Opinion
1108 EDA 2021 J-A03035-22
04-11-2022
FIRSTRUST BANK v. WILKINSON ROOFING AND SIDING, INC., EQUITABLE PROPERTY INVESTMENTS, I, LLC 20 WEST PARK, LLC, KENNETH S. BALAGUR, KIMBERLY A. REITZ RICHARD BALAGUR APPEAL OF: 20 WEST PARK, LLC AND RICHARD BALAGUR
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
Appeal from the Order Entered May 6, 2021 In the Court of Common Pleas of Chester County Civil Division at No(s): 2019-02916-MJ
BEFORE: STABILE, J., DUBOW, J., and McCAFFERY, J.
MEMORANDUM
McCAFFERY, J.
20 West Park, LLC (20 West Park), and Richard Balagur (collectively Appellants) appeal from the order entered in the Chester County Court of Common Pleas, granting summary judgment to Firstrust Bank (Firstrust) against Wilkinson, EPI, 20 West Park, Reitz, Kenneth S. Balagur, and Richard Balagur. The order also denied Appellants' cross-motion for summary judgment. The central issue on appeal concerns a question of contract interpretation in a mortgage agreement. After careful review of the contract and the relevant law, we affirm.
As will be discussed below, Wilkinson Roofing and Siding, Inc. (Wilkinson), Equitable Property Investments, I, LLC (EPI), Kenneth S. Balagur, and Kimberly A. Reitz were named defendants in the underlying action. However, they were not listed on the notice of appeal or in the appellant's brief. Additionally, neither the corporations nor the individuals filed a notice with this Court pursuant to Pa.R.A.P. 908, indicating they had no interest in the outcome of the appeal. Therefore, pursuant to Rule 908, Wilkinson, EPI, Kenneth S. Balagur, and Reitz shall be deemed appellees. Moreover, 20 West Park and Richard Balagur are the only proper appellants.
For sake of consistency, references herein to the "New Hampshire Property", "Appellants", "Appellee", "20 West Park", "Note", "Guarantee", "Mortgage", and "Loan Agreement" shall be as defined in the Majority's memorandum.
This case arises from a dispute regarding the extent of Firstrust's mortgage lien on a commercial property located at 20 West Park Street, Lebanon, New Hampshire (the New Hampshire Property). See Order and Memorandum, 5/6/21, at 2. 20 West Park is the owner of the Property. See id. It is a limited liability company with Richard Balagur as the managing member. See Appellants' Motion for Summary Judgment Against Firstrust Bank Pursuant to Pa.R.C.P. 1035, 2/1/21, at ¶¶ 6, 8. The sole asset of the company is the New Hampshire Property. See id. at ¶ 7. Additionally, the company's membership interests at the time were as follows: (1) 45% by Richard Balagur; (2) 45% by Kenneth Balagur; and (3) 10% by a third party. See Firstrust's Motion for Summary Judgment, 1/28/21, at ¶ 7; see also Appellants' Answer to Firstrust's Motion for Summary Judgment, 2/26/2021, at ¶ 7.
As indicated in the Appellants' brief, Richard and Kenneth Balagur are brothers. See Appellants' Brief at 26.
Limited liability companies are governed in Pennsylvania under the Pennsylvania Uniform Limited Liability Company Act of 2016 (the "LLC Act"). 15 Pa.C.S.A. §§ 8811 - 8898. 20 West Park, LLC, is a New Hampshire limited liability company. The New Hampshire Revised Limited Liability Company Act, §§ 304-C:1 et. seq, is substantially similar to Pennsylvania with regard to the formation and the treatment of member interests. I recognize that this litigation began in New Hampshire and that the Superior Court of New Hampshire determined that this matter had to be litigated in Pennsylvania based upon the forum selection clause in the Loan and Security Agreement that provides that all disputes arising out of or under the loan documents shall be litigated in Pennsylvania. The New Hampshire Court, however, only determined the forum in which the parties had to litigate. The court did not resolve any choice of law issues relating to interpretation of the loan agreements. See New Hampshire Superior Court order, 2/27/19, at 3, 6. I likewise do not attempt to resolve any such conflict of law issues, but merely use Pennsylvania's statute to illustrate the nature of a LLC member interest which I believe for present purposes is sufficiently aligned with New Hampshire's law to demonstrate the point. In passing, I also note that the Loan and Security Agreement provides that the agreement and all other loan documents are to be governed by and construed in accordance with Pennsylvania law. Loan Documents are defined to include all other documents, certificates and instruments executed and delivered by the obligors in connection with, or for the benefit of, Firstrust. In contrast, the Mortgage provides it shall be governed by the laws of the state of New Hampshire. In addition to any potential conflict of law issues, it is possible that conflicts between the applicable law provisions contained within these documents also may have to be reconciled.
On February 19, 2015, Firstrust made a small business administration loan to Wilkinson in the principal amount of $1,300,000.00, which was evidenced by a note (Note), dated the same day. See Order and Memorandum at 2. Kenneth Balagur executed the Note as president of Wilkinson. See Appellants' Motion for Summary Judgment Against Firstrust Bank Pursuant to Pa.R.C.P. 1035 at ¶ 5.
Wilkinson primarily performed commercial roofing and siding projects, and was owned and operated by Kenneth Balagur. See Firstrust's Motion for Summary Judgment at ¶ 5; see also Appellants' Answer to Firstrust's Motion for Summary Judgment at ¶ 5. According to the complaint, Wilkinson, EPI, Kenneth Balagur, and Reitz all shared the last known address of 731 Pheasant Run, West Chester, Pennsylvania. See Complaint at ¶¶ 2-3, 5-6.
I offer no opinion as to the correctness of this illustration in valuing Ken Balagur's membership interest. The exhibit merely demonstrates, as Firstrust concedes, that the value of a mortgage lien and the value of a membership interest are two different things. It does appear that the illustration is based upon a liquidation value, as the record reflects that the New Hampshire Property is the sole principal asset of the company.
Wilkinson's indebtedness under the Note was guaranteed by 20 West Park pursuant to an Unconditional Limited Guarantee (Guarantee), as executed by 20 West Park. See Firstrust's Complaint, 3/19/19, at ¶¶ 12-13. The Guarantee contained a collateral provision pertaining to the New Hampshire Property, which provided, in relevant part:
COLLATERAL/RECOURSE: The guarantee is limited to the amount Lender obtains from the following Collateral pledged by Guarantor:
20 West Park Street, City of Lebanon, County of Grafton, State of New Hampshire a/k/a/ Tax Map#: 91-232.Firstrust's Motion for Summary Judgment, Exhibit C, Unconditional Limited Guarantee, 2/19/15, at 2. The lender is identified as Firstrust and the guarantor is 20 West Park. See id. at 1.
