ] the principal sum of $25, 000.00 with interest consistent with the terms of a promissory note.1 The loan was for a business-related purpose. The Promissory Note was executed by Rodney K. Schlauch, President, and Diane B. Schlauch, Secretary/Treasurer. The business address is identified on the Promissory Note as 7130 Bake Oven Road, Germansville, Pennsylvania 18053.
1[Appellee] Manufacturers and Traders Trust Co. is the successor to Allfirst Bank by merger.
At issue in this case is a Guaranty executed by Mr. and Mrs. Schlauch on the same day. The Guaranty Agreement provides: "This Guaranty Agreement ("Guaranty") is given by Rodney K. Schlauch and Diane B. Schlauch ("Guarantor") for benefit of Allfirst Bank … with respect to the obligations of Germansville []." On the signature page of the Guaranty Agreement, under the designation "Guarantor" Appellant Rodney Schlauch signed the agreement as "Rodney K. Schlauch, Pres." However, beneath his signature and unlike on the Promissory Note, he is identified solely as "Rodney K. Schlauch." Likewise, Diane Schlauch, who also signed as a Guarantor, is identified solely as "Diane B. Schlauch" without any designation of her capacity as secretary and treasurer of the business. The address listed for the guarantors is 6973 Church Road, Germansville, Pennsylvania 18053.
Germansville [] defaulted on the Note by failing to make payments due from January 30, 2013 onward. Accordingly, on May 31, 2013, Manufacturers and Traders Trust Co.[] filed a Complaint in Confession of Judgment against Appellants.[1] The confessed judgment was in that amount of $25, 000.00 pursuant to the [P]romissory [N]ote. Judgments in the amount of $25, 000.00 were also confessed against [ ] Diane Schlauch and Rodney Schlauch personally pursuant to the Guaranty Agreement [they] both executed. The same day, the Clerk of Courts entered a Judgment by Confession against Appellants and issued a Notice of Confessed Judgment under Pennsylvania Rule of Civil Procedure 236. The judgment and notice were served on Appellants on June 18, 2013 by the Sheriff. The Return of Service was filed on June 24, 2013.
On July 12, 2013, Appellants filed a Petition to Strike Judgment and for Stay of Execution Proceedings. Appellants specifically argued that Rodney Schlauch cannot be held personally liable as a guarantor for Germansville [] because he signed it as "Rodney K. Schlauch, Pres." indicating he executed the agreement in his official capacity as president.
On [August 1], 2013, the [trial court] entered an order denying the Petition and reasoned that the suffix of "Pres." notwithstanding, []Rodney Schlauch executed the [Guaranty A]greement in his personal capacity. On August 30, 2013, Appellants filed [a] Notice of Appeal[. The trial court] ordered Appellants to file a Concise Statement of Matters Complained of on Appeal pursuant to Pennsylvania Rule of Appellate Procedure 1925(b) on September 3, 2013. Appellants filed their Concise Statement on September 13, 2013[, and the trial court subsequently issued an opinion].

Trial Court Opinion, 10/2/2013, at 2-3.

In their brief to this Court, Appellants ask us to consider one question, namely,

Whether the trial court erred in finding a third party-guarantor assented to, and conscientiously [sic] assumed, personal liability for a corporate debtor under a judgment note and warrant of attorney despite the stringent requirements applicable to warrants of attorney which are to be read in the light most favorable to the signer and against the party benefitted by such warrant.

Appellants' Brief at vi.

The standard of review we employ is well settled.

We review a trial court's order denying a petition to strike a confessed judgment to determine whether the record is sufficient to sustain the judgment. A petition to strike a judgment may be granted only if a fatal defect or irregularity appears on the face of the record. …

Our scope of review has been described as follows.

In considering the merits of a petition to strike, the court will be limited to a review of only the record as filed by the party in whose favor the warrant is given, i.e., the complaint and the documents which contain confession of judgment clauses. Matters dehors the record filed by the party in whose favor the warrant is given will not be considered. If the record is self-sustaining, the judgment will not be stricken. However, if the truth of the factual averments contained in such record are disputed, then the remedy is by a proceeding to open the judgment and not to strike. An order of the court striking a judgment annuls the original judgment and the parties are left as if no judgment had been entered.

