J-A06039-15


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

ESSA BANK AND TRUST, SUCCESSOR TO               IN THE SUPERIOR COURT OF
FIRST STAR BANK F/K/A/ FIRST STAR                     PENNSYLVANIA
SAVINGS BANK

                          Appellee

                     v.

MICHAEL J. CERAMI AND UNITED
STATES OF AMERICA INTERNAL
REVENUE SERVICE

APPEAL OF: MICHAEL J. CERAMI

                          Appellant                  No. 1632 EDA 2014


               Appeal from the Judgment Entered June 20, 2014
                In the Court of Common Pleas of Lehigh County
                      Civil Division at No(s): 2009-C-5427


BEFORE: PANELLA, J., OTT, J., and JENKINS, J.

MEMORANDUM BY JENKINS, J.:                          FILED MARCH 24, 2015

        Appellant Michael Cerami entered into a commercial loan with First

Star Bank which was secured with a mortgage on Cerami’s residential

property. When Cerami defaulted on the loan, ESSA Bank, the successor to

First Star Bank, filed this mortgage foreclosure action. Cerami asserted in

his defense that First Star Bank fraudulently induced him to enter into the

loan.

        Following a bench trial, the trial court entered a verdict in favor of

ESSA Bank in the amount of $833,855.17 for foreclosure and sale of the

mortgaged premises.       Cerami filed post-verdict motions seeking judgment

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n.o.v. on the ground that the evidence demonstrated First Star Bank’s fraud

as a matter of law.       The trial court denied Cerami’s post-verdict motions,
                              1,2
and this appeal followed.

       We conclude that Cerami waived his right to seek judgment n.o.v. by

failing to move for a compulsory nonsuit or directed verdict during trial.

Even if Cerami preserved this issue for appeal, the evidence, construed in

the light most favorable to ESSA Bank, fails to establish Cerami’s affirmative

defense of fraud. Finally, the trial court properly excluded evidence relating

to a separate loan that Cerami obtained from First Star Bank. Accordingly,

we affirm.

       Cerami raises two arguments in this appeal:

              1. Where the trial court's findings that appellee's
                 false representations were not material to the
                 taking of the loan or the proximate cause of the
                 default are not supported by the record, but
                 refuted, and, are based upon mere speculation
                 and conjecture, judgment should be entered in
                 favor of appellant.

              2. The trial court erred in excluding relevant
                 evidence pertaining to the materiality of
____________________________________________


1
  Following Cerami’s appeal, Essa Bank filed a praecipe reducing the verdict
to judgment, thus perfecting this appeal in accordance with Pa.R.A.P.
905(a)(5).
2
  The trial court did not request a Pa.R.A.P. 1925(b) statement from Cerami
and did not issue a Pa.R.A.P. 1925(a) opinion. The trial court did, however,
issue a detailed memorandum at the time of the verdict which included
extensive findings of fact and conclusions of law. This memorandum more
than adequately facilitates our review of this appeal.



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                 appellee's false representations and the proximate
                 cause of appellant's default.

     In his first argument, Cerami claims that the trial court erred in

denying him judgment n.o.v. There are two bases on which the court can

grant judgment n.o.v.:

              [O]ne, the movant is entitled to judgment as a
              matter of law and/or two, the evidence is such that
              no two reasonable minds could disagree that the
              outcome should have been rendered in favor of the
              movant. With the first, the court reviews the record
              and concludes that even with all factual inferences
              decided adverse to the movant the law nonetheless
              requires a verdict in his favor, whereas with the
              second, the court reviews the evidentiary record and
              concludes that the evidence was such that a verdict
              for the movant was beyond peradventure.


Polett   v.     Public   Communications,        Inc.,   83   A.3d      205,   212

(Pa.Super.2013). In an appeal from the trial court's decision to deny

judgment n.o.v.,


              we must consider the evidence, together with all
              favorable inferences drawn therefrom, in a light most
              favorable to the verdict winner. Our standard of
              review when considering motions for a directed
              verdict and judgment notwithstanding the verdict are
              identical. We will reverse a trial court's grant or
              denial of a judgment notwithstanding the verdict
              only when we find an abuse of discretion or an error
              of law that controlled the outcome of the case.
              Further, the standard of review for an appellate court
              is the same as that for a trial court.

Id. at 211. To preserve the right to request judgment n.o.v. subsequent to

the verdict, the appellant must either (1) move orally for a compulsory


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nonsuit at the close of the plaintiff’s case or (2) move orally or in writing for

a directed verdict at the close of evidence.           Pa.R.Civ.P. 230.1(a)(1)

(compulsory nonsuit); Pa.R.Civ.P. 226(b) (directed verdict). This procedure

applies to bench trials. Drake Manufacturing Co., Inc. v. Polyflow, Inc.,

--- A.3d ----, 2015 WL 302266, *4 (Pa.Super., January 23, 2015).