To secure the Note and 20 West Park's Guarantee, 20 West Park executed and delivered to Firstrust a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Mortgage), which granted Firstrust a mortgage lien in and upon the New Hampshire Property. See Firstrust's Complaint at ¶ 15. Pertinent to this appeal, the Mortgage set forth a secured obligations provision and Paragraph 2.1(e) provided, in relevant part:
The amount of this mortgage is $1,300,000.00. Notwithstanding that, upon the sale of the Property the Mortgagee agrees to release its lien and to limit its interest in the Property to 45% of the proceeds received from the sale of the Property after the first lien to Mascoma Savings Bank in the original amount of $1,045,000.00 and second lien to Mascoma Savings Bank in the original amount of $300,000.00 (and a maximum amount of $450,000.00) are satisfied. The 45% represents Kenneth S. Balagur's membership interest in [20 West Park], which is the owner of the [New Hampshire] Property.Firstrust's Motion for Summary Judgment, Exhibit D, Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, 2/19/15, at 3 (emphasis added). As mentioned, the New Hampshire Property "was encumbered by two mortgages held by Mascoma Savings Bank (MS Bank). Those mortgages were in the amounts of" $1,045,000 and $300,000. See Order and Memorandum at 2. Notably, the lien held by Firstrust "pursuant to the Mortgage sat in third position." Id.
The Assignment of Rents provided, in relevant part:
1. Until payment in full of all Obligations is made, the Assignee is authorized to either in its own name or in the name of the Assignors to do any and all things with reference to the Collateral that the Assignors might or could have done but for this Assignment including the rights:
1.1 To receive, collect and receipt for any and all rents or other payments due under the Collateral; the receipt of the Assignee for such payments to be a full discharge therefore[.]
4. The Assignors hereby authorize the Assignee to give notice in writing of this Assignment at any time to any tenant or other person having an interest in the Collateral.Firstrust's Motion for Summary Judgment, Exhibit E, Assignment of Leases, Rents and Other Agreements, 2/19/15, at 2-3. In other words, Firstrust could give notice to the tenants of the New Hampshire Property that it was authorized to collect rents.
Firstrust expresses concern in its brief that accepting Appellants' interpretation would mean that the bank could take collateral subject to dilution, i.e., 11%, since as the trial court noted, there is nothing in the loan documents that restricts or comments on the ability of Ken Balagur to transfer or encumber his membership interest. Firstrust's Brief at 20; Trial Court Opinion n.3. I would not construe Section 2.1(e) to permit such a result, since the unambiguous language grants a 45% interest. The percentage was fixed as of the time the loan documents were executed-not as of the time of any potential foreclosure. The question remains whether that percentage pertains to the priority of a mortgage lien or to Ken Balagur's 45% member interest in the remaining proceeds after all other required adjustments and distributions are made first.
Firstrust, Wilkinson, EPI, 20 West Park, Kenneth Balagur and Reitz also executed a Loan and Security Agreement (Loan Agreement). See Appellants' Memorandum in Support of Motion for Summary Judgment Against Firstrust Bank Pursuant to Pa.R.C.P. 1035, 2/1/2021, at 5. The Loan Agreement provided, in relevant part, similar language as set forth in the Mortgage:
2.2 Security. As security for the due and punctual payment of the Note, performance under the Loan Documents, and to secure any and all other loans and credit accommodations made by the Lender to the Obligors (hereinafter the "Obligations"):
2.1.1. One or more Obligors, by executing and delivering the Mortgage and Security Agreement to the Lender simultaneously herewith, has granted to the Lender a first mortgage lien in the amount of the Loan on the property known as 1218 Caln Meetinghouse Road, Township of Caln, County of Chester, Commonwealth of Pennsylvania a/k/a
Parcel Number 39-4-167 on the Tax Map (the "Caln Property"), a second mortgage lien in the amount of the Loan on the property known as 731 Pheasant Run, Township of Birmingham, County of Chester, Commonwealth of Pennsylvania a/k/a Parcel Number 65-4-40.37 on the Tax Map (the "Pheasant Run Property") and a third mortgage lien in the amount of the Loan on the property known as 20 West Park Street, City of Lebanon, County of Grafton, State of New Hampshire a/k/a Tax Map #:91-232 (the "New Hampshire Property")*, as more particularly described in the Mortgage and Security Agreement (collectively the "Premises");
* The amount of the Lender's mortgage on the New Hampshire Property is $1,300,000.00. Notwithstanding that, upon the sale of the New Hampshire Property the Lender agrees to release its lien and to limit its interest in the New Hampshire Property to 45% of the proceeds received from the sale of the New Hampshire Property after the first lien to Mascoma Savings Bank in the original amount of $1,045,000.00 and second lien to Mascoma Savings Bank in the original amount of $300,000.00 (and a maximum amount of $450,000.00) are satisfied. The 45% represents Kenneth S. Balagur's member interest in 20 West Park, LLC, which is the owner of the New Hampshire Property.Firstrust's Motion for Summary Judgment, Exhibit F, Loan and Security Agreement, 2/19/15, at 3 (emphasis added).
Wilkinson defaulted on the Note, and consequently, Firstrust commenced non-judicial foreclosure proceedings against the New Hampshire Property pursuant to the terms of the Mortgage. See Firstrust's Motion for Summary Judgment, Exhibit G, Complaint with Petition for Declaratory Relief, 8/2/18, at ¶ 13.
Appellants originally filed a declaratory judgment action in New Hampshire, seeking a declaration that Firstrust's interest in the Property was limited to the value of Kenneth Balagur's membership interest in 20 West Park. See Firstrust's Motion for Summary Judgment, Exhibit G, Complaint with Petition for Declaratory Relief, 8/2/18, at ¶ 34. The Superior Court of New Hampshire dismissed the action due to the forum selection clause in the Loan Documents, "which provided that Pennsylvania has exclusive jurisdiction to decide disputes regarding the Loan Documents." Trial Ct. Op., 7/23/21, at 1. The court also stayed Firstrust's "real estate foreclosure action on the New Hampshire Property in anticipation of th[e Pennsylvania] court's interpretation of the Loan Documents at issue and [its] declaration of the scope of [Firstrust]'s mortgage lien." Id.
The Loan Agreement provided the following: "Any and all disputes arising out of or under the loan documents shall be litigated in the Commonwealth of Pennsylvania and decided by a judge, sitting without a jury[.]" Firstrust's Motion for Summary Judgment, Exhibit F, Loan and Security Agreement at 11 (most capitalization removed). Whereas the Mortgage contained language that it "shall be governed by the laws of the State of New Hampshire." Firstrust's Motion for Summary Judgment, Exhibit D, Mortgage, Assignment of Rents, Security Agreement and Fixture Filing at 15. The New Hampshire court found that the latter provision articulated notice requirements that the mortgagee must follow to conduct a lawful non-judicial foreclosure and in Appellant's complaint, they did not allege improper foreclosure or a dispute regarding the terms and conditions of the mortgage. See Firstrust's Motion for Summary Judgment, Exhibit H, New Hampshire Ct. Order, 2/26/19, at 8. As the court pointed out, the Appellants sought a judicial determination as to the actual sum of money that 20 West Park owed as the guarantor of the loan at issue. Id. Moreover, the court stated that if Appellants had alleged the foreclosure was improper, the statutorily mandated notice requirements would apply but the forum selection clause would not because the claims would relate only to the foreclosure proceedings and not the loan agreement. Id.
The Majority must assume that in drafting this provision that Ken Balagur was acting on behalf of 20 West Park.
