J-A06029-17


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

WALNUT STREET 2014-1 ISSUER, LLC,             IN THE SUPERIOR COURT OF
BY AND THROUGH THE BANCORP BANK,                    PENNSYLVANIA
ITS SERVICER AND AGENT,

                         Appellee

                    v.

MICHAEL S. PEARLSTEIN,

                         Appellant                  No. 2557 EDA 2016


                Appeal from the Order Entered July 7, 2016
           In the Court of Common Pleas of Philadelphia County
           Civil Division at No(s): March Term, 2016 No. 01672


BEFORE: PANELLA, SHOGAN, and RANSOM, JJ.

MEMORANDUM BY SHOGAN, J.:                            FILED JUNE 22, 2017

     Appellant Michael Pearlstein (“Pearlstein”) appeals from the order

denying his petition to open the confessed judgment obtained by Walnut

Street 2014-1 Issuer, LLC (“Walnut”), through its predecessor-in-interest

and agent The Bancorp Bank (“the Bank”). We affirm.

     Pearlstein is the sole member of the General Partnership of Empire

Schuylkill, L.P. (“Empire”), which owns a shopping mall in Frackville, PA

(“the Property”).   On May 5, 2007, Empire and the Bank entered into a

series of transactions to finance the purchase, maintenance, and operation

of the Property (“Original Loan Agreement”). Pursuant to the Original Loan

Agreement, Empire borrowed $27,200,000 from the Bank.            The parties

entered additional transactions in 2009 and 2010.
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      In late 2010, Empire was prepared to sell the Property. To retain the

Property as collateral for its loans to Empire, the Bank sought and obtained a

guaranty from the United States Department of Agriculture (“USDA”).        In

submitting its application for the USDA guaranty, the Bank valued the

Property at $30,372,821, despite a recent appraisal of $15,150,000 by

Quinn & Associates. The USDA accepted the Bank’s application and issued a

guaranty (“USDA guaranty”).

      Empire and the Bank modified the Original Loan Agreement in

February of 2011 (“Amended Loan Agreement”), at which time Pearlstein

signed a personal guaranty agreement with the Bank (“Personal Guaranty”).

The Personal Guaranty covered three notes:      Amended and Restated Note

for $17,300,000, which was reduced to $5,000,000; Term Note A for

$5,862,789; and Term Note B for $4,093,211 (“Notes”).

      As of January 21, 2015, the Property had lost several anchor tenants,

and Empire had obtained an appraisal that valued the Property at

$5,300,000. Subsequently, Empire lost more tenants, and the fair market

value of the Property dropped to an estimated $2,000,000.       The Bank did

not notify the USDA of Empire’s declining financial state.

      The Bank sold the Amended Loan Agreement, Notes, and Personal

Guaranty to Walnut on or about December 30, 2014. Prior to this sale, the

Bank had not previously enforced Empire’s non-payment defaults of Current

Ratio, Minimum Tangible Net Worth, and Debt to Equity.           Nonetheless,


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pursuant to a warrant of attorney provision in the Amended Loan

Agreement, Walnut confessed judgment against Empire on January 20,

2016, for the non-payment defaults. Empire did not challenge the confessed

judgment.

       On March 17, 2016, Walnut confessed judgment against Pearlstein on

the Personal Guaranty.           Pearlstein filed a petition to open judgment

(“Petition to Open”) on May 16, 2016, raising defenses of fraudulent

inducement, non-occurrence of default, waiver/estoppel, and breach of

contract.1 Walnut filed an answer on June 27, 2016 (“Answer”). The trial

court denied the Petition to Open on July 7, 2016, finding that Pearlstein did

not raise any meritorious defenses. The trial court also denied Appellant’s

July 15, 2016 motion for reconsideration on August 2, 2016.                  This appeal

followed. The trial court did not direct Pearlstein to file a statement of errors

complained of on appeal pursuant to Pa.R.A.P. 1925(b).                  For purposes of

complying with Pa.R.A.P. 1925(a), the trial court relied on its memoranda in

support    of   the   orders    denying        the   Petition   to   Open   and   denying

reconsideration.      Order and Memorandum Opinion, 7/7/16; Memorandum

Opinion, 8/1/16.

____________________________________________


1
  Walnut submits—and we agree—that Pearlstein has not appealed the trial
court’s rejection of several other defenses, i.e., Walnut’s lack of standing to
confess judgment against Pearlstein, the Bank’s breach of the Amended
Loan Agreement, the Bank’s breach of its duty of good faith and fair dealing,
and Walnut’s breach of the warrant of attorney. Walnut’s Brief at 15 n.4.



