Citations
- 76 F. Supp. 2d 607
Full opinion text
MEMORANDUM & ORDER
KATZ, Senior District Judge.
The defendants have submitted a motion to dismiss, a motion for partial summary judgment, and a motion for a stay of remaining proceedings. The plaintiff, in turn, requests summary judgment in its favor.
I.Background
Plaintiff Stornawaye Properties, Inc., brought two complaints stemming from defendants’ obligations under a guaranty agreement. The first complaint attempted to collect the interest owing on a promissory note that defendants Jack and Louise Moses guaranteed in the event that the primary obligors, Andrew and Deborah Kerstein, did not pay. At the time the guaranty was executed, Robert Allen Fox, the third named defendant, was serving as trustee for property located at 1472 Hunter Road in Rydal, Pennsylvania. In that capacity, Mr. Fox executed a collateral first mortgage on the property to secure the guaranty. The second complaint thus seeks to foreclose on the mortgaged property.
Before the court now are three motions submitted by the defendants and one submitted by the plaintiff. Defendants first seek to dismiss Robert Alen Fox from this lawsuit, as he was sued only in his capacity as trustee, an office that he no longer holds. Defendants also request the entry of partial summary judgment with respect to the interpretation of the guaranty documents. Finally, defendants move to stay the proceedings in this case pending the outcome of litigation against the primary debtors. Plaintiff, in turn, requests summary judgment on all substantive issues pertaining to the guaranty documents, the counterclaims and affirmative defenses, and the right to foreclose on the mortgage.
II. The Motion to Dismiss Fox
Mr. Fox became trustee of the Hunter road property pursuant to a deed of trust executed on December 19, 1990. See Def. Mot. Ex. 6. Athough he terminated this trust and conveyed the property back to Jack and Louise Moses, see Def. Mot. Ex. 7, the defendants have not met their burden of showing that there is “no set of facts that would entitle [plaintiff] to relief’ against Mr. Fox. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996).
III. The Motions for Partial Summary Judgment and Summary Judgment on the Guaranty Documents
The defendants seek a declaratory judgment to resolve the extent to which Jack and Louise Moses must pay interest prior to plaintiffs exhaustion of remedies against the Kersteins, the appropriate rate of interest, and the maximum limit of defendants’ liability. Plaintiffs motion challenges the defendants’ interpretation and requests summary judgment in favor of its own reading of the contract.
A. The Agreements
. The present conflict begins with a promissory note for $350,000, dated September 25, 1992, issued to Andrew and Deborah Kerstein but guaranteed by Jack and Louise Moses. See Def. Mot. Ex. 4. This note provides for an initial interest rate of 7.5 percent with subsequent rates subject to change based on the Wall Street Journal Index.
The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 1.000 percentage point over the Index, subject however to the following minimum and maximum rates, resulting in an initial rate of 7.500% per annum. Notwithstanding the foregoing, the variable interest rate or rates provided for in this Note will be subject to the following minimum and maximum rates. NOTICE: Under no circumstances will the interest rate on this Note be less than 7.500% per an-num or more than (except for any higher default rate shown below) the lesser of 11.500% per annum or the maximum rate allowed by applicable law.
Id. The default interest rate is 24 percent. See id.
The guaranty agreement states that Jack and Louise Moses guaranteed loans of $350,000 (Loan A) and $100,000 (Loan B) made to the Kersteins. See Def. Mot. Ex: 1 (Guaranty Agmt.). As Stornawaye did not purchase Loan B, only Loan A is at issue in this case. The guaranty is explicitly limited by Exhibit A to the agreement, hereinafter referred to as the letter agreement. See Def. Mot. Ex. 1 art. 1 ¶ 1.01 (stating that guaranty is limited by Exhibit A). That letter agreement explains that the Moses defendants’ liability is capped at $292,500, rather than the full $450,000 borrowed by the Kersteins. See Def. Mot. Ex. 2 ¶ 1 (Letter Agmt.). The most relevant provisions of the letter agreement state:
4. Should any interest payment for Loan A or Loan B become sixty (60) days past due, you agree to keep interest payments current on both Loan A and Loan B unless and until [Kerstein] resumes payment of interest.
5. If Loan A or Loan B is in default, Metrobank will first exercise and exhaust all of its rights and remedies under the loan documents against Andrew M. Kerstein, Deborah J. Kerstein and Andy K’s Dairy and Deli, Inc. and against the collateral provided by them which secures Loan A and Loan B, before Metro-bank:
a) requires payment from you, except as to the interest payments due Metrobank in Paragraph 4 above, under each of your Guarantees for Loan A and Loan B;
b) or exercises any of Metrobank’s rights which Metrobank has pertaining to any collateral from you, except as to the interest payments due Metrobank in Paragraph 4 above, which secures Loan A, Loan B or any of your Guarantees that you have granted to Metrobank or which may be obtained by Metro-bank under your Guaranty or other mortgage and loan documents.
