McIntyre Square Associates v. Evans

• Decision Date: 30 May 2003
• Citation: 827 A.2d 446
• Parties: McINTYRE SQUARE ASSOCIATES v. William J. EVANS, an individual, and Garfield M. Grant, an individual v. Garfield M. Grant, an individual, Appellant, v. James A. Hengelsberg, an individual, Appellant. McIntyre Square Associates v. James A. Hengelsberg and Mildred Hengelsberg, husband and wife, Appellants. First City Company, Cross-Appellant, v. William J. Evans, an individual, and Garfield M. Grant, an individual, Cross-Appellees, v. Garfield M. Grant, Third Party Plaintiff, and James A. Hengelsberg, an individual, Third Party Defendant, First City Company, Cross-Appellant, v. James Hengelsberg and Mildred Hengelsberg, husband and wife, Cross-Appellees.
• Court: Pennsylvania Superior Court

827 A.2d 446

McINTYRE SQUARE ASSOCIATES v. William J. EVANS, an individual, and Garfield M. Grant, an individual v. Garfield M. Grant, an individual, Appellant, v. James A. Hengelsberg, an individual, Appellant. McIntyre Square Associates v. James A. Hengelsberg and Mildred Hengelsberg, husband and wife, Appellants.

First City Company, Cross-Appellant, v. William J. Evans, an individual, and Garfield M. Grant, an individual, Cross-Appellees, v. Garfield M. Grant, Third Party Plaintiff, and James A. Hengelsberg, an individual, Third Party Defendant, First City Company, Cross-Appellant, v. James Hengelsberg and Mildred Hengelsberg, husband and wife, Cross-Appellees.

Superior Court of Pennsylvania.

Argued December 4, 2002.

Filed May 30, 2003.

Christopher R. Opalinski and William B. Pentecost, Jr., Pittsburgh, for Grant and Hengelsberg.

Thomas M. Hardiman, Pittsburgh, for McIntyre Square and First City.

BEFORE: HUDOCK, TODD, and GRACI, JJ.

OPINION BY TODD, J.:

¶ 1 In these consolidated cross-appeals, we are asked to address both procedural and substantive issues in an action against sureties on a commercial lease, following the default of and confession of judgment against the tenant on the lease. The sureties appeal judgment against them and the landlord cross-appeals. We reverse and remand. ¶ 2 In 1991, Professional Male Inc. d/b/a Professional Male ("Professional Male") entered into a commercial lease with McIntyre Square Associates ("McIntyre Square") for space in the McIntyre Square Shopping Center in the North Hills of Pittsburgh, Pennsylvania. The lease, which was executed on behalf of McIntyre Square by its property management agent, First City Company ("First City"), had a 5-year term, and did not contain an option to extend or renew. Several months after the lease was executed, William J. Evans, James A. Hengelsberg, and Garfield M. Grant, officers and owners of Professional Male, and Mildred Hengelsberg, Hengelsberg's wife, (collectively "Guarantors") signed a Guaranty Agreement personally guaranteeing Professional Male's obligations under the lease.

¶ 3 On February 15, 1996, Evans, as president of Professional Male, executed a Lease Amendment and Extension Agreement, extending the lease another 5 years, and significantly increasing the rent. It is disputed that Grant also signed the extension, and undisputed that Hengelsberg did not. No new guaranty agreement was signed

¶ 4 In 1998, Evans resigned as president of Professional Male and Hengelsberg stepped in. Professional Male later defaulted on its lease and vacated the premises on March 1, 1999. As provided in the lease, on behalf of McIntyre Square, First City confessed judgment against Professional Male for $187,811.43 for this default. A petition to open that judgment was later filed by Professional Male, but denied. On March 31, 1999, First City, again as agent for McIntyre Square, sued Evans and Grant, and then on May 3, 1999, sued the Hengelsbergs, in each case alleging that they were liable for Professional Male's breach under the Guaranty Agreement.¹ Grant also sued James Hengelsberg for claims arising from an indemnity agreement. All these cases were consolidated in April 2000.

¶ 5 The parties filed cross motions for summary judgment. A central issue in these motions was whether the Guaranty Agreement, signed by Evans, Grant, and the Hengelsbergs in conjunction with the original lease, applied to the lease extension. The motions were heard by the Honorable Patrick McFalls of the Court of Common Pleas of Allegheny County, and were denied.

¶ 6 Trial was set for September 19, 2000 before Judge McFalls. On that day, in chambers, the trial court ruled on the parties' motions in limine. As we will discuss more fully below, Guarantors moved to preclude introduction of the confessed judgment against Professional Male as evidence of First City's damages, and First City moved to prohibit Guarantors from relitigating the same issue. In each case, the trial court ruled against First City, refusing to give preclusive effect to the confessed judgment regarding the liability of Guarantors. (N.T. Trial, 9/19/00, at 7-9.)