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      On appeal, Pearlstein raises the following issues for our consideration:

            1.     Did the trial court err by prematurely requiring
      evidence of the defenses without the issuance of a rule to show
      cause, the opportunity to take discovery and the opportunity to
      present evidence in support of the defenses, especially where
      the trial court found that Pearlstein alleged some legally valid
      defenses?

            2.    Did the trial court err in denying the Petition before
      allowing discovery and the opportunity to present evidence
      where Pearlstein alleged in a verified Petition all of the factual
      elements necessary to establish the meritorious defense of
      fraudulent inducement, to which the parol evidence rule does not
      apply?

            3.    Did the trial court err by denying the Petition before
      allowing discovery and the opportunity to present evidence
      where Pearlstein alleged in a verified Petition all of the factual
      elements necessary to establish the meritorious defenses of the
      non-occurrence of an alleged default and waiver and/or estoppel
      of the alleged defaults, which defenses are not vitiated by the
      non-waiver provision in the parties’ agreement?

            4.    Did the trial court err by denying the Petition before
      allowing discovery and the opportunity to present evidence
      where Pearlstein alleged in a verified Petition all of the factual
      elements necessary to establish the meritorious defense of
      breach of contract, which Pearlstein had standing to raise as a
      party to the agreements and based on his role as guarantor for
      other agreements?

Pearlstein’s Brief at 4.

      “A petition to open a confessed judgment is an appeal to the trial

court’s equitable powers.”   Crum v. F.L. Shaffer Co., 693 A.2d 984, 986

(Pa. Super. 1997).

      It is committed to the sound discretion of the hearing court and
      will not be disturbed absent a manifest abuse of that discretion.
      Ordinarily, if a petition to open a judgment is to be successful, it
      must meet the following test: (1) the petition to open must be

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         promptly filed; (2) the failure to appear or file a timely answer
         must be excused; and (3) the party seeking to open the
         judgment must show a meritorious defense....

Century Surety Co. v. Essington Auto Center, LLC, 140 A.3d 46, 53 (Pa.

Super. 2016) (quoting Mother’s Restaurant, Inc. v. Krystkiewicz, 861

A.2d 327, 336 (Pa. Super. 2004) (en banc)); Neducsin v. Caplan, 121

A.3d 498, 505 (Pa. Super. 2015), appeal denied, 131 A.3d 492 (Pa. 2016).

“Judicial discretion requires action in conformity with law on facts and

circumstances before the trial court after hearing and consideration.

Consequently, the court abuses its discretion if, in resolving the issue for

decision, it misapplies the law or exercises its discretion in a manner lacking

reason.”     Neducsin, 121 A.3d at 506 (quoting Miller v. Sacred Heart

Hosp., 753 A.2d 829, 832 (Pa. Super. 2000) (internal citations omitted)).

         In adjudicating a petition to open a confessed judgment, the trial court

is charged with “determining whether the petitioner presented sufficient

evidence of a meritorious defense to require submission of that issue to a

jury.”    Ferrick v. Bianchini, 69 A.3d 642, 647 (Pa. Super. 2013) (citing

Homart Development Co. v. Sgrenci, 662 A.2d 1092 (1995)).                 “When

determining a petition to open a judgment, matters dehors the record filed

by the party in whose favor the warrant is given, i.e., testimony,

depositions, admissions, and other evidence, may be considered by the

court.” Graystone Bank v. Grove Estates, LP, 58 A.3d 1277, 1282 (Pa.

Super. 2012).


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      Because the Petition to Open was timely, no one challenges the first

two requirements for opening a confessed judgment; rather, Pearlstein

focuses on the trial court’s determination that the Petition to Open did not

present any meritorious defenses warranting issuance of a rule to show

cause. In his first issue, Pearlstein complains that the trial court disposed of

the Petition to Open based solely on the initial pleadings without “affording”

him the opportunity to develop any evidence in support of his defenses.

Pearlstein’s Brief at 17.   Pearlstein asserts that the trial court propagated

error by not following the procedure set forth in Pa.R.C.P. 2959(b) and (e).

Id.   According to Pearlstein, the averments in his Petition to Open should

have triggered the trial court’s action in issuing a rule and allowing

discovery. Pearlstein’s Brief at 21.