       Here, Cerami failed to move orally for a compulsory nonsuit or directed

verdict.   Nor did he move for a directed verdict in writing.     Thus, Cerami

waived his right to seek judgment n.o.v. in this appeal. 3,4              Drake

Manufacturing Co., supra, 2015 WL 302266, at *4.

       Even if Cerami preserved his right to seek judgment n.o.v., the

evidence does not establish his defense of fraud.       Construed in the light

most favorable to Essa Bank, the evidence is as follows: Cerami initially

obtained a construction loan from First Star in the amount of $1,000,000

____________________________________________


3
  Prior to the verdict, Cerami filed a “post-trial brief” in which he presented
his defense of fraud with citations to the trial transcript. The law is unclear
whether a “post-trial brief” can ever serve as a substitute for a motion for
directed verdict. It is clear in this case, however, that Cerami’s post-trial
brief was not the equivalent of a motion for directed verdict. Cerami’s brief
construed the evidence in the light most favorable to himself instead of in
the light most favorable to Essa Bank, the requisite standard for motions for
directed verdict. Polett, supra, 83 A.3d at 212.
4
  Although ESSA Bank does not argue that Cerami waived this issue, we
have the authority to declare waiver sua sponte. Majorsky v. Douglas, 58
A.3d 1250, 1266 (Pa.Super.2012) (citing, inter alia, Tarter v. Linn, 578
A.2d 453 (Pa.Super.1990)) (“the appellate court may sua sponte refuse to
address an issue raised on appeal that was not raised and preserved
below....”).



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pursuant to an agreement dated March 18, 2003.          Exhibit D-15.   Cerami

used the proceeds of this loan to acquire properties known as 523-535

Second Avenue and 526 Third Avenue in Bethlehem, Pennsylvania (“the

Properties”) with the intention of converting them into an 18-unit apartment

building and adjoining parking spaces.           Id. Cerami was the general

contractor for the project. Id. Subcontractors who performed work on the

project sent their bills to Cerami’s post office box in Zionsville, Pennsylvania

or the construction project site. N.T., Vol. I, pp. 31-32; exhibits P-10, P-11.

      By August 2004, First Star Bank had advanced the entire proceeds of

the initial loan to Cerami, but the project was not complete. Exhibit D-15.

Cerami requested that First Star Bank loan him an additional $815,000,

raising the principal amount of the loan to $1,815,000 (“First Amended

Construction Loan").    Id. Cerami, in his capacity as general contractor,

agreed to complete the improvements in accordance with the plans and

specifications and the revised budget.     Id.    On August 18, 2004, Cerami

entered into an Amended and Restated Promissory Note in the amount of

$1,815,000, and pledged as collateral first lien mortgages to First Star on

the Properties and on other properties that he owned. Id.

      In July 2005, the project was still not complete, even though First Star

had advanced the entire proceeds of the First Amended Construction Loan.

Exhibit D-6.   Cerami again informed First Star that the project required

additional funding. Although Cerami was several months in arrears on the


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J-A06039-15


First Amended Construction Loan, First Star Bank believed that Cerami could

complete the Project if it loaned him additional money because the Property

would provide a cash flow that would enable him to pay the debt. N.T. Vol.

I, p. 25. Thus, on July 6, 2005, First Star Bank sent Cerami a commitment

letter to lend an additional $430,000 (“Second Construction Loan”) subject

to specific terms set forth in the document. N.T. Vol. II, p. 30; Exhibit D-3.

The commitment letter stated that $75,000 would be disbursed to provide

interest reserves in the amount of $40,000 for the $1,815,000 First

Amended Construction Loan and $35,000             for   the   $430,000   Second

Construction Loan. Exhibit D-3.

      On July 18, 2005, Cerami entered into a Second Amended and

Restated Construction Loan Agreement with First Star Bank for the $430,000

Second Construction Loan. Exhibit D-12. He also executed a Second Loan

Modification and Release Agreement, Mortgage, Assignment of Leases and

Security Agreement to the Properties. Id. These documents affirmed that

there were no claims, set-offs, defenses, or challenges whatsoever to the

prior indebtedness, and that First Star had the right to enforce all of its legal

rights to collect money rightfully due and owing to it. Id. Pursuant to the

loan documents, if the First Amended Construction Loan defaulted, the

Second Construction Loan would also be defaulted.         N.T. Vol. III, p. 147.