¶ 7 The trial court, still in chambers, then sua sponte ruled that, as a matter of law, the Guaranty Agreement did cover the lease extension, effectively reversing its prior summary judgment ruling. Having effectively granted summary judgment to First City and against Guarantors as to liability, the court ordered a trial on damages only, and a nonjury trial commenced that same day.

¶ 8 On October 2, 2000, the trial court issued its verdict. Preliminarily, it sua sponte substituted McIntyre Square for First City as the real party in interest, and then issued a non-jury verdict in favor of McIntyre Square and against Guarantors for $49,643.89, plus post-verdict interest, and ruled in favor of Grant in his indemnity suit against James Hengelsberg.² On May 7, 2001, post-trial motions were denied, and judgment was entered in favor of McIntyre Square.

¶ 9 Guarantors appealed, and First City cross-appealed. Although the parties were ordered to, and did, file concise statements of matters complained of on appeal pursuant to Rule 1925 of the Pennsylvania Rules of Appellate Procedure, no trial court opinion was filed.³

¶ 10 On appeal, Guarantors ask:

1. Whether the trial court erred by sua sponte granting judgment for the Plaintiff on the morning of trial, after the jury was selected?

2. Do material changes in a document captioned "Lease Amendment and Extension Agreement" constitute a new and different lease agreement such that guarantors of the first lease do not guaranty the second?

3. Whether gratuitous guarantors cease to be liable under a lease when the terms and duration of the lease are changed without their notice?

(Appellants' Brief at 4.) In its cross-appeal, First City asks:

1. Is a duly authorized property management agent a proper party plaintiff in an action for breach of lease when the agent disclosed its representative capacity in the caption and the body of its Complaint?

2. Can a guarantor re-litigate a confessed judgment entered against his guarantee corporation after he unsuccessfully challenged the validity of the confessed judgment?

3. Is a party entitled to reasonable attorneys' fee and expenses incurred in connection with enforcing a guaranty that specifically provides for reimbursement of those fees and expenses?

(Cross-Appellant's Brief at 4.)

¶ 11 In their first issue, Guarantors argue that, as a procedural matter, the trial court erred in sua sponte granting judgment as to liability to First City on the morning of trial, after the jury was selected, and assert that their due process rights were thus violated.⁴ We conclude that Guarantors' due process rights were protected.

¶ 12 The parties' summary judgment motions, which the trial court had earlier denied, fully addressed the issue of whether the Guaranty Agreement signed by Guarantors applied to the lease extension. Thus, Guarantors cannot argue that they were surprised by the motion, in the sense that they did not have the ability to fully respond to it, which is the basis of the cases on which Guarantors rely. See, e.g., Cagnoli v. Bonnell, 531 Pa. 199, 611 A.2d 1194 (1992)

(vacating trial court's grant of motion for judgment on pleadings made on the morning of trial after the jury had been empaneled, finding that court's last minute action denied appellant a full and fair opportunity to argue against the motion). Here, the issue was fully briefed and discussed, thus Cagnoli and related cases are inapplicable. The trial court's action was more akin to a reconsideration of its prior motion, which, although sua sponte, we find to be unobjectionable, and, indeed, promoting of judicial economy.⁵

¶ 13 In their next two issues, Guarantors assert that the trial court erred in concluding that they were liable to First City upon the basis of the Guaranty Agreement executed in 1991.⁶ They make two alternative arguments in this regard. First, they argue that the terms of the lease under the "Lease Amendment and Extension Agreement" were so different from the original lease that it constituted a wholly new, second lease to which the Guaranty Agreement did not apply. Second, they assert that under the Guaranty Agreement they did not consent to material modifications in the lease that might materially increase their risk. We will address this second argument first because we find it to be dispositive.

¶ 14 The Guaranty Agreement obligated Guarantors to fulfill Professional Male's obligations under the lease upon Professional Male's default.⁷ (Guaranty Agreement, 10/8/91, at ¶ 1.) Guarantors contend, however, that the trial court erred in concluding that they were bound as sureties for the amended lease, asserting that the amended lease materially increased their risk under the Guaranty Agreement without their consent, thus discharging them.

¶ 15 In Reliance Ins. Co. v. Penn Paving, Inc., 557 Pa. 439, 734 A.2d 833 (1999), our Supreme Court, quoting an earlier decision from this Court, explained the principle on which Guarantors rely:

Cognizant of the problems posed by the three-party composition of suretyships, Pennsylvania courts have uniformly recognized that where the creditor and the debtor materially modify the terms of their relationship without obtaining the surety's assent thereto, the surety's liability may be affected. A material modification in the creditor-debtor relationship consists of a significant change in the principal debtor's obligation to the creditor that in essence substitutes an agreement substantially different from the original agreement on which the surety accepted liability. Where, without the surety's consent, there has been a material modification in the creditor-debtor relationship, a gratuitous (uncompensated) surety is completely discharged. A compensated surety is discharged only if, without the surety's consent,

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