Firstrust subsequently instituted this lawsuit in March 2019, by filing a complaint for declaratory judgment against Appellants. In the complaint, the bank alleged it was entitled to 45% of the proceeds of the sale of the Property following payment of the two senior MS Bank mortgages.
See 42 Pa.C.S. §§ 7531 and 7541.
Appellants filed an answer and new matter, asserting, inter alia, that Firstrust's mortgage and lien was limited to Balagur's membership interest in 20 West Park, and not the proceeds from the sale of the New Hampshire property.
In January 2021, Firstrust filed a motion for summary judgment.Appellants filed a response, and subsequently, a cross-motion for summary judgment. On April 22, 2021, oral argument was held regarding both motions. On May 6, 2021, the trial court issued an order, granting Firstrust's motion and denying Appellants' motion. The court "declared that the scope of [Firstrust]'s lien is controlled by the plain meaning of [Paragraph] 2.1(e) of the Mortgage[.]" Trial Ct. Op. at 2. Appellants then filed a timely notice of appeal.
Wilkinson, EPI, Kenneth Balagur, and Reitz did not respond to Firstrust's motion for summary judgment.
Since Wilkinson, EPI, Kenneth Balagur, and Reitz did not respond to Firstrust's motion, the court granted summary judgment for Firstrust against them as well.
Appellants timely complied with the trial court's directive to file a Pa.R.A.P. 1925(b) concise statement of errors complained of on appeal.
Appellants raise the following issues on appeal:
A. Whether the Trial Court erred in concluding that the Appellants' understanding/interpretation of the Mortgage contradicts the plain language of the various loan documents, and that Appellants' argument with respect to the sentence in dispute, results in changing the meaning of the prior sentence in the Mortgage[?]
B. Whether the Trial Court erred in granting Firstrust Bank's Motion for Summary Judgment, and denying the Appellants' Motion for Summary Judgment, by misinterpreting the provision in the Mortgage describing how the Mortgage interest of the Bank is measured[?]
C. In the alternative, to the extent that there is any ambiguity in the Mortgage, it should be resolved in favor of the Appellants, as Firstrust Bank was the drafter of the loan documents.
D. Whether the Trial Court erred in concluding the intent of the parties would have been to execute a pledge agreement if there was an intent to limit the lien to Kenneth Balagur's membership interest[?]
E. Whether the Trial Court erred in failing to consider that there was no consideration provided to 20 West Park, LLC[?]Appellants' Brief at 4-5.
Based on the nature of Appellants' claims, we will address their first four arguments together. First, Appellants contend that the trial court "incorrectly ruled that [the] 45% language present in [Paragraph 2.1(e) of] the Mortgage represents 45% of the equity in the Property after payment of the first and second mortgages, instead of [Kenneth] Balagur's membership interest." Appellants' Brief at 16. They allege it is "undisputed" that the 45% did not reference "an equity interest in the [New Hampshire] Property after payment of the first and second mortgage[s]." Id.
Next, Appellants assert that the trial court "incorrectly conclude[d] that the second and third sentences of the Mortgage should not be read together" because in their view, it is "nonsensical" and "contradicts the plain meaning of the documents" Firstrust drafted. Appellants' Brief at 19. In support of this argument, Appellants point to the deposition testimony of Marcus Mies, Esquire, wherein he answered that membership interest is different than property interest and that Paragraph 2.1(e) references membership interest. Id. at 20. Appellants argue the court "cannot erase the third sentence [of Paragraph 2.1(e)] with the stroke of a pen to rewrite and change the deal the parties negotiated. Appellant did not agree to this interpretation, nor did they authorize it[.]" Id. at 20-21.
Mies worked for the law firm representing Firstrust at the time with respect to different types of loans and loan documentation. See Appellants' Motion for Summary Judgment Against Firstrust Bank Pursuant to Pa.R.C.P. 1035, Exhibit F, Oral Deposition of March Mies, 11/17/20, at 9.
Third, Appellants claim that to extent the court determined any ambiguity existed in the Mortgage, "it was required to be resolved in favor of the Appellants" since Firstrust drafted the document. Appellants' Brief at 21. They contend the "writing must be construed most strongly against the party drafting it, and the interpretation which makes a rational and probable agreement must be preferred." Id. at 22.
Fourth, Appellant argue, in the alternative, that while they "do not concede the Mortgage is ambiguous, . . . if the Trial Court believed the Mortgage to be ambiguous, then it should have examined parol evidence[, ]" which would have "confirmed that the Mortgage is limited to [Kenneth] Balagur's membership interest" in 20 West Park. Appellants' Brief at 23. For example, Appellants rely on statements made by Kenneth Balagur concerning his ownership interest in 20 West Park to Mies and Carl Bieber, Vice President of Firstrust. See id. at 26 (October 2014 email from Kenneth Balagur to Bieber discussing limited guarantors). Appellants refer to electronic communications evidence by Kenneth Balagur, in which he expressed "concerns about how the language of the Mortgage was drafted." Id. at 27. Appellants also point to deposition testimony by Mies and Bieber where they were asked whether they clarified with Kenneth Balagur that the 45% represented property interest as opposed to membership interest. Id. at 26-27. Both testified they believed that this understanding was conveyed to Kenneth Balagur. Id. Nevertheless, Appellants argue that Bieber "has no documents to support that statement, and the Mortgage, Loan Agreement, and Resolution directly contradict his position." Id. at 30 (emphasis omitted).
In addressing the grant of a motion for summary judgment, our standard of review is limited:
When a party seeks summary judgment, a court shall enter judgment whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense that could be established by additional discovery. A motion for summary judgment is based on an evidentiary record that entitles the moving party to a judgment as a matter of law. In considering the merits of a motion for summary judgment, a court views the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Finally, the court may grant summary judgment only when the right to such a judgment is clear and free from doubt. An appellate court may reverse the granting of a motion for summary judgment if there has been an error of law or an abuse of discretion.Gallagher v. Geico Indem. Co., 201 A.3d 131, 136-37 (Pa. 2019) (citations and quotation marks omitted).
Since the crux of Appellants' arguments concern a dispute over the terms of a contract, we are guided by the following: "Because a mortgage is a contract, it is subject to principles of contract law. We have explained that contract interpretation is a question of law over which our standard of review is de novo. Therefore, this Court is not bound by the trial court's interpretation of a contract." Enterprise Bank v. Frazier Family Ltd. P'ship, 168 A.3d 262, 265 (Pa. Super. 2017) (citations and quotation marks omitted).
Moreover,
[t]he cardinal rule in interpreting a contract is to ascertain the parties' intent. The court must construe the entire contract to arrive at its intent. If contractual terms are clear and unambiguous, they are deemed the best reflection of the parties' intent. If they are ambiguous, it is permissible to ascertain their
meaning through parol (i.e., extrinsic) evidence. Contractual terms are ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts. A contract is not ambiguous, however, merely because the parties do not agree on its construction. Nor does ambiguity exist if it appears that only a lawyer's ingenuity has made the language uncertain.Pass v. Palmiero Auto. of Butler, Inc., 229 A.3d 1, 5 (Pa. Super. 2020) (citations and quotation marks omitted). Additionally, "[w]here the language of the contract is ambiguous, the provision is to be construed against the drafter." State Farm Fire and Casualty Company v. PECO, 54 A.3d 921, 928 (Pa. Super. 2012).