      Pennsylvania Rule of Civil Procedure 2959 governs a petition to open a

confessed judgment and provides, in relevant part, as follows:

      (a) Relief from a judgment by confession shall be sought by
      petition. . . . [A]ll grounds for relief whether to strike off the
      judgment or to open it must be asserted in a single petition. . . .

      (b) If the petition states prima facie grounds for relief the court
      shall issue a rule to show cause and may grant a stay of
      proceedings. After being served with a copy of the petition the
      plaintiff shall file an answer on or before the return day of the
      rule. The return day of the rule shall be fixed by the court by
      local rule or special order.

                                       * * *

      (e) The court shall dispose of the rule on petition and answer,
      and on any testimony, depositions, admissions and other
      evidence. The court for cause shown may stay proceedings on

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      the petition insofar as it seeks to open the judgment pending
      disposition of the application to strike off the judgment. If
      evidence is produced which in a jury trial would require the
      issues to be submitted to the jury the court shall open the
      judgment.

Pa.R.C.P. 2959(a), (b), and (e). We have explained that:

      Pa.R.[C.]P. 2959(e) sets forth the standard by which a court
      determines whether a moving party has properly averred a
      meritorious defense. If evidence is produced which in a jury trial
      would require the issues to be submitted to the jury the court
      shall open the judgment. Furthermore, the court must view the
      evidence presented in the light most favorable to the moving
      party, while rejecting contrary evidence of the non-moving
      party. The petitioner need not produce evidence proving that if
      the judgment is opened, the petitioner will prevail. Moreover,
      we must accept as true the petitioner’s evidence and all
      reasonable and proper inferences flowing therefrom.

            In other words, a judgment of confession will be opened if
      a petitioner seeking relief therefrom produces evidence which in
      a jury trial would require issues to be submitted to a jury. The
      standard of sufficiency here is similar to the standard for a
      directed verdict, in that we must view the facts most favorably
      to the moving party, we must accept as true all the evidence and
      proper inferences in support of the defense raised, and we must
      reject all adverse allegations.

Neducsin, 121 A.3d at 506–507 (internal citations and quotation marks

omitted). Under this rule:

      a court can no longer weigh the evidence in support of the
      defense, but must only determine whether there is sufficient
      evidence to allow the issue to go to a jury. The facts must be
      viewed in the light most favorable to the petitioner, and a court
      must accept as true all evidence and proper inferences therefrom
      supporting the defense and must reject the adverse allegations
      of the plaintiff.

Van Arkel & Moss Properties, Inc. v. Kendor, Ltd., 419 A.2d 593, 596

(Pa. Super. 1980) (internal citations omitted).

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      Here, Walnut filed a complaint in confession of judgment, and

judgment was entered. Pearlstein filed the Petition to Open. At that point,

Pa.R.C.P. 2959(b) instructs the trial court to review the Petition to Open only

and determine if it states prima facie grounds for relief. However, Walnut

filed its Answer before the trial court made a finding. Then, based on the

Petition to Open and the Answer, the trial court refused to open the

judgment.     Technically, therefore, Pearlstein’s procedural challenge has

merit.   See City of Pittsburgh v. ACDI, 488 A.2d 333, 334 (Pa. Super.

1985) (“[The] threshold requirement of subsection (b) must be met before

the   other   procedures   outlined   in   Rule   2959   are   to   take   place.”).

Nevertheless, because we find support in the record for the trial court’s

finding that Pearlstein failed to present prima facie grounds for relief in the

Petition to Open, we conclude that the technical violation of Pa.R.C.P.

2959(b) in this case does not warrant opening the judgment.                   Thus,

Pearlstein’s first issue does not merit relief.

      In his remaining issues, Pearlstein argues the Petition to Open contains

sufficient factual averments to support prima facie grounds for relief based

on four defenses.    In his second question presented, Pearlstein claims the

Petition to Open establishes that the Bank fraudulently induced him to

execute the Amended Loan Agreement based on its misrepresentations

about obtaining the USDA guaranties. Pearlstein’s Brief at 22. According to

Pearlstein, the Bank made a representation to him which was material to the


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transaction; the representation was made falsely, with knowledge of its

falsity or reckless disregard as to its veracity, and with the intent of

misleading    Pearlstein   into   relying   on   it;   Pearlstein   relied   on   the

misrepresentation and was proximately injured as a result.               Id. (citing

Eigen v. Textron Lycoming Reciprocating Engine Div., 874 A.2d 1179,

1187 (Pa. Super. 2005)).