Hazer v. Zabala, 26 A.3d 1166, 1169 (Pa.Super. 2011) (citations omitted).

Where a proceeding to confess judgment is instituted by complaint, the complaint and confession of judgment clause must be read together to determine whether there are defects on the face of the record. Furthermore, the determination of the validity of a judgment entered by confession rests upon a strict construction of the language of the warrant of attorney, and any doubt as to validity must be resolved against the party entering the judgment. Because a warrant of attorney authorizing the confession of judgment can be an oppressive weapon, entry of a valid judgment by confession can only be accomplished if such entry is made in rigid adherence to the provisions of the warrant of attorney, which must be fully complied with; otherwise, such judgment will be stricken.
[W]hen a complaint and confession of judgment are substantially in the form required by our rules of civil procedure, our court has overlooked any minor procedural defects or irregularities in the proceeding that are apparent in the record.

PNC Bank, Nat. Ass'n v. Bluestream Technology, Inc., 14 A.3d 831, 843 (Pa.Super. 2010) (citations and quotation marks omitted).

The trial court offered the following discussion in support of its decision to deny Appellants' petition to strike.

In this case, Appellants argue that Rodney Schlauch executed the warrant of attorney in his presidential capacity rather than his personal capacity. It is well-established that a "guaranty is a promise to pay the debt of another when the creditor is unable, after due prosecution, to collect the amount owed by the debtor." Atlanta Corp. v. Ohio Valley Provision Co., 414 A.2d 123, 126 (Pa. 1980) (citation omitted). The logical corollary of the foregoing rule is that one may not serve as a guarantor for himself. It necessarily follows that if a guaranty functions as a promise to pay the debt of another, the creditor and the guarantor cannot be one and the same. In the corporate context, the president of a corporation is an agent who generally has the authority and power to bind the corporation contractually as a functional representative of the corporation. See Seals, Inc. v. Tioga County Grange Municipal Insurance Co., 519 A.2d 951, 958 (Pa.Super. 1986). Accordingly, a corporation's agent cannot guaranty that corporation when acting in his or her official capacity as an agent. While there is no Pennsylvania case law directly on point, courts of other jurisdictions have reached the same conclusion when confronted with the question at bar. See, e.g., PNC Capital Recovery v. Mechanical Parking Systems, Inc., 726 N.Y.S.2d 394 (N.Y.App.Div. 2001) (holding corporation's president individually liable for corporate debt under guaranty agreement president executed).
In Appellants' Petition to Strike Confessed Judgment, they argued Rodney Schlauch executed the Guaranty Agreement in his capacity as President of Germansville[.] They cited to Pennsylvania statutory law providing that corporate officers are required to perform their duties in good faith and are generally not liable for the corporation's debts or liabilities. See 15 Pa.C.S. § 512(c). In the same petition, Appellants noted:
The lender of the funds accepted such limited guaranty on its face without question and thereafter acted to its own detriment, but without sufficient basis to proceed against Defendant Rodney Schlauch in his personal capacity.
(Petition to Strike Confessed Judgment and for Stay of Execution Proceedings, at 2.)
When taken to its logical conclusion, Appellants' argument is that Appellant Rodney K. Schlauch executed a Guaranty Agreement for Germansville []in such a way as to appear to be a guarantor while actually evading liability under the protection of the "Pres." suffix he added to his name while signing. Such a result is wholly inequitable. If, as discussed above, neither an individual nor a corporation can serve as a guarantor of itself, then Mr. Schlauch's signature as a guarantor is meaningless. It is a well-established principle of contract interpretation that courts shall not interpret contracts in a manner leading to an absurd result or rendering the contract ineffective to accomplish its stated purpose. Clairton Slag, Inc. v. Department of General Services, 2 A.3d 765, 773 (Pa. Cmwth. 2010) (citing Stamerro v. Stamerro, 889 A.2d 1251 (Pa.Super. 2005)). The result Appellants seek would render the Guaranty Agreement meaningless with respect to Rodney Schlauch because he would be shielded from liability as a Guarantor. Thus, only Diane Schlauch would function as a Guarantor for Germansville [] despite the lender being led to believe that both Diane and Rodney Schlauch were Guarantors.
Furthermore, the Guaranty Agreement belies Appellants' arguments when considered against the [P]romissory [N]ote executed on the same day on behalf of the corporation. On the first page of the Guaranty Agreement, as quoted above, it clearly identifies that "[Guaranty] is given by Rodney K. Schlauch and Diane B. Schlauch ("Guarantor") for the benefit of Allfirst Bank." (Complaint, Exhibit "B" (emphasis added).) When Mr. Schlauch signed that document, he did so as "Rodney K. Schlauch, Pres." (Id.) However, beneath that in typed print appears only the name "Rodney K. Schlauch" without the suffix. (Id.) The address listed on that form for Rodney and Diane Schlauch is 6973 Church Road, Germansville, Pennsylvania 18053. (Id.) By contrast, on the Promissory Note Rodney and Diane Schlauch executed in their agency capacity on behalf of Germansville[], the typewritten portion underneath Mr. Schlauch's name reads, "Rodney K. Schlauch, President." (Complaint, Exhibit "A".) Likewise, the typewritten name under Mrs. Schlauch's signed name reads, "Diane B. Schlauch, Secretary/Treasurer." (Id.) The address identified for the business is 7130 Bake Oven Road, Germansville, Pennsylvania 18053.
Based on all of the foregoing, the addition of the suffix "Pres." in Rodney Sehlauch's name cannot serve to assist him in evading liability as a guarantor for the corporation. Mr. Schlauch's assertion that he signed the Guaranty Agreement in his presidential capacity would lead to a corporation endeavoring to guaranty itself, which is an absurd result. Additionally, the documentation in which Mr. Schlauch did in fact act in his presidential capacity is markedly different from the Guaranty Agreement where all indications save the suffix he added to his own name served to indicate to the Court that this was a personal guaranty, just as Diane Schlauch's guaranty is a personal guaranty.