In granting the motion for summary judgment, the trial court explained its rationale as follows:
During oral argument, both parties conceded that the second sentence of the relevant section is clear if it stood on its own: "Notwithstanding that, upon the sale of the Property the Mortgagee agrees to release its lien and to limit its interest in the [New Hampshire] Property to 45% of the proceeds received from the sale of the Property after the first lien to Mascoma Savings Bank in the original amount of $1,045,000.00 and second lien to Mascoma Savings Bank in the original amount of $300,000.00 and (maximum amount of $450,000.00) are satisfied." Mortgage, ¶ 2.1(e). The dispute hinges on whether the clarity of that second sentence is muddied, or, as [Appellants] argue, the meaning altered by the addition of the third sentence -- "The 45% represents Kenneth S. Balagur's membership interest in [20 West Park], which is the owner of the [New Hampshire] Property." Id.
[Appellants] argue that [Kenneth Balagur] could only pledge the value of his membership interest in the entity that owned the [New Hampshire] Property and could not and did not pledge the interest to the Property. Moreover, [Appellants] state that "45% of the proceeds received from the sale" should really read and be modified by the third sentence to give the effect of reading a
pledge of 45% of the value of the membership interest of [Kenneth Balagur].
Such a reading flies in the face of the plain language of the various loan documents. The mortgage granted was for $1,300,000.00 and, as noted by [Appellants], the mortgage and guaranty were necessarily executed by [20 West Park] as the owner of the [New Hampshire] Property. It is [20 West Park] that granted a security interest in the Property - not [Kenneth Balagur]. [Firstrust] did agree to release its lien after receipt of 45% of the proceeds after [20 West Park] satisfied the senior lienholders. It defies logic to suggest that the third sentence noting the reason for using 45% in the portion of the second sentence reading "45% of the proceeds from the sale of the Property" transforms that plain and ambiguous language into 45% of the value of [Kenneth Balagur]'s membership interest.3 Instead, the third sentence can be read in conjunction with the second sentence without need to changing wholesale the meaning of the second sentence - namely, that [Firstrust] agreed to limit its lien on the [New Hampshire] Property to net proceeds in a percentage equal to that of the percentage of interest [Kenneth Balagur] then owned in [20 West Park] as owner of the Property.
3 In fact, the parties agreed that [Kenneth Balagur] now only owns approximately 11% of the entity and [Appellants] suggest that such reduction means the language should be further modified to allow payment of only 11% of the value of [Kenneth Balagur]'s membership interest.
Pledge agreements, convertible notes, and various other mechanisms exist by which the parties could have limited the amount of the lien to a value based on [Kenneth Balagur]'s membership interest. No such agreements were provided. There is no indicia of that being the intent of the parties within in Loan Documents as no pledge agreement exists, no restrictions or comments on the ability of [Kenneth Balagur] to transfer or encumber his membership interest in [20 West Park], no agreement to subordinate the bank's lien to any third parties (including [Appellants]), no method of calculating a minority member's interest in a closely-held entity, or the like. Instead, the parties executed a straight-forward mortgage pledging an
interest in real estate to secure a loan by one of the property owner's members.
To the extent that [Appellants] (which notably does not include [Kenneth Balagur]) object now to the fact that it guaranteed a loan to [him] and pledged 45% of the net proceeds after payment of two senior liens from the sale of the Property as security and wish to limit it to the value of [Kenneth Balagur]'s membership interest in the entity, 4 that objection is too late. [Appellants] signed clear and unambiguous documents granting a security interest in property owned by [20 West Park] and gave a straight-forward and simple explanation of the amount required from a sale to release [Firstrust]'s lien on the [New Hampshire] Property.
4 As [Firstrust] notes in its reply to the Motion for Summary Judgment by [Appellants], it is unclear if the argument of [Appellants] is that the security was an encumbrance on [Kenneth Balagur]'s membership interest or the value of [his] membership interest. The result is the same no matter the argument.Order and Memorandum at 4-6 (emphasis and one footnote omitted).
We agree with the trial court's well-reasoned conclusion that the document at issue is clear and unambiguous. First, we emphasize the fact that the document is a mortgage. Black's Law Dictionary defines "mortgage" as "[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms[;]" "[a] lien against property that is granted to secure an obligation (such as a debt) and that is extinguished upon payment or performance according to stipulated terms[;]" and "[l]oosely, any real-property security transaction, including a deed of trust." MORTGAGE, Black's Law Dictionary (11th ed. 2019) (emphasis). See also Estate of Dutton, 37 A. 582, 586 (Pa. 1897) ("A mortgage is defined to be 'the conveyance of an estate or property by way of pledge for the security of the debt, and to become void upon payment of it.'"). Simply stated, a mortgage concerns property.
This leads us to the language of the Mortgage at issue - Paragraph 2.1(e), which we recite again:
The amount of this mortgage is $1,300,000.00. Notwithstanding that, upon the sale of the Property the Mortgagee agrees to release its lien and to limit its interest in the Property to 45% of the proceeds received from the sale of the Property after the first lien to Mascoma Savings Bank in the original amount of $1,045,000.00 and second lien to Mascoma Savings Bank in the original amount of $300,000.00 (and a maximum amount of $450,000.00) are satisfied. The 45% represents Kenneth S. Balagur's membership interest in [20 West Park], which is the owner of the [New Hampshire] Property.Firstrust's Motion for Summary Judgment, Exhibit D, Mortgage, Assignment of Rents, Security Agreement and Fixture Filing at 3 (emphasis added).
Appellants' argument focuses solely on the exact wording of the third sentence and asks to ignore the preceding language. However, we "may not disregard a provision in a contract if a reasonable meaning may be ascertained therefrom . . . each and every part of it must be taken into consideration and given effect, if possible, and the intention of the parties must be ascertained from the entire instrument." Newman Dev. Grp. of Pottstown, LLC v. Genuardi's Family Mkt., Inc., 98 A.3d 645, 654 (Pa. Super. 2014) (citation and quotation marks omitted).
Moreover, we also note that although the loan documents, including the Mortgage, were drafted by Firstrust, the sentence in question was included at the direction of Kenneth Balagur who reviewed and consented to its inclusion. In a January 22, 2015, email from Kenneth Balagur to Bieber, Balagur wrote: "I am not a lawyer but in theory the mortgage could include wording 3rd lien for 45% of the building representing the ownership position of Kenneth Balagur." Firstrust's Reply to Defendants' Objection to Firstrust's Motion for Summary Judgment, 3/23/2021, at Exhibit A, January 22, 2015 Email from Kenneth Balagur to Carl Bieber. Thus, it cannot be construed against Firstrust. See State Farm Fire and Casualty Company, 54 A.3d at 928.
See also N.T., 4/22/21, at 24 (counsel for Firstrust stating: "Membership interest. That language actually comes from Kenneth Balagur's email where he says, including wording, third lien for 45 percent of the building representing the owner - he says ownership position of Kenneth Balagur, clearly it wasn't ownership position. It was membership interest."). Appellant's counsel confirmed Kenneth Balagur was the drafter of the third sentence at argument on January 27, 2022.