Moreover, as a “material inducement” for First Star Bank to provide the




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J-A06039-15


additional funding, Cerami released any and all claims he had against First

Star relating to the loans it previously had made to him. Exhibit D-12.

     Also on July 18, 2005, Cerami signed a Second Promissory Note in the

amount of $430,000 secured by a second lien mortgage on the Properties,

as well as other properties in Lehigh and Northampton Counties, including

the residential property at 6301 Vera Cruz Road, Zionsville, Pennsylvania

18092, which is the subject of this foreclosure action. Exhibit P-1. Under

these new loan documents, Cerami agreed to make accrued interest

payments on the obligation beginning one month from July 18, 2005, with

one final payment due and payable on July 18, 2006. Id.

     The HUD Settlement Sheet related to the Second Construction Loan

includes as a “Disbursement to Others” an interest reserve held by First Star

Bank in the amount of $75,000. Exhibit D-1. A $35,000 interest reserve

would have been sufficient to pay the monthly payments on the $430,000

loan through November 2005. N.T. Vol. I, pp. 64, 85, 108.

     However, instead of allocating $35,000 from the interest reserve to

pay interest on the $430,000 Second Construction Loan, as it had promised

to do in its commitment letter, First State Bank used the entire $75,000 in

the interest reserve to pay the $1,815,000 First Amended Construction Loan.

N.T. Vol. I, p. 66. The bank took this step to keep Cerami out of default on

this loan so that he could continue construction and begin getting rental

income from the property in order to pay the interest on the smaller Second


                                    -7-
J-A06039-15


Construction Loan. N.T. Vol. I, pp. 163-164.    Because the entire $75,000

interest reserve was allocated to the First Amended Construction Loan, there

was no interest reserve available for monthly interest payments on the

Second Construction Loan. N.T. Vol. I, pp. 66-70.

        Immediately after First State Bank funded the Second Construction

Loan, Cerami defaulted on this loan, which also constituted a default on the

First Amended Construction Loan.     N.T., Vol. III, p. 147.   On January 9,

2006, First Star Bank confessed judgment on the $430,000 Second

Promissory Note. Exhibit D-27. In addition, on January 12, 2006, First Star

Bank confessed judgment upon the $1,815,000 First Amended Promissory

Note.    Exhibit D-17.   On October 16, 2009, First Star Bank initiated the

instant mortgage foreclosure action against Cerami arising from his default

on the Second Promissory Note.

        Cerami defended against the foreclosure action on the ground that

First Star Bank defrauded him by misrepresenting that it would set $35,000

aside in an interest reserve to pay monthly interest-only payments on the

Second Construction Loan. Cerami testified that he would not have entered

into the Second Construction Loan had he known that First Star Bank would

allocate the entire interest reserve to the First Amended Construction Loan.

N.T., Vol. II, pp. 99-100; N.T., Vol. III, pp. 39-43. Cerami also argued that

First Star Bank defrauded him by failing to inform him that there were

outstanding construction invoices at the time of closing on the Second


                                    -8-
J-A06039-15


Construction Loan.     Based on the foregoing evidence, the trial court held

that Cerami satisfied only four of the six elements of fraud and therefore

could not prevail on this defense. The court determined that First Star Bank

(1)   devoted   the   entire   interest   reserve   toward      the    First    Amended

Construction Loan but misrepresented to Cerami that it would devote

$35,000 in the interest reserve towards the Second Construction Loan; (2)

made this misrepresentation falsely or with recklessness as to whether it

was true or false; and (3) made this misrepresentation with the intent of

misleading Cerami into agreeing to the Second Construction Loan. Fourth,

the    court    determined     that   Cerami      justifiably    relied        upon     the

misrepresentation.    The court found, however, that this misrepresentation

was immaterial, and that Cerami did not suffer injury as a result of relying

on this misrepresentation. Consequently, the trial court entered a verdict in

favor of Essa Bank and against Cerami.

       A defendant in a mortgage foreclosure action may assert the

affirmative defense of fraud in the inducement. First Federal Savings &

Loan    Association      of    Pittston     v.   Reggie,        546    A.2d      62,    66

(Pa.Super.1988).       The     elements     of   this   defense       include:    (1)    a

representation; (2) which is material to the transaction at hand; (3) made

falsely, with knowledge of its falsity or recklessness as to whether it is true

or false; (4) with the intent of misleading another into relying on it; (5)

justifiable reliance on the misrepresentation; and (6) injury proximately


                                          -9-
J-A06039-15


caused by the reliance. Eigen v. Textron Lycoming Reciprocating

Engine Division, 874 A.2d 1179, 1185 (Pa.Super.2005).           Each element

must be proven by clear and convincing evidence. Yoo Hoo Bottling Co. of

Pennsylvania, Inc. v. Leibowitz, 247 A.2d 469, 470 (Pa. 1968).