      Also citing Eigen, the trial court disposed of Pearlstein’s fraud-in-the-

inducement defense as follows:

            In this case, Pearlstein has offered no evidence showing
      that the Bank, with an intent to mislead, falsely made a material
      representation upon which Empire relied, and that Empire
      suffered an injury proximately caused by such reliance.
      Pearlstein has offered none of the . . . elements which are
      required for submission to a jury, and for this reason his
      [fraudulent inducement] challenge to the confessed judgment is
      rejected.

Order and Memorandum Opinion, 7/7/16, at 6.                 Moreover, in denying

Pearlstein’s motion for consideration, the trial court observed that:

      various documents executed by Empire and Pearlstein were fully
      integrated contracts. Specifically, the Amended, Restated and
      Consolidating Loan Agreement executed by Pearlstein stated as
      follows:

             Integration.  This Agreement and the other
             Loan Documents constitute the sole agreement
             of the parties with respect to the subject
             matter hereof and thereof and supersede all
             oral negotiations and prior writings with
             respect to the subject matter hereof and
             thereof.28
               28
                  Amended, Restated and Consolidating Loan
               Agreement, Exhibit 1–D of the answer in

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              opposition to the petition to open, § 9.10
              (emphasis supplied). Also, USDA Form 4279–
              14 titled Unconditional Guarantee, states that
              Pearlstein, “Guarantor,” “may not use an oral
              statement to contradict or alter the written
              terms of the Note of this Guarantee….” Exhibit
              1–J to the answer in opposition to the petition
              to open.

           The [c]ourt also notes that under Pennsylvania law—

                 Once a writing is determined to be the parties’
           entire contract, the parole [sic] evidence rule applies
           and evidence of any previous oral or written
           negotiations or agreements involving the same
           subject matter as the contract is … inadmissible to
           explain or vary the terms of the contract.29
              29
                 Youndt v. First Natl. Bank of Port Allegany,
              686 A.2d 539, 546 (Pa. Super. 2005) (citing
              Yocca v. Pittsburgh Steelers Sports, Inc., 854
              A.2d 425, 436 (Pa. 2004)).

           In this case, parol evidence precluded Pearlstein as a
     matter of law from asserting the defense based on fraud-in-the-
     inducement; therefore, the allegations based on this defense did
     not state prima facie grounds for relief… .

Memorandum Opinion, 8/1/16, at 8–9.

     On appeal, Pearlstein claims the Bank represented that it would

“submit complete and accurate information to the USDA in support of its

application” for guarantees. Pearlstein’s Brief at 23. Pearlstein accuses the

Bank of “knowingly and intentionally overstat[ing] the value of the Property

to the USDA” and not correcting “its earlier misrepresentation.”         Id.

Pearlstein also asserts that without the Bank’s “representations and

verifications as to the accuracy of the information provided to the USDA,” he


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“would have never agreed to the Amended Loan Agreement or the

Guaranty” but would have terminated Empire’s relationship with the Bank

and sold the Property, as planned. Id. As for the trial court’s parol evidence

analysis, Pearlstein argues that, because he was not party to the Amended

Loan Agreement, the Personal Guaranty was not fully integrated, and neither

the Amended Loan Agreement nor the Personal Guaranty “‘directly deal’ with

[the Bank’s] obligations with respect to the application process for the USDA

Guaranties, the parol evidence rule would not bar evidence of [the Bank’s]

misrepresentations.” Id. at 26.

      In response, Walnut argues that Pearlstein “failed to allege facts

beyond mere conclusions,” which “do not rise to the level of a prima facie

claim for fraudulent inducement[.]” Walnut’s Brief at 25, 26. Specifically,

Walnut points out Pearlstein’s failure to aver “what the actual statement

attributable to the Bank is, who said it, when it was said or why it was

false.”   Id. at 27.   Similarly, Walnut challenges Pearlstein’s averments

regarding the Bank’s intent to mislead, Pearlstein’s reliance, and Pearlstein’s

injury, as mere conclusions unsupported by the record. Id. at 28–33. With

regard to Pearlstein’s averment of injury, Walnut notes that the Amended

Loan Agreement actually reduced Pearlstein’s overall liability by $12,300,000

and that Empire could have sold the Property at any time.          Id. at 32.