The third sentence that the parties have spent much time dissecting and arguing about does nothing to modify or alter the Mortgage, nor does it create an ambiguity. To the contrary, the sentence was included-at Kenneth Balagur's insistence, to explain why Firstrust's recovery was limited to "45% of the proceeds from the sale of the Property." Rather than creating an ambiguity, this sentence is declaratory and explanatory and confirms the parties understanding that Kenneth Balagur owned only 45% of the LLC that owned the property. Therefore, Firstrust was precluded from attempting to recover, in a foreclosure proceeding, more of "the proceeds from the sale of the Property" than Kenneth Balagur would be entitled upon the sale of the Property. Read in context to the transaction as a whole, this sentence appears to have been included by Kenneth Balagur to insulate the 55% interests of his partners from execution by Firstrust.
We are mindful that these were sophisticated business partiesnegotiating the terms of a loan and mortgage agreement concerning a considerable amount of money. While Appellants refer to a couple of comments made by Kenneth Balagur during negotiations, there is nothing in the loan documents to suggest that these sophisticated parties intended Kenneth Balagur's interest to be confined to his membership interest in 20 West Park, which owned the property, and not the actual property itself. Likewise, based on the facts, we can discern that the question of "membership interest" versus "property interest" is a distinction without a difference as the sole asset of 20 West Park was the New Hampshire Property. Therefore, Kenneth Balgur's interest solely derived from that property.
While Appellants mention that Kenneth Balagur was not represented at the time of negotiations, that was at his own peril as a party's pro se status confers no special benefit on that individual.
We reiterate the fact that the loan was guaranteed by 20 West Park, which identified the New Hampshire Property as the only collateral.
Furthermore, as the trial court emphasizes as evidence of the parties' intent, or lack thereof, no other documents were provided which would have established that the amount of the lien was based on Kenneth Balagur's membership interest. See Order and Memorandum at 5 ("[N]o pledge agreement exist[ed], no restrictions or comments on the ability of [Kenneth Balagur] to transfer or encumber his membership interest in [20 West Park], no agreement to subordinate the bank's lien to any third parties (including [Appellants]), no method of calculating a minority member's interest in a closely-held entity, or the like."). Appellants do not address this finding or refute otherwise in their brief. As for Appellants' argument concerning parol evidence, we need not address this claim in light of our above analysis. See Pass, 229 A.3d at 5. Accordingly, Appellants' first four arguments lack merit.
At oral argument, the following exchange took place between the parties and the trial court which demonstrates Appellants' misconception:
THE COURT: … If I stated to you[, counsel for Appellants] that generally speaking when I see a bank take a membership interest as a pledge that there's a whole different set of documents that goes along with that.
[Appellants' Counsel]: Yes, your Honor, but those are not the documents that the bank drafted. The bank drafted these documents and that was relied upon by Mr. Balagur that the bank was drafting what everyone was in agreement to of what he actually owed.
THE COURT: Essentially, you're telling me the bank made a large mistake because they use[d] property documents when what they should have been using was . . . pledge agreement documents?
[Appellants' Counsel]: Yes, your Honor.
[Firstrust's Counsel]: I'll reiterate that this was not a pledge of membership interest. This is a mortgage. There's a major difference between those two types of collateral. [Appellants'] argument . . . convolutes the issues as to whether the mortgage is a pledge agreement or not, which it's not. It's a mortgage and . . . the guarantee says . . . it's a lien on real estate. It's not a lien on the membership interest.N.T., 4/22/21, at 22-23 (emphasis added).
With respect to their remaining claim, Appellants assert that the trial court "failed to factor in that [20 West Park] received no consideration for the transaction." Appellants' Brief at 32. They state, "There is no reason for [20 West Park] to further encumber [its] sole asset to the detriment of [its] other members who had no interest in [Firstrust]'s loan, and received no benefit for allowing the Mortgage to be placed on the Property." Appellants' Brief at 32.
While Appellants did raise this issue in their concise statement, the trial court did not address it in its Rule 1925(a) opinion.
As Firstrust points out, this appeal concerns a declaratory judgment action, which sought a declaration as to the meaning of the contract at issue and the extent of its mortgage lien on the New Hampshire Property - this is not an action to enforce the mortgage and the issue of whether the mortgage is enforceable was not before the trial court. See Appellee's Brief at 27. As such, the question is not properly before this Court. However, it merits mention that 20 West Park executed the Mortgage. This fact is not in dispute and there is no mention in the record that Kenneth Balagur signed the documents on behalf of 20 West Park without the consent of its other members.
Accordingly, we conclude the trial court appropriately determined there were no genuine issues of material fact and properly entered summary judgment in favor of Firstrust. See Gallagher, 201 A.3d at 136-37.
Order affirmed.
Judge Dubow joins the Memorandum.
Judge Stabile files a Concurring/Dissenting Memorandum.
Judgment Entered.
CONCURRING/DISSENTING MEMORANDUM
STABILE, J.
Respectfully, I dissent from the learned Majority's conclusion to affirm the trial court's grant of summary judgment in favor of Appellee Firstrust Bank ("Firstrust") on the basis that the contractual provision at issue is unambiguous. The Majority affirms the trial court's conclusion that this provision may be interpreted as a matter of law to provide Firstrust a mortgage lien of 45% of the sale proceeds in the New Hampshire Property1 after satisfaction of the two more senior Mascoma Bank liens. In my opinion, the flaw in this analysis is that it does not recognize the ambiguity created by reference to both a "lien" secured by a mortgage in real estate and a limited liability company "member interest" in that real estate for purposes of declaring Firstrust's interest in the sale proceeds of the the New Hampshire Property. Because I believe the use of both terms to refer to Firstrust's interest in the sale proceeds renders the contractual provision ambiguous, I would reverse the trial court's grant of summary judgment and remand for an evidentiary hearing for the trial court to consider extrinsic evidence in order to make appropriate findings of fact as to the intent of the parties when drafting this provision. I further believe the Majority errs by considering extrinsic evidence and by invoking the presumption against draftsmanship. I concur, however, with the Majority's rejection of Appellants' last issue that the contract fails for lack of consideration.
I begin with a reproduction of the contractual provision at issue recited in various of the loan documents, and in particular, the Mortgage, without a detailed recitation of the background facts, as the Majority aptly has set forth those details.
