Court Opinion

ID: 3211735
Source: CourtListenerOpinion
Date Created: 2016-06-09 23:08:25.396598+00
Date Added: 2024-06-11T12:44:23.692247
License: Public Domain

J-A10040-16

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

LAWRENCE R. NEWMAN T/D/B/A BRIAR               IN THE SUPERIOR COURT OF
CLIFF FINANCIAL SERVICES                             PENNSYLVANIA

                            Appellant

                       v.

MICHAEL DESALVO, ANTHONY J.
RAZZANO AND KATIE RAZZANO

                            Appellees              No. 817 WDA 2015

               Appeal from the Judgment Entered June 16, 2015
               In the Court of Common Pleas of Lawrence County
                      Civil Division at No(s): 1059 of 2011

BEFORE: GANTMAN, P.J., BENDER, P.J.E., and PANELLA, J.

MEMORANDUM BY GANTMAN, P.J.:                         FILED JUNE 09, 2016

       Appellant, Lawrence R. Newman t/d/b/a Briar Cliff Financial Services,

appeals from the judgment entered in the Lawrence County Court of

Common Pleas in favor of Appellees, Anthony J. Razzano and Katie

Razzano.1 We affirm.

       The trial court opinion set forth most of the relevant facts and

procedural history of this case as follows:

          1.    In 2007, …Michael DeSalvo [“DeSalvo”] started a
          construction business and was interested in purchasing
          property from which he could conduct business.

____________________________________________

1
  A default judgment was entered against Michael DeSalvo on June 20,
2011. Mr. DeSalvo is not a party to this appeal.
J-A10040-16

       2.    [Appellee] Anthony J. Razzano…told DeSalvo about a
       parcel of commercial property [the “property”] that was
       owned by [Anthony and Katie Razzano’s] company,
       Razzano Holdings, LLC, and was located in Shenango
       Township, Lawrence County, Pennsylvania. This vacant
       land was assessed for tax purposes at $16,000.00.

       3.    Sometime before November 7, 2007, DeSalvo and
       [Mr.] Razzano…entered into an arm’s length agreement
       whereby DeSalvo would purchase the property for
       $25,000.00, $16,000.00 of which he would obtain through
       a loan.

       4.    [Mr.] Razzano introduced DeSalvo to [Appellant],
       Lawrence R. Newman, who trades and does business as
       Briar Cliff Financial Services…, in order to obtain a loan.

       5.    On November 7, 2007, DeSalvo executed a
       mortgage note and mortgage to [Appellant]. The note is
       in the amount of $16,000.00 at a [13%] interest rate and
       18% default rate.     The note provides for monthly
       payments of $219.94 for a period of 60 months beginning
       January 1, 2008, and a final balloon payment of
       $12,220.93 on December 1, 2012.

       6.     [The] Razzanos executed a Guarantee and
       Suretyship Agreement (the “guarantee”) under which they
       agreed to “the prompt and punctual payment and
       performance of all of [DeSalvo’s] obligations to
       [Appellant.]” The guarantee provided that [the] Razzanos
       “indemnify, protect and hold [Appellant] harmless, and will
       pay to [Appellant] on demand all costs and expenses
       (including reasonable counsel fees) which may be incurred
       in the enforcement of any liability of [DeSalvo], or any of
       the rights of [Appellant] against [the Razzanos].”

       7.    