Id. ¶¶ 4-5.
The document mortgaging the property in Rydal, Pennsylvania also explains that the maximum amount guaranteed was $292,500 and that the guaranty and letter agreement limit recovery. See Def. Mot. Ex. 5. The mortgage document also states,
[I]f at any time default shall be made in the payment of interest as aforesaid, for the space of sixty (60) days after notice from Mortgagee that any such payment hereof has fallen due, then, and in such case the whole unpaid principal debt aforesaid shall, at the option of the said Mortgagee its Successors or Assigns and subject to the limitations of Exhibits “A” and “B”, become due and payable immediately; and payment of said principal debt, and all interest thereon, may be enforced and recovered at once, subject to the limitations of Exhibits “A” and “B”.
Def. Mot. Ex. 5 at 1.
B. Discussion
The Kersteins defaulted on the promissory note on March 30, 1996, and the loan matured on September 25, 1997. At that time, the outstanding principal was $260,-139.48. See PI. Mot. Ex. B. Plaintiff thus seeks from the Moses defendants unpaid interest on the loan from March 30, 1996, to the September 25, 1997, maturity date at the Index rate plus one percent; after September 25,1997, plaintiff seeks interest at the default rate. See PL Mem. of Law at 8.
1. The Extent of the Guaranty
Defendants argue that the plain language of paragraph four of the letter agreement means that Jack and Louise Moses “cannot be obligated to pay any past due interest or other charges beyond ‘current’ monthly interest on Loan A and Loan B” until Stornawaye exhausts remedies against the Kersteins. PI. Mot. for Summ. J. at 9. That is, defendants argue that by stating in paragraph four that the obligation was to “keep interest current” rather than to “pay all interest due” or some other similar formulation, the letter agreement obligates them only to begin making monthly incremental interest payments on the remaining principal balance without reference to any amount of interest that is past due.
The promissory note and the guaranty agreement are governed by Pennsylvania law. See Def. Mot. Ex. 4; Def. Mot. Ex. 1 ¶ 3.11. For purposes of interpretation, a guaranty agreement is treated in the same manner as any other contract. See Hyster Credit Corp. v. O’Neill, 582 F.Supp. 414, 416 (E.D.Pa.1983); Meeting House Lane, Ltd. v. Melso, 427 Pa.Super. 118, 628 A.2d 854, 857 (1993). “A court’s purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them.” Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir.1994). The court must initially determine whether the contractual language is ambiguous, which means that “it is susceptible of two reasonable alternative interpretations.” Id.; see also Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 614 (3d Cir.1995) (focusing on whether language may be interpreted in different ways). However, if the language is not ambiguous and can therefore be read in only one way, the court interprets the contract as a matter of law. See Hullett, 38 F.3d at 111. Pennsylvania law presumes that “the intent of the parties to an instrument is embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement.” Id. (citations, internal punctuation omitted). In the end, the court must “consider the words of the contract, the alternative meaning suggested by counsel, and the nature of the objective evidence to be offered in support of that meaning.” Id. (citations, internal punctuation omitted).
The contractual language in this case is not ambiguous, and there is no basis for finding that it gave defendants the right to calculate interest payments without reference to past due debts. The language of the promissory note, the letter agreement, and the mortgage agreement supports this conclusion. First, the promissory note to which the guaranty is attached explicitly precludes defendants’ interpretation because its method of structuring payments for interest calculates them with reference to past due amounts: “Borrower will pay regular monthly payments of all accrued interest due as of each payment date.” Def. Mot. Ex. 4. That is, the interest payment referred to in the letter agreement incorporates past due amounts, so to refer to some hypothetical interest payment that does not include these sums is inconsistent with the terms of the contract. Second, the letter agreement that limits the Moses defendants’ liability states that there is a sixty day grace period following default on the loan and that after that time, the lender may seek interest from the defendants. See Def. Mot. Ex. 2 ¶¶ 4-5. Although the agreement states that the holder of the loan must exhaust remedies against the Kersteins before proceeding against the Moses defendants, it explicitly and repeatedly excludes the obligation to keep interest current from that exhaustion requirement. See id. Finally, although neither party refers to the mortgage document, it also states that all interest is “due and payable immediately” following the end of the grace period. Def. Mot. Ex. 5 at 1.
Defendants suggest that the documents’ failure to provide for notice to the Moses defendants in the event that the Kersteins failed to pay amounts due means that Stornawaye may only require the Moses defendants to begin making monthly payments without reference to such past due amounts. However, the guaranty agreement itself states that the “obligations of Guarantors hereunder shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by ... the failure of Metro-bank to keep Guarantors advised of Borrower’s financial condition, regardless of the existence of any duty to do so.” Def. Mot. Ex. 1 «t-¶ l.