Paragraph 2.1(e) of the Mortgage, repeated in other of the loan documents, provides:
The amount of this mortgage is $1,300,000.00. Notwithstanding that, upon the sale of the Property the Mortgagee agrees to release its lien and to limit its interest in the Property to 45% of the proceeds received from the sale of the Property
after the first lien to Mascoma Savings Bank in the original amount of $1,045,000.00 and second lien to Mascoma Savings Bank in the original amount of $300,000.00 (and a maximum amount of $450,000.00) are satisfied. The 45% represents Kenneth S. Balagur's membership interest in [20 West Park], which is the owner of the [New Hampshire] Property.(Emphasis added). In this action for declaratory judgment, Firstrust alleges that based upon the foreclosure of its mortgage lien, it is entitled to 45% of the proceeds of the sale of the New Hampshire Property following payment of the two more senior Mascoma Bank liens. Appellants, 20 West Park and Richard Balagur ("Balagur"), disagree, and assert that Firstrust instead, is limited to the 45% membership interest that Kenneth Balagur ("Ken Balagur") has in the sale proceeds of the New Hampshire Property after satisfaction of the Mascoma Bank liens. The competing positions of the parties demonstrate on their face that an ambiguity exists in this provision by reference to both a "lien" and a "membership interest" in the sale proceeds. To understand why reference to both the terms "lien" and "member interest" in the provision create an ambiguity, it is necessary to explore briefly the difference between a mortgage lien in real estate and a member interest in a limited liability company that owns real estate.
"It is well settled in Pennsylvania that a mortgage, although in form a conveyance of title, is in reality only a security for payment of money or performance of other collateral contract." Winthrop v. Arthur W. Binns, Inc., 50 A.2d 718, 719 (Pa. Super. 1947). "Pennsylvania recognizes mortgages as acting both as conveyances and as security interests or liens." Pines v. Farrell, 848 A.2d 94, 100 (Pa. 2004) (citation omitted). "As between the parties it is a conveyance so far as is necessary to enforce it as a security." Winthrop, 50 A.2d at 719. "Although the mortgagor remains the real owner of the mortgaged property, the mortgagee is entitled to its possession, to be held as security until his debt is paid." Id. "A mortgage is in essence a defeasible deed, requiring the grantee to reconvey the property held as security to the grantor upon satisfaction of the underlying debt or the fulfillment of established conditions." Hahnemann Med. Coll. & Hosp. of Philadelphia v. Com, 416 A.2d 604, 607 (Pa. Cmwlth. 1980) (citing HanePayne's Administrator v. Patterson's Administrator, 77 Pa. 134, 137 (1874)). The term "lien" expresses a broad concept embracing a variety of security devices both legal and equitable. Anderson Contracting Co. v. Daugherty, 417 A.2d 1227 (Pa. Super. 1979), appeal denied, 425 A.2d 329 (Pa. 1980). The word "lien" is of the same origin as the word "liable", and the right of "lien" expresses the liability of certain property for a certain legal duty, or a right to resort to it in order to enforce the duty. Id. (citing Wood's Appeal, 30 Pa. 274, 277 (1858)). In more simple terms, a mortgage may be defined as any obligation evidenced by a security document and secured by a lien upon real property. See Bennett v. Seave, 554 A.2d 886, 891 (Pa. 1989) (citing 41 P.S. § 101 (Act 6) and 35 P.S. § 1680.401c(a) (Act 91)). It is a specific lien against a particular piece of real property. PNC Bank, Nat. Ass'n v. Balsamo, 634 A.2d 645, 650 (Pa. Super. 1993), appeal denied, 648 A.2d 790 (Pa. 1994).
A member interest in a limited liability company is an entirely different creature from a mortgage lien. To illustrate, a limited liability company in Pennsylvania, 2 is an entity distinct from its member or members and has perpetual duration. 15 Pa.C.S.A. § 1818(a) and (c). It has the power to do all things necessary or convenient to carry on its activities and affairs. 15 Pa.C.S.A. § 8819. It has the legal capacity of a natural person to act, see id. cmt., and this of course would permit ownership of real estate. An LLC has an "operating agreement" that governs the relations among members and between members and the LLC, the rights and duties as a member or manager, the activities and affairs of the LLC, the means for amending an operating agreement, and the means and conditions for approving entity transactions. 15 Pa.C.S.A. § 8815(a). A person becomes a member in an LLC at the time of formation, or as provided for in the operating agreement. 15 Pa.C.S.A. § 8841(a), (b), and (d). As seems typical, Pennsylvania's LLC Act does not specify the manner in which member ownership in a limited liability company is evidenced. Membership interests, however, are typically stated in terms of percentage interests or membership units. Membership carries with it both the rights of a member and a transferable interest, or in other words, both a non-economic and an economic interest. See 15 Pa.C.S.A. § 8852(g). A "transferable interest" is the right to receive distributions. See 15 Pa.C.S.A. § 8812 (definition of "Transferable interest"). A person may not transfer any rights in a limited liability company other than a transferable interest. 15 Pa.C.S.A. § 8851(b). When a member transfers a transferable interest, the member retains the rights, duties, and obligations of a member other than the transferable interest. 15 Pa.C.S.A. § 8852(g). Importantly, a member's interest in a limited liability company is considered personal property. 15 Pa.C.S.A. §§ 8841(f) and 8851(a). A judgment creditor of a member cannot execute on a member's transferable interest. Rather, a judgment creditor must secure from a court a charging order against the transferable interest of the judgment debtor member. See 15 Pa.C.S.A. § 8853. The charging order then operates as a lien on the judgment debtor member's transferable interest and obligates the limited liability company to pay to the judgment creditor any distributions that otherwise would be paid to the judgment debtor member. Id. A member's judgment creditor does not have the right to foreclose upon the whole of a limited liability company's assets to satisfy the debt owed by a single member. More to the point, a "member interest", whether expressed as a percentage or in membership "units", represents ownership in the legal entity, the LLC, and not in the assets owned by the LLC. The value of a member's interest in the LLC is not measured by any single asset owned by the LLC, but is determined under the LLC's operating agreement and/or applicable law. The value of a member's interest also may vary depending upon, for instance, whether the LLC continues to operate or is in liquidation. A member's transferable interest or economic interest in an LLC entitles the member to distributions of money from the LLC. See 15 Pa.C.S.A. §§ 8812, 8844. However, a member's right to distributions may depend upon consideration of such things as the book value of the company's assets and liabilities and depreciation. See 15 Pa.C.S.A. § 8845. In case of dissolution, return of contributions also has to be considered. 15 Pa.C.S.A. § 8877.
In simple terms, a mortgage lien encumbers real estate as collateral to secure an underlying obligation. In contrast, a member interest in an LLC is ownership treated as personalty measured by the percentage of or units held by the member interest. The value of a member interest or ownership in an LLC cannot be determined by simply calculating the member's percentage interest as against the company's assets. Instead, the interest must take into consideration other factors incident to valuing the LLC in order to determine the value of a member interest. With respect to real estate, a member has an indirect interest in the real estate through ownership in the LLC, but the member has no direct ownership rights in the real estate solely as a result of membership in the LLC. Undoubtedly, Firstrust understood these distinctions when it insisted that Ken Balagur pledge all his assets in consideration of the $1.3 million loan to his company. It realized that it could not directly lien the New Hampshire Property through Ken Balagur's member interest in 20 West Park and that Ken Balagur could not pledge the New Hampshire Property. It therefore, had to have 20 West Park agree to mortgage the the New Hampshire Property so that in the event of foreclosure it could collect on Ken Balagur's membership interest in the proceeds.