Moreover, Walnut asserts that the parole evidence rule precludes Pearlstein’s




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reliance on the Bank’s purported misrepresentations to support his fraud-in-

the-inducement claim. Walnut’s Brief at 33–39. According to Walnut:

       the integration clause in the Amended Loan Agreement applies
       to the “parties” who are parties to the Loan Documents, rather
       than to parties that are only parties to the Amended Loan
       Agreement. Since the 2011 [Personal] Guaranty is included in
       the definition of “Loan Documents,” and because Pearlstein is a
       party to that agreement, the 2011 [Personal] Guaranty is a fully
       integrated document.

Id. at 35 (footnotes omitted).

       Upon review, we discern no manifest abuse of the trial court’s

discretion in denying the Petition to Open. Century Surety Co., 140 A.3d

at 53.       Pearlstein’s averments of fraudulent inducement are vague,

speculative, and conclusory.         Despite the documentation he supplied in

support of the Petition to Open, Pearlstein does not provide facts regarding

who      made      a    material     misrepresentation,            what    the    material

misrepresentation      was,   how     the     material       misrepresentation     induced

Pearlstein    to    reasonably      rely    upon       it,   and    how    the    material

misrepresentation caused him harm.

       The Bank represented that it would obtain a USDA guaranty, and it

did. The Bank’s alleged failure to comply with certain requirements of the

USDA     guaranty      does   not    support        Pearlstein’s   claim   of    fraudulent

inducement. Moreover, Pearlstein could not have reasonably relied on the

Bank’s alleged misrepresentations for the various reasons discussed by

Walnut: Empire was obligated to obtain the USDA guaranty, not the Bank—


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Amended Loan Agreement, 2/2/11, at ¶¶ 5, 5.16; Pearlstein’s liability under

the Personal Guaranty was not conditioned on the USDA guaranty—Personal

Guaranty, 2/2/11, at ¶ 2; Pearlstein obtained an independent valuation of

the Property before he executed the Personal Guaranty—Petition to Open,

5/16/16, at Exhibit Q; and, as guarantor, Pearlstein waived any “value”

related defenses—USDA Form 4279-14, at ¶ 6. Walnut’s Brief at 29–30.

      Nor does the Petition to Open include facts establishing that the Bank’s

alleged misrepresentations caused him harm. In fact, the Personal Guaranty

merely restated and reaffirmed Pearlstein’s liability dating back to Empire’s

original obligations for loans in 2007, 2009, and 2010. Under the Amended

and Restated Note, Pearlstein’s overall liability was reduced by $12,300,000.

Moreover, although Pearlstein speculates that he would have sold the

Property at a higher price rather than execute the Personal Guaranty in

2011, he did not aver in the Petition to Open that the loss of value in the

Property   was    caused   by    the     Bank’s   alleged   misrepresentations.

Furthermore, nothing of record prevented Empire from selling the Property

rather than continuing its relationship with the Bank.

      Lastly, we find support in the record for the trial court’s findings that

the Personal Guaranty was a fully integrated agreement and that parol

evidence of the Bank’s alleged misrepresentations regarding the USDA

guaranty is barred. The Amended Loan Agreement contains an integration

clause which refers to the Amended Loan Agreement and the other Loan


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Documents.    Amended Loan Agreement at § 9.10.        “Loan Documents” is

defined in the Amended Loan Agreement as follows:

     [The] documents listed in Section 4.1 hereof, including without
     limitation this Agreement, the Note, the Mortgage, the
     Assignment, and all agreements, amendments, certificates,
     financing statements, schedules, reports, notices, and exhibits
     now or hereafter executed or delivered in connection with
     any of the foregoing, as may be in effective from time to time.

Id. at ¶ 1 (emphasis supplied). Because Pearlstein executed the Personal

Guaranty in connection with the Amended Loan Agreement, it falls squarely

within the definition of Loan Documents and, therefore, it also falls within

the scope of the integration clause.    Thus, the parol evidence rule bars

Pearlstein from introducing extrinsic evidence of the Bank’s alleged

misrepresentations.   Furthermore, even if we agree with Pearlstein’s claim

that the USDA application and forms are also Loan Documents, the

integration clause and parol evidence rule preclude extrinsic evidence of the

Bank’s alleged misrepresentations regarding those documents.          In sum,

Pearlstein’s fraudulent inducement defense does not warrant relief.

