Court Opinion

ID: 9695694
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:27:42.615158+00
Date Added: 2024-06-11T18:20:15.798860
License: Public Domain

*446SPAETH, Judge,
dissenting:
This case may be regarded as a somewhat unedifying battle between two creditors for priority to the proceeds of a foreclosue on the real estate of common debtors. It seems to me, however, more important than that.
The determinative issue is the legal effect of a letter sent to appellant by appellee’s manager. The letter purports tó be a subordination of what is stipulated to be appellee’s prior lien position. If the letter was a proper subordination, appellant has priority. The majority holds that the letter was not a proper subordination because it was signed only by appellee’s manager, who, it is said, did not have authority to bind appellee to such a subordination:
Since Luhrs, as manager, was not clothed with the apparent authority to execute a gratuitous subordinar tion of a lien merely by his position, we hold that the court below was correct in its decision refusing to alter the sheriff’s schedule of distribution. Majority opinion at p. 444 (emphasis added).
In my opinion, this holding is unfortunate. It fails to recognize business realities, with the result that one party is permitted to repudiate a transaction by which it should have been bound. I should prefer to see us encourage honorable business dealings, rather than discourage them.
When the subordination letter was written, the debtors were already in default to appellee. Appellee was not optimistic about the prospects of payment and was considering initiating a foreclosure action itself. (N.T. 12a) We may take judicial notice of the fact that as a matter of business practice a lender does not like to foreclose: the procedure is expensive and time consuming; especially as regards residential property, it creates a bad public image; and, perhaps most to the point, it may not generate enough proceeds to cover the loan, since property of*447ten sells for less at a forced sale than under normal market conditions. Accordingly, appellee might well have welcomed appellant’s suggestion that it would lend appellee’s debtors money if appelle would relinquish its lien priority. With new money the debtors might be able to “turn the corner.” When these factors are taken into account, the majority’s characterization of the letter as a “gratuitous subordination” impresses me as quite unrealistic. To a finance company in appellee’s position, it must rather have seemed an attractive alternative to foreclosure.
Nor can I agree with the majority’s statement that “[appellee’s] manager . . . was not clothed with the apparent authority” to sign the subordination letter. Indeed, it is at least arguable that the manager had express authority. Appellee’s president testified that the manager’s authority extended to “making loans and collecting them.” (N.T. 11a) The authority to “collect [ ]” a loan would seem to include the authority to decide how to collect it, and as just discussed, the manager’s letter represented a choice of one procedure (subordination) rather than another (foreclosure) as being the more likely to lead to collection of the loan. Passing this point, however, when the manager’s letter is viewed in the context of the business situation confronting the parties, it is evident that the manager at least had apparent authority.
No doubt for some a subordination is a “somewhat extraordinary act.” Majority opinion at p. 443. That can hardly be said, however, as regards the manager of a finance company such as appellee. It is rather exactly the sort of function one would expect him to perform.
When we speak of apparent authority, we mean the way the manager’s authority was perceived by others. The decisive evidence on this point is the evidence that the manager’s letter was treated as a subordination by the title company insuring appellant’s title in the debt*448ors’ property. A title company deals with matters of subordination on a daily basis. Its acceptance of the letter is persuasive proof that "a man of ordinary prudence, diligence, and discretion would have a right to believe and would actually believe that the agent possessed the authority he purported to exercise.” Murphy v. Beverly Hills Realty Corporation, 98 Pa.Super. 183 (1930).
I would reverse.