The difference between a "mortgage lien" and a "member interest" in an LLC confirm the tension and ambiguity created by Paragraph 2.1(e) of the Mortgage and related loan documents that reference both Firstrust's mortgage lien and Balagur's 45% membership interest in 20 West Park to define what portion of the sale proceeds of the New Hampshire Property are to be paid to Firstrust upon foreclosure. It is a simple matter to determine what amount Firstrust is entitled to collect on its mortgage lien under the second sentence of Paragraph 2.1(e) if one need only consider a mortgage lien. Firstrust would be entitled to collect on its mortgage lien 45% of the sale proceeds from foreclosure on the New Hampshire Property after satisfaction of the two senior Mascoma Bank liens. The relatively straightforward application of that second sentence, however, is complicated by the third sentence that declares that the 45% interest referenced in the second sentence represents Ken Balagur's 45% membership interest in 20 West Park.
Assuming for the moment that Section 2.1(e) is to be construed as a lien but measured by an ownership interest, then calculation of Ken Balagur's member interest in the sale proceeds becomes more complicated. As Firstrust concedes in its brief, the determination of Ken Balagur's 45% membership interest in the sale proceeds of the the New Hampshire Property would require that someone (presumably an expert) provide an opinion as to the value of that membership interest. See Firstrust's Brief at 12. The importance of this distinction also was noted by Firstrust to the trial court when it stated that the document was not a pledge of a membership interest, that it was a mortgage, and that there is a major difference between those two types of collateral. See Majority Memorandum at n.14 (citing N.T., Hearing, 4/22/21, at 22-23.) Within the record there also exists an illustration prepared by Richard Balagur demonstrating that the difference in value to be paid to Firstrust as between a 45% mortgage lien and a 45% mortgage lien limited to Ken Balagur's equity interest in the LLC is twofold. See Equity Distribution from 20 West Park, LLC as of 12/31/14, Prepared by Richard Balagur. In coming to a value of Ken Balagur's membership interest in the LLC, the illustration takes into consideration things such as subordinated debt, tenant security deposits, New Hampshire business profits tax, and a bonus to Balagur.3 Therefore, I must respectfully and strongly disagree with the Majority's statement that "the question of 'membership interest' versus 'property interest' is a distinction without a difference as the sole asset of 20 West Park was the New Hampshire Property. Therefore, Kenneth Balagur's interest solely derived from that property." Majority Memorandum at 18-19. This statement fails completely to acknowledge the nature of ownership in an LLC (as the parties do), as opposed to the simple concept of a mortgage lien that merely encumbers real estate to secure an underlying obligation.
It has been suggested by Firstrust, the court, and the Majority that interpretation of Section 2.1(e) is somehow affected by the fact that it was 20 West Park, and not Ken Balagur, that granted the mortgage lien. Certainly, the mortgage lien granted by 20 West Park is what gave Firstrust the right to foreclose on the New Hampshire Property. I fail to see how this impacts the distinction between a mortgage lien and a member interest when discussing the value to be received by Firstrust. Although 20 West Park, as owner of the the New Hampshire Property, executed the Mortgage, the operative provision regarding distribution of sale proceeds to Firstrust still is defined by Ken Balagur's 45% membership interest.4
In Hutchinson v. Sunbeam Coal Corp., 519 A.2d 385 (Pa. 1986), our Supreme Court set forth basic rules of contract interpretation pertinent to this appeal.
Determining the intention of the parties is a paramount consideration in the interpretation of any contract. The intent of the parties is to be ascertained from the document itself when the terms are clear and unambiguous. However, . . . where an ambiguity exists, parol evidence is admissible to explain or clarify or resolve the ambiguity, irrespective of whether the ambiguity is created by the language of the instrument or by extrinsic or collateral circumstances.
We first analyze the contract . . . to determine whether an ambiguity exists requiring the use of extrinsic evidence. A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. The court, as a matter of law, determines the existence of an ambiguity and interprets the contract whereas the resolution of conflicting parol evidence relevant to what the parties intended by the ambiguous provision is for the trier of fact.Id. at 389-90 (citations and quotation marks omitted). Under these aforementioned principles, I conclude that the second and third sentences to Paragraph 2.1(e) of the Mortgage, and as contained in other of the loan documents, indeed create an ambiguity. It is unclear whether 20 West Park simply agreed to grant Firstrust a mortgage lien in the New Hampshire Property based upon 45% of the sale proceeds which equate to Ken Balagur's 45% membership interest in the company, or whether 20 West Park only agreed to lien Ken Balagur's 45% membership interest in the remaining proceeds after sale of the the New Hampshire Property. Both interpretations may be deemed reasonable considering the possible intent of the parties under the loan documents. On the one hand, Firstrust could reasonably argue its only interest in the sale proceeds was to secure 45% of those proceeds regardless of any internal membership interest considerations. On the other hand, Appellants 20 West Park and Ken Balagur could reasonably argue that 20 West Park had no interest in the loan extended by Firstrust to benefit Ken Balagur and his company, Wilkinson Roofing and Siding, Inc., and that it would reasonably make sense that the only proceeds Firstrust could lien would be those that would be paid as against Ken Balagur's membership interest. To resolve this ambiguity extrinsic evidence had to be considered by the trial court, thus creating triable issue of fact precluding the entry of summary judgment. The record is full of testimony and evidence to argue either position.
Although the trial court had ample testimony and evidence before it when deciding the parties' competing summary judgment motions, its decision was not based upon any of that evidence. It was the trial court's conclusion that Section 2.1(e) could be interpreted as a matter of law, since it believed the only reasonable interpretation was one whereby Firstrust agreed to limit its mortgage lien in the the New Hampshire Property to a percentage equal to that of Ken Balagur's interest in 20 West Park. Trial Court Memorandum, 5/6/21, at 5. Reading the third sentence as only describing a 45% interest in sale proceeds, however, ignores any reference to Ken Balagur's membership interest as a modifier to the second sentence and the legal ramifications that flow from membership status. If as the trial court contends, the third sentence merely was intended to restate that Firstrust was entitled to 45% of the sale proceeds after satisfaction of the two senior liens, then the third sentence is rendered superfluous. This violates rules governing contract interpretation, since all words in a contract are to be given meaning. "Courts do not assume that a contract's language was chosen carelessly, nor do they assume that the parties were ignorant of the meaning of the language they employed." Murphy v. Duquesne Univ. Of The Holy Ghost, 777 A.2d 418, 429 (Pa. 2001) (citation omitted). A cardinal rule of contractual interpretation counsels against rendering words or provisions meaningless. Pac. Emps. Ins. Co. v. Glob. Reinsurance Corp. of Am., 693 F.3d 417, 430 (3d Cir. 2012) (citing, Morris v. Am. Liab. & Sur. Co., 185 A. 201, 202 (Pa. 1936)). Therefore, if we are to give meaning to all words chosen by the parties, and if doing so reveals ambiguity, extrinsic evidence must be considered to determine the intent of the parties. The trial court simply chose to ignore the third sentence modifier and further, chose to focus on what was not in the record, as opposed to what was in the record regarding the parties' intentions on this provision.