      We agree with the trial court that Cerami failed to prove the element

of materiality. A misrepresentation is material if the party would not have

entered into the agreement but for the misrepresentation. Eigen, 874 A.2d

at 1186. Thus, Cerami had to prove that he would not have entered into the

Second Construction Loan but for First Star Bank’s representation that it

would use $35,000 of the interest reserve for monthly interest payments

due on this loan. Construed in the light most favorable to Essa Bank, the

evidence does not establish that First Star Bank’s misrepresentation as to

how it would use the interest reserve was material to Cerami’s decision to

enter into the Second Loan Agreement. Cerami would have entered into the

agreement with or without the First Star Bank’s misrepresentation, because

the First Amended Construction Loan was already in arrears, and Cerami

needed the Second Construction Loan to pay his contractors and finish the

construction project without further delay. N.T. Vol. I, pp. 25, 154-155; Vol.

III, pp. 96-104; Exhibits P-10; P-11. As the trial court aptly observed:

            Cerami testified that he had enough monthly income
            from his rental properties, including the newly-
            rented apartments from this Project, to pay the
            monthly principal and interest payments on the
            $1,815,000 loan. He did not, however, have the
            wherewithal to pay the monthly debt and continue

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J-A06039-15


           construction and would have had to delay the
           completion of the Project until revenue was
           generated to continue with the construction. With
           the $430,000 loan offer, the Bank agreed to reduce
           the monthly payments on the $1,815,000 loan from
           principal and interest to interest only. With such
           reduction in the monthly payments due on the
           $1,815,000 loan, Cerami would have had sufficient
           funds from his rental properties to continue to pay
           the monthly amounts due on the $1,815,000 loan
           and the additional monthly interest-only payments
           on the $430,000, while being afforded the
           opportunity to continue construction on the Project
           without delay. Therefore, we find it reasonable that
           Cerami would have been enticed to enter the
           agreement regardless of the $35,000 interest
           reserve in order to have the financial ability to
           complete the construction.

Trial Court Findings of Fact and Conclusions of Law, p. 15.       We further

observe that Cerami is not entitled to judgment n.o.v. on the basis of his

testimony that he never would have entered into the Second Construction

Loan had he known of First Star Bank’s true intentions concerning the

interest reserve.    This evidence does not fit within the judgment n.o.v.

calculus, which requires us to construe the evidence in the light most

favorable to Essa Bank without crediting Cerami’s self-serving testimony.

     Nor does the evidence support Cerami’s accusation that First Star

Bank made a material misrepresentation by failing to inform him that there

were outstanding construction invoices at the time of closing on the Second

Construction Loan.     The evidence shows that Cerami knew there were

outstanding construction invoices, because at the time of closing on the

Second Construction Loan, he asked First Star Bank to pay past due bills to

                                   - 11 -
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his contractors in the amount of approximately $152,000. N.T. Vol. I, pp.

154-155; Vol, III, pp. 96-104; Exhibits P-10; P-11.        Even if he did not

actually know about all outstanding invoices, he still should have known

about them, given (1) his position as general contractor on the construction

project, and (2) the fact that subcontractors sent their bills to Cerami’s

mailing addresses in Zionsville, Pennsylvania or the construction project site.

      We also agree with the trial court that although First Star Bank acted

unethically with regard to the interest reserve, Cerami failed to prove that

he suffered injury as a result of First Star Bank’s misconduct. The trial court

correctly reasoned as follows:

            The injury at issue is the November 2005 default on
            the $430,000 loan which the bank is attempting to
            satisfy by foreclosing on Cerami's property.

            The default was a result of missed payments on the
            $430,000 loan in August, September and October of
            2005. Cerami relied on the representation of the
            Bank that an interest reserve in the amount of
            $35,000 would be set aside for the $430,000 loan.
            Cerami contends that such an interest reserve would
            have prevented the default and the injury before us
            by providing for the monthly payments due on the
            $430,000 loan for the months of August, September
            and October of 2005. But such argument is flawed.

