Mahoney v. Furches

• Decision Date: 08 December 1983
• Docket Number: No. 41,41
• Citation: 468 A.2d 458,503 Pa. 60
• Parties: Andrea W. MAHONEY, Appellant, v. Felty A. FURCHES and Lula Belle Furches, Appellees. E.D. 1983.
• Court: Pennsylvania Supreme Court

Page 458

468 A.2d 458

503 Pa. 60

Andrea W. MAHONEY, Appellant, v. Felty A. FURCHES and Lula Belle Furches, Appellees.

No. 41 E.D. 1983.

Supreme Court of Pennsylvania.

Argued Oct. 17, 1983.

Decided Dec. 8, 1983.

[503 Pa. 61] Sam Ferguson Musser, Lancaster, for appellant.

David E. Wagenseller, Lancaster, for appellees.

Before ROBERTS, C.J., and NIX, LARSEN, FLAHERTY, McDERMOTT, HUTCHINSON and ZAPPALA, JJ.

OPINION

ZAPPALA, Justice.

This is an appeal from the Superior Court's affirmance of the Lancaster County Common Pleas Court's grant to Appellees of a demurrer to Appellant's request for declaratory relief. We granted allocatur to consider a question which has heretofore not been addressed by this Court. Because we are in disagreement with both the Superior Court and the lower court's analysis of the case, we reverse and remand.

This action arises out of a land sale and purchase money mortgage between the two parties. Appellees sold to Appellant certain lands which they owned in Lancaster County and personally financed the sale. The mortgage note contained the following repayment clause:

"Whereas, the Mortgagor [Appellant], by bond and/or note dated concurrently herewith, stands bound to pay the Mortgagee [Appellees] the just principal debt of THREE HUNDRED SIXTY THREE THOUSAND ONE HUNDRED TWENTY and 80/100 DOLLARS ($363,120.80), payable at the rate of Nineteen Thousand Dollars ($19,000.00) annually, commencing on April 1, 1979, and continuing each twelve (12) months thereafter until paid; the interest on the unpaid balance shall be payable at the rate of seven and one-half percent (7 1/2) per annum, payable annually, commencing April 1, 1979, and continuing each twelve (12) months, thereafter until the principal debt is paid in full as aforesaid. Interest shall begin accruing on the date of settlement."

The note was silent as to any right of prepayment of the debt.

Several months after closing on the property, Appellant entered into several sales agreements with various buyers to sell portions of the recently purchased tract.

Subsequent to these agreements, Appellant, through her attorney, attempted to gain a release as to those tracts she was selling. Appellees refused to release any of the land. Appellant then sought to prepay the entire mortgage debt with interest to the date of tender. This was also refused. As a final attempt to obtain a release on the land, Appellant offered to arrange for substituted security by requesting a certain bank guarantee payment of the mortgage according to its terms in exchange for a release of the lands. Again, Appellees refused.

Appellant, via an action for declaratory relief, then asked the court to declare that under the mortgage terms, she was entitled to satisfaction and release upon payment of the principal balance and interest thereon. The lower court granted Appellees' preliminary objection in the nature of a demurrer, and the Superior Court affirmed. Mahoney v. Furches, --- Pa.Super. ---, 454 A.2d 1117 (1983). The reasoning of the lower court in granting the demurrer was based upon prior Superior Court decisions interpreting mortgage clauses that were silent as to prepayment, Beth-June, Inc. v. Wil-Avon Merchandise Mart, Inc., 211 Pa.Super. 5, 233 A.2d 620 (1967); Hensel v. Cahill, 179 Pa.Super. 114, 116 A.2d 99 (1955).

In Beth-June, it was stated, and correctly so, that "[W]hen the payment of principal is due depends upon the wording of the mortgage and of course the intention of the parties thereto." [211 Pa.Super. at page 910, 233 A.2d 620, citing Hensel v. Cahill, supra (Emphasis added) ]. Beth-June goes on to state rules by which a mortgage should be interpreted absent a specific prepayment clause. They provide:

"A mortgage payable within a certain time may be paid off at any time, thus a mortgage payable within a year from date can be paid off at any time during the year. Horstman v. Gerker, 49 Pa. 282 (1865). However, a mortgage which is payable within a certain number of years, if it calls for installments in an amount which will evenly amortize the debt throughout the term of the obligation does not afford a mortgagor the right of prepayment, and the installments are the minimum which must be paid and the maximum which must be accepted by the mortgagee. Hensel v. Cahill, supra; Ladner on Conveyancing in Pennsylvania, Section 9, 10, page 236 (3rd Ed.1961)."

Beth-June, 211 Pa.Super. at 910, 233 A.2d at 622.

Based on these rules, the lower court interpreted the instant repayment clause as falling into the latter category and thus granted the demurrer.

In affirming the lower court, the Superior Court also relied on Hensel and Beth-June, and cited a Connecticut case, Dugan v. Grzybowski, 165 Conn. 173, 332 A.2d 97 (1973), for the proposition that a mortgagor could not, without a prepayment clause, compel a mortgagee to accept full payment of the balance of the principal, including interest due, before the due date of the mortgage. In support of this conclusion, the Superior Court offered the following reasoning relied upon by the Connecticut court:

"As one text writer explains the custom of denying prepayment rights, '[t]his freedom of the mortgagee from anticipation is of increasing value as the mortgage becomes more and more an investment instrument, designed to secure a regular flow of income. Current institutional mortgages customarily exact substantial amounts as conditions of accepting prepayment.' 3 Powell, Real Propery (sic) p. 656 n. 4. In contrast, a mortgage note designed primarily to give the lender security for the timely repayment of his money at a profitable rate of interest, will more likely contain a prepayment clause without a penalty attached. The object of the clause is generally to encourage repayment, whereas in absence of such a clause, courts tend to construe the mortgage note as intended to secure regular investment income to the mortgage (sic) over a definite period of time. Compare, as examples of the first instance, ... Beth-June, Inc. v. Wil-Avon Merchandise Mart, Inc., 211 Pa.Super. 5, 233 A.2d 620, with ... Hensel v. Cahill, 179 Pa.Super. 114, 116 A.2d 99, as examples of the latter...."

Mahoney, --- Pa.Super. at ---, 454 A.2d at 1119, citing Dugan v. Grzybowski, supra, 165 Conn. at 176-177, 332 A.2d at 99 n. 2 (citations omitted).

While we understand the logic of the Connecticut court, we do not agree with the result that court reaches since the net effect of that result is to raise a presumption against prepayment where a mortgage note contains no prepayment clause. As the quote from Dugan indicates, this presumption arises ostensibly...