     In his third issue, Pearlstein argues that a factual dispute exists as to

whether Empire was in default and, therefore, a rule should have been

issued and discovery allowed.      Pearlstein’s Brief at 28.    According to

Pearlstein, the Bank waived any defaults by remaining silent for five years

during the life of the Amended Loan Agreement; therefore, he posits, Walnut

is estopped from confessing judgment against him personally based on

Empire’s defaults. Id. at 29.

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     In its memorandum addressing Pearlstein’s motion for reconsideration,

the trial court relied on a non-waiver provision in the Personal Guaranty to

dispose of Pearlstein’s waiver/estoppel defense:

           In   the  complaint-in-confession-of-judgment,       Walnut
     asserted that Empire had defaulted by breaching three financial
     covenants, and specifically the covenants identified as “Minimum
     Tangible Net Worth,” “Current Ratio,” and “Debt-to-Equity
     Ratio.” In the subsequently-filed [Petition to Open], Pearlstein
     challenged Walnut’s aforementioned averments by advancing
     two defenses: first, Empire had not violated the Current Ratio
     covenant at the time Walnut declared a default; and second,
     Walnut had failed on prior occasions to enforce the other two
     covenants and was therefore estopped from declaring a default
     thereunder.

            The [c]ourt shall address the second argument—namely,
     that Walnut is estopped from declaring a default. To this end,
     the [c]ourt turned to the allegations made by Pearlstein in his
     Petition to [O]pen. In that petition, Pearlstein had stated that
     Walnut was aware of the alleged “violations” of the financial
     covenants, yet—

           despite being given many opportunities to raise any
           issues concerning these covenants, Walnut’s
           predecessor remained silent at the time it ought to
           have spoken . . . and . . . took no action regarding
           these covenants for a period of five years.

                                   * * *

           By remaining silent when they should have spoken,
           Bank and Walnut waived their ability to assert a
           default based on such covenants . . . and Pearlstein
           can prove the meritorious defenses of waiver and
           estopped.

     After examining the afore-quoted allegations in Pearlstein’s
     petition, the [c]ourt also turned to the language of the Personal
     Guaranty which Pearlstein executed on February 2, 2011.33 That
     document stated as follows in pertinent part:


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           [t]he liability of the Guarantor hereunder [Pearlstein]
           is absolute and unconditional, and shall not be
           affected in any way be reason of (a) … the lack of
           prior enforcement of any rights against any person
           or persons … (c) any delay in enforcing or failure to
           enforce any such rights … or (d) any delay in making
           demand on the Guarantor for performance or
           payment of the Guarantor’s obligations hereunder.34
              33
                   “The task of interpreting a contract is
              generally performed bty a court rather than by
              a jury. The goal of that task is … to ascertain
              the intent of the parties as manifested by the
              language     of   the    written  instrument.”
              Humberston v. Chevron USA, Inc., 75 A.3d
              504, 510 (Pa. Super. 2013).
              34
                   GUARANTY AND SURETYSHIP AGREEMENT, Exhibit
              1-E to the answer in opposition to the petition
              to open judgment by confession, § 2.

            This clear and unambiguous language left the [c]ourt with
     no doubt: Pearlstein, as personal guarantor of Empire, had
     agreed that his liability could not be washed away by the Bank’s
     or Walnut’s lack of prior enforcement of any of their rights, or by
     their delay in asserting such rights. Based on the clear language
     of the Personal Guaranty, this [c]ourt found that Walnut or its
     predecessor had not waived their right to hold Pearlstein liable
     as guarantor, and could not be estopped from confessing
     judgment against Pearlstein. Therefore, this [c]ourt found that
     Pearlstein had failed to state prima facie grounds for relief as to
     the Minimum Tangible Net Worth and Debt-to-Equity Ratio
     covenants, and for the reason this [c]ourt rejected Pearlstein’s
     challenges. Since Pearlstein had failed to state prima facie
     grounds for relief under two of the three alleged financial
     defaults, this [c]ourt deemed it unnecessary to address whether
     Empire had breached the Current Ratio covenant at the time of
     default.

Memorandum Opinion, 8/1/16, at 9–10 (three internal footnotes and

emphasis omitted).