Trial Court Opinion, 10/3/2013, at 6-8.

Appellants' primary argument in support of their issue is that, in denying their petition to strike, the trial court acted outside of the proper scope of review and contrary to the law governing petitions to strike. For instance, Appellants assert that "the trial court broadly concluded that Mr. Schlauch 'executed [the guaranty agreement] in such a way as to appear to be a guarantor while actually evading liability under the protection of the 'Pres.' suffix he added to his name while signing." Appellant's Brief at 9. According to Appellants, "[t]here simply is no basis for assuming Mr. Schlauch surreptitiously or fraudulently 'executed the agreement in such as [sic] way to appear to be a guarantor and evade liability.'" Id. Appellants maintain that, in reaching its "broad conclusion, " "[t]he trial court transgressed rule number one when evaluating a motion to strike a confessed judgment: it did not limit itself to the paper record and, in fact, drew a conclusion contrary to the precept that the record must be strictly construed against the party benefitted by the warrant of attorney." Id. (emphasis in original).

Appellants fail to put the trial court's quotation into the proper context. Indeed, the quotation they provide from the trial court's opinion only represents a portion of a sentence. A review of the court's opinion, particularly the sentence from which Appellants took the complained-of quote, makes clear that the court did not conclude as a matter of fact that Mr. Schlauch acted surreptitiously or fraudulently when he signed the Guaranty Agreement. Rather, the court simply sought to demonstrate the end result of Appellants' argument. If, in fact, Mr. Schlauch intended to execute the Guaranty Agreement in his capacity as president of Germansville, as Appellants argue, then Mr. Schlauch signed a document purporting to guaranty Germansville's debt but evading personal liability for that debt under the protection of his corporate position. The court did not breach its scope of review or rule in a manner contrary to the law by characterizing Appellants' argument in this manner.

After a review of the certified record and Appellants' brief, we conclude that Appellants have failed to convince us that the trial court erred in the manner in which it denied Appellants' petition to strike. On the contrary, the rationale employed by the court in denying Appellants' petition to strike is well-reasoned and consistent with pertinent law. For these reasons, we affirm the court's order.

Order affirmed.

Judgment Entered.

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