The Majority similarly concludes that the third sentence does not create an ambiguity because it merely explains why Firstrust's recovery was limited to "45% of the proceeds from the sale of the Property." Rather than creating an ambiguity, the Majority maintains the sentence is declaratory and explains the understanding that Ken Balagur owned only 45% of the LLC that owned the the New Hampshire Property. The Majority concludes that Firstrust was precluded from attempting to recover more of the proceeds from the sale of the New Hampshire Property than Ken Balagur would be entitled upon the sale. Ken Balagur, however, was not entitled to receive 45% of the sale proceeds. He only was entitled to receive his 45% interest in them after all other company obligations were satisfied before surplus could be distributed to the members. Read in context to the transaction as a whole, the Majority further concludes the third sentence appears to have been included by Ken Balagur to insulate the 55% interest of his partners [sic] from execution by Firstrust. Majority Memorandum at 17-18. Respectfully, this part of the Majority's rationale in fact demonstrates why there is an ambiguity in these provisions. It treats Ken Balagur's 45% membership interest as equivalent to a 45% mortgage lien. Construing Firstrust's recovery to 45% of the sale proceeds as measured by the percentage of Ken Balagur's member interest would not necessarily insulate the 55% interest of the other members. A recovery of 45% of the sale proceeds may well include amounts in excess of Ken Balagur's 45% membership interest after adjustments and could distribute to Firstrust some part of the proceeds that belong to the other 55% member(s). Both Firstrust and Balagur agree that there is a difference in value between a 45% mortgage lien and Ken Balagur's 45% member interest in the sale proceeds. See, supra.
In reaching its conclusion that the trial court should be affirmed because Section 2.1(e) of the Mortgage is clear, the Majority also strays into considering extrinsic evidence to bolster this conclusion and to construe the provision against 20 West Park, noting that the third sentence was included at the direction of Ken Balagur.5 The Majority observes that although the loan documents were drafted by Firstrust, the sentence in question was included at the direction of Ken Balagur who reviewed and consented to its inclusion. Majority Memorandum at 17. The Majority cites an email from Ken Balagur and statements by counsel to find that Ken Balagur was the drafter of the third sentence to conclude that the third sentence cannot be construed against Firstrust. Id. (citing, State Farm Fire and Cas. Co. v. PECO, 54 A.3d 921, 928 (Pa. Super. 2012) (where the language of a contract is ambiguous, the provision is to be construed against the drafter)). I believe the error here is twofold.
First, if the terms of a contract are clear and unambiguous, the intent of the parties is to be ascertained solely from the writing, without reference to any external testimony or other evidence. Hutchison, supra. The trial court did not consider extrinsic evidence. The Majority does so in order to buttress its interpretation of Section 2.1(e). This is error. Second, the Majority compounds this error by invoking the presumption against draftsmanship without first requiring that the trial court consider extrinsic evidence to ascertain the intent of the parties. In Burns Manufacturing Company, Inc. v. Boehm, 356 A.2d 763 (Pa. 1976), the Court stated the following when the chancellor in that case invoked the presumption against draftsmanship before determining that no extrinsic evidence could explain the intent of the parties.
The chancellor made no apparent attempt to construe the language of the addendum clause in light of the circumstances which surrounded its execution. Instead he appears to have relied on the apparent imprecision of the language as a sufficient basis to rule against appellan. This, in our view, is not a satisfactory approach to the construction of the facially ambiguous language contained in the addendum. While it is a well settled rule of construction that in cases of ambiguity, leases and grants should be construed most strongly against the drafter; it is equally clear that the rule is not intended as a talismanic solution to the construction of ambiguous language. Rules of construction serve the legitimate purpose of aiding courts in their quest to ascertain and give effect to the intention of parties to an instrument. They are not meant to be applied as a substitute for that quest. Where a document is found to be ambiguous, inquiry should always be made into the circumstances surrounding the execution of the document in an effort to clarify the meaning that the parties sought to express in the language which they chose. It is only when such an inquiry fails to clarify the ambiguity that the rule of construction relied upon by the chancellor should be used to conclude the
matter against that party responsible for the ambiguity, the drafter of the document. Because, however, we are able to decide the issue on the theory of easement by implied reservation there is no need to engage in an analysis of the language of the addendum.Id. at 767 n.3. (citations omitted) (emphasis added). I already stated my view that if the Majority found the provision at issue to be clear, then it could proceed no further to consider extrinsic evidence in order to bolster its interpretation as a matter of law. The same concern holds true with respect to the invocation of the presumption against draftsmanship. The presumption has no place in interpretation if, as the Majority concludes, the provision is clear and unambiguous. Even if the Majority would agree that the provision is ambiguous, as I contend, it still improperly invokes the presumption against draftsmanship because extrinsic evidence of the parties' intent has not been reviewed to determine if that evidence may clarify the meaning of the provision. If, and only if, extrinsic evidence is not capable of ascertaining the intent of the parties may the court then, as a last resort, invoke the presumption against draftsmanship as an aid to interpretation. And of course, the task of making those findings is for the trial court.
Finally, I do concur in the Majority's holding that it was not error for the trial court to fail to consider that 20 West Park received no consideration for the transaction. Firstrust argues, and the Majority agrees, that the issue of consideration was not properly before the trial court, since this is a declaratory judgment action as to the meaning of the contract and not an action to enforce the Mortgage. I agree, but wish to offer a more substantive reason for rejecting this argument. The record reflects that on February 17, 2019 and October 28, 2018, Richard Balagur and Kenneth Balagur, respectively, representing 100% of the membership having a voting and controlling stake in 20 West Park, amended the company's operating agreement to memorialize the basis upon which the company was willing to pledge as collateral Ken Balagur's 45% equity in the company to secure a bank loan related to his other private investments. The approved amendment states:
It is agreed that it in exchange for a waiver of the LOC credit guarantee fee currently paid to Kenneth Balagur and his agreement to waive interest payments if the LLC manager determines that to be advantageous, Kenneth Balagur may enter into an agreement where his 45% equity in 20 West Park, LLC is pledged as collateral to secure a bank loan related to his other private investments. This pledge of collateral may be evidenced or secured as required by the lending institution provided that as part of any recording of a lien, security filing or mortgage that within the public record there is clear wording that even if a mortgage reflects a security interest in the whole building that that the banks [sic] interest is limited to Kenneth Balagur's equity position and that the balance of the buildings [sic] equity remains with the other financial owners of the LLC, excluding Kenneth Balagur's equity.20 West Park, LLC Operating Agreement Amendment, Trial Exhibit No. 39. It is evident from this document alone that consideration was in fact given in exchange for 20 West Park executing the loan documents, and in particular, the Mortgage. It did so in order to facilitate the Firstrust loan to Ken Balagur and his company. Apparently, Ken Balagur was willing to waive a LOC credit guarantee fee and interest payments in exchange for 20 West Park agreeing to encumber his membership interest in favor of Firstrust extending the loan to Ken Balagur's company.
For the foregoing reasons, I respectfully dissent from the Majority's decision to affirm the grant of summary judgment in favor of Firstrust. I concur in its disposition of Appellants' last claim regarding the lack of consideration for this transaction. Further, I would deny Appellants' request that summary judgment be entered in its favor, as factual questions remain as to the intentions of the parties with respect to the contractual provision at issue contained within the Mortgage and the other loan documents.