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      Pearlstein rebuts the trial court’s reliance on the non-waiver provision

of the Personal Guaranty in one-paragraph:

             Instead of recognizing its error in failing to resolve the
      Petition pursuant to Pa. R.C.P. 2959, in its opinion on
      Pearlstein’s motion for reconsideration, the trial court found that
      Pearlstein’s defense related to waiver of the default provisions
      were precluded by the Guaranty’s “non-waiver” provision. In
      reaching this conclusion, the trial court failed to recognize that,
      under Pennsylvania law, a non-waiver provision may itself be
      waived. See Gough v. Halperin, 159 A. 447, 448 (Pa. 1932);
      McFarland v. Kittanning Ins. Co., 19 A. 796, 796–[7]97 (Pa.
      1890); Imperial Fire Ins. Co. of London v. Dunham, 12 A. 668
      (Pa. 1888).      As [the Bank’s] conduct waived the default
      provisions in the Amended Loan Agreement and the non-waiver
      provision in the [Personal] Guaranty and “the issue of waiver is a
      matter of fact to be shown by the evidence,” it was improper for
      the trial court to deny the Petition before giving Pearlstein the
      opportunity to conduct discovery.

Pearlstein’s Brief at 30 (footnote and some citations omitted).

      Walnut replies that the Personal Guaranty “waiver provision is clear

and unambiguous. Indeed, Pearlstein does not argue otherwise.” Walnut’s

Brief at 42. According to Walnut, Pearlstein’s obligation to repay the loans is

irrespective of:

      “any delay in enforcing or failure to enforce any such
      rights, even if such rights are thereby lost, or … any delay
      in making demand on the Guarantor for performance or
      payment of the Guarantor’s obligations.” The Amended
      Loan Agreement similarly provides that “no failure or delay on
      the part of the Bank in the exercise of any right, power, or
      remedy shall operate as a waiver thereof …”, and that “no
      waiver of any one or more of the provisions hereof shall
      be effective unless set forth in writing and signed by the
      parties hereto.”




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Id. (quoting Personal Guaranty, 2/2/11, at ¶ 2; Amended Loan Agreement,

2/2/11, at ¶¶ 9.1, 9.11) (emphases in original; internal citations omitted)).

Walnut submits that whether the Bank “remained silent as to Empire’s

insolvency or financial requirements is irrelevant to Pearlstein’s obligations

under the [Personal] Guaranty.” Id. at 43. Because Pearlstein waived all

claims, Walnut asserts, “the trial court correctly held that it did not need to

address Pearlstein’s defense that Empire was not in default of one of the

financial covenants – the ‘Current Ratio’ covenant.” Id. at 45.

       Upon review, we discern no manifest abuse of the trial court’s

discretion in rejecting Pearlstein’s third defense. We have explained that:

       [p]arties to a written contract may abandon, modify or change it
       either by words or conduct. While an abandonment or waiver is
       not ordinarily presumed in the absence of an express
       agreement, if the conduct of the opposite party has been such as
       to mislead one, to his prejudice, into an honest belief that such a
       waiver or abandonment was either intended or consented to, it
       will be presumed. Delay in pressing a claim may be evidence
       relevant to the issue of a claim’s abandonment, but such delay
       does not give rise to a conclusive presumption.

Barr v. Deiter, 154 A.2d 290, 293 (Pa. Super. 1959) (internal citations

omitted).

       Here, the plain language of the Personal Guaranty and the Amended

Loan   Agreement     indicate   that   Pearlstein   unconditionally   waived   any

objection to the Bank’s delay in enforcing its rights with regard to Empire’s

default on the financial covenants.       Personal Guaranty, 2/2/11, at ¶ 2;

Amended Loan Agreement, 2/2/11, at ¶¶ 9.1, 9.11. Moreover, the Petition


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to Open contains no averments justifying a conclusion that the Bank acted in

such a way as to waive or abandon the non-waiver provision.       Barr, 154

A.2d at 293. Consequently, we discern no basis on which to disturb the trial

court’s rejection of Pearlstein’s estoppel/waiver defense.

      In his fourth issue, Pearlstein challenges the denial of his final

defense:   The Bank, and Walnut as its successor, breached the USDA

guaranty by misrepresenting the Property’s value and Empire’s financial

weakness to the USDA. Pearlstein’s Brief at 31. According to Pearlstein, he

and Empire were parties to the USDA guaranty because the Bank applied for

them on behalf of Empire and Pearlstein; therefore, the trial court erred in

concluding that Pearlstein could not raise a breach-of-contract defense. Id.

