Smith v. Kissell Co., Civ. A. No. 89-1548.
Decision Date | 18 April 1989 |
Docket Number | Civ. A. No. 89-1548. |
Citation | 98 BR 708 |
Parties | Patricia SMITH v. The KISSELL COMPANY. |
Court | U.S. District Court — Eastern District of Pennsylvania |
Irwin Trauss, Community Legal Services, Inc., Philadelphia, Pa., for Patricia Smith.
Jonah Levin, Norristown, Pa., for The Kissell Co.
Edward Sparkman, Philadelphia, Pa.
This matter is before the court on appeal from a ruling by a United States Bankruptcy Judge denying plaintiff/debtor attorney's fees. The sole issue to be decided on this appeal is whether the bankruptcy court erred as a matter of law when it refused to allow the debtor to file an application which included a request for attorney's fees under 41 P.S. §§ 503, 504, when the debtor successfully eliminated claims by the defendant for interest in excess of that permitted under 41 P.S. § 202.
Our recitation of the history of this case will be brief. Plaintiff/Debtor Patricia Smith ("Debtor") filed objections to a proof of claim filed by Defendant/Mortgagee Kissell Company ("Mortgagee"). Debtor objected to Mortgagee's adding a mortgage insurance premium into its calculations twice, resulting in a higher charge to Debtor. Also challenged was the amount of interest charged by Mortgagee for the time period between the judgment and the filing of the bankruptcy plan (May 21, 1987 through July 31, 1987). Debtor claimed that the statutory legal rate (6% per annum) was proper, while Mortgagee claimed that the contract rate of the original mortgage (14% per annum) applied. Debtor prevailed on both points.1 The only issue left to be determined is whether Debtor is entitled to attorney's fees resulting from her successful challenge of Mortgagee's claim to the contract rate of interest.
The dispute as to the applicable interest rate centered on whether the original mortgage merged with and was extinguished by the foreclosure judgment, as claimed by Debtor. Mortgagee claimed that 41 P.S. § 101 et seq. ("the Act") alters this common law merger doctrine by allowing for a cure of the default notwithstanding a foreclosure judgment (41 P.S. § 404). Mortgagee's argument was that so long as the right of cure exists, the mortgage contract cannot be considered merged and extinguished, thus it was entitled to the contract interest rate.
The bankruptcy judge held in favor of the Debtor, reaffirming an earlier decision, In re Herbert, 86 B.R. 433 (Bkrtcy.E.D.Pa. 1988), which squarely held that a mortgage merges into a foreclosure judgment notwithstanding the right to cure. Moreover, Herbert also held that a judgment creditor in Pennsylvania is entitled to interest at the legal rate only, even if a previous contract rate was higher. 86 B.R. at 436 (citing 10 Standard Pa. Practice 2d 473 (1982)). See also In re Cole, 89 B.R. 433, 439 (Bkrtcy.E. D.Pa.1988) ( ). The bankruptcy judge held that Mortgagee was entitled to interest only at the legal rate of 6% per annum, (41 P.S. § 202).2
The debtor filed a claim for attorney's fees pursuant to 41 P.S. § 503. The bankruptcy judge denied the claim stating that he "failed to see how a claim that the mortgagee miscalculated the interest due on its claims violated Act 6 of 1974, 41 P.S. § 101 et seq." (Bkrtcy.Ct. opinion, p. 15). It is this ruling that is the subject of this appeal.
The debtor was successful in reducing the mortgagee-creditor's claim by an amount equal to the difference between the contract interest at the rate of 14% and interest at the rate of 6% for the period May 21, 1987 to July 31, 1987.
Section 503 of the Act provides:
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