            The interest reserve was used to make past and
            future payments on the $1,815,000 loan. At the time
            the $430,000 loan was entered, the $1,815,000 loan
            was past due by three months. The interest reserve
            was used to bring the $1,815,000 loan current and
            to maintain monthly payments. If the $35,000
            interest reserve was used as represented by the
            bank to pay the monthly payments on the $430,000
            loan, there would have been insufficient funds in the

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            interest reserve to bring the $1,815,000 loan current
            and maintain such status. In such a situation, the
            $1,815,000 loan would have been in delinquent
            status when the $430,000 loan was entered and the
            Bank would have defaulted Cerami on the larger
            loan. Such default on the $1,815,000 loan would
            have resulted in a default on the $430,000 loan, as
            the loan documents provided for that outcome.

            Accordingly, the resulting injury was not proximately
            caused by the reliance on the misrepresentation; the
            same injury was going to befall Cerami regardless of
            where the interest reserve was paid, just perhaps at
            an earlier time.

Trial Court Findings of Fact and Conclusions of Law, p. 21.

      For these reasons, even if Cerami preserved his first argument for

appeal, it is devoid of merit.

      In his second argument on appeal, Cerami requests a new trial on the

ground that the trial court excluded evidence of the two elements that the

trial court said he failed to prove: the materiality of First Star Bank’s

misrepresentation and injury caused by this misrepresentation. We conclude

that exclusion of this evidence does not warrant a new trial, because the

evidence only supports one of the elements (injury) but not the other

(materiality).

      Specifically, Cerami argues that the trial court improperly excluded

evidence that he would have been able to pay the First Amended

Construction Loan had First Star Bank not defrauded him into entering the

Second Construction Loan:




                                    - 13 -
J-A06039-15


            [Cerami] stated at trial that he would not have
            entered the $430,000 loan had he known that it was
            underfunded and would not successfully complete
            the Project. Cerami further testified that he did not
            need this loan to successfully operate and eventually
            complete the Project and that he had sufficient funds
            to carry on without the bank's third loan. The trial
            court considered Cerami's testimony concerning the
            $1.8 million loan and his ability to continue to be
            irrelevant at trial. When Cerami attempted to
            introduce evidence concerning the $1.8 million loan,
            the trial court ruled that it was not relevant that
            Cerami could have paid off the $1.8 million loan.
            The trial court made the following statements, ‘so
            the fact that he could have ... paid it off, I don't
            think it's relevant...’ The trial court further stated,
            ‘and then we'll need four or five more days of
            hearing on it as to whether or not he could have paid
            it off which is totally irrelevant. It’s totally irrelevant.’
            However, said evidence is relevant and admissible
            and would have established the requite elements of
            the materiality of the misrepresentations later
            deemed by the trial court to have not been
            established at trial. The evidence [Cerami] sought to
            introduce would have established that Cerami would
            not have defaulted on the $1.8 million loan unless he
            was fraudulently induced into taking on an
            underfunded $430,000 loan known only to the Bank.
            This evidence directly refutes the trial court's finding
            that Cerami would have defaulted anyway even had
            the Bank paid itself the interest reserves on the
            $430,000 loan that it had contracted itself to do.

Brief for Appellant, pp. 37-38.

      Questions concerning the admissibility of evidence lie within the sound

discretion of the trial court, and we will not reverse the court's decision

absent a clear abuse of discretion.       Parr v. Ford Motor Co., -- A.3d --,

2014 WL 7243152, *5 (Pa.Super., Dec. 22, 2014) (en banc). An abuse of

discretion may not be found merely because an appellate court might have

                                       - 14 -
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reached a different conclusion, but requires a manifest unreasonableness, or

partiality, prejudice, bias, or ill-will, or such lack of support so as to be

clearly erroneous.       Id.    In addition, “to constitute reversible error, an

evidentiary ruling must not only be erroneous, but also harmful or prejudicial

to the complaining party.” Id.

        We need not decide whether the trial court abused its discretion,

because it is clear that Cerami did not suffer prejudice from the exclusion of

this evidence.    Cerami failed to establish two elements of fraud at trial:

materiality and injury. The excluded evidence supports the injury element

by showing that Cerami would have paid off the First Amended Construction

Loan had he not entered the Second Construction Loan. Nevertheless, this

evidence does not establish materiality: the fact that Cerami would have

paid off the First Amended Construction Loan does not show that the bank

lured    Cerami   into    the   Second    Construction   Loan   with   a   material

misrepresentation.       Indeed, as the trial court perceptively recognized, the

bank’s alleged misrepresentation about the allocation of the interest reserve

was not material to Cerami’s decision to enter into the Second Construction

Loan.

        Because the excluded evidence only pertains to one of the two

elements that Cerami failed to prove at trial, it would not have perfected

Cerami’s defense of fraud and would not have changed the outcome of trial.

Therefore, Cerami is not entitled to a new trial.


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J-A06039-15


     Judgment affirmed.

Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 3/24/2015




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