      Walnut responds that Pearlstein lacks standing to assert a claim based

on the USDA guaranty because any cause of action arising out of the USDA

guaranty is between the Bank and the USDA; Pearlstein is not a third-party

beneficiary under the USDA guaranty; the USDA guaranty was additional

collateral for the Bank; Pearlstein was not harmed by any alleged breach of

the USDA guaranty; and Pearlstein was the primary guarantor on the Notes.

Walnut’s Brief at 47–48.

      The trial court’s opinion mirrors Walnut’s reasoning:

            Preliminarily, the [c]ourt notes that—

                  the petitioning party bears the burden of
                  producing      sufficient  evidence    to
                  substantiate its alleged defenses … The
                  defenses raised must be valid ones.11

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J-A06029-17


                    11
                       Haggarty v. Fetner, 481 A.2d
                    641, 644 (Pa. Super. 1984)
                    (emphasis supplied).

     Next, the [c]ourt shall examine the Loan Note Guarantee—a
     document executed by the Bank—whereby the USDA specifically
     guaranteed a portion of the loan made by the Bank to Empire.
     This document states as follows:

           in consideration of the making of the subject loan by
           the above named Lender (the Bank), the United
           States Department of Agriculture (“USDA”), pursuant
           to the Consolidated Farm and Rural Development Act
           … does hereby agree that … it will pay …

                 B. The [Bank] …

                  1. Any loss sustained by such Lender on
                     the guaranteed portion … or

                  2. The guaranteed principal advanced to
                     or assumed by [Empire] under said
                     notes….12
                    12
                         Loan Note Guarantee,     UNITED
                    STATES DEPARTMENT OF AGRICULTURE—
                    RURAL   DEVELOPMENT, Exhibit 7 of
                    plaintiff Walnut’s answer to the
                    petition to open the confessed
                    judgment.

           This clear language leaves no doubt:         the Loan Note
     Guarantee is a contract between USDA as guarantor of the
     loans, and the Bank as lender: nowhere in any of the documents
     related to this transaction could this [c]ourt find that Pearlstein
     was a party to such a contract.          Having established that
     Pearlstein was not a party to the Loan Note Guarantee, this court
     additionally notes that under Pennsylvania law—

                 in a claim for breach of contract, the plaintiff
                 must alleged that there was a contract, the
                 defendant breached it, and plaintiff suffered
                 damages from the breach.13


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J-A06029-17


                      13
                         Discover Bank v. Stucka, 33
                      A.3d 82, 87 (Pa. Super. 2011)
                      [(emphasis original).]

            In this case, Pearlstein may not remotely assert that he
      was a party to the Loan Note Guarantee agreement, let alone
      that he is a plaintiff entitled to assert thereunder a breach-of-
      contract claim. For this reason, it is Pearlstein who has no
      standing to assert that the Loan Note Guarantee was breached
      by the Bank. As a result, Pearlstein may not rely on this
      argument to invalidate the assignment from the Bank to Walnut.
      Pearlstein has failed to bear the burden of producing a sufficient,
      valid defense in . . . [this] challenge to the confessed judgment,
      and for this reason the . . . challenge is rejected.

Memorandum Opinion, 7/7/16, at 4–5 (original brackets and one footnote

omitted).

      Generally, a guarantor does not have standing to sue for breach of the

contract to which he was not a party.        Accord Borough of Berwick v.

Quandel Grp. Inc., 655 A.2d 606, 608 (Pa. Super. 1995) (“[A]lthough the

borough signed the contract between the Authority and Buchart–Horn, it did

so only as a guarantor.     It appeared to us … that the borough was not a

party to the contract.”).    “To be considered a third-party beneficiary in

Pennsylvania it is necessary to show both parties to the contract had an

intent to benefit the third party through the contract and did, in fact,

explicitly indicate this intent in the contract.” Ira G. Steffy & Son, Inc. v.

Citizens Bank of Pennsylvania, 7 A.3d 278, 288 (Pa. Super. 2010).

      In light of the law above, our review of the record supports the trial

court’s findings.   Pearlstein was not a party to the USDA guaranty, nor a

third-party beneficiary of it; he was a guarantor of Empire’s financial

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J-A06029-17


performance under the Amended Loan Agreement. As such, Pearlstein lacks

standing to assert a breach-of-contract claim against the Bank based on the

USDA guaranty.      Consequently, we discern no abuse of the trial court’s

discretion in denying the Petition to Open based on Pearlstein’s meritless

defense.

     Order affirmed.

Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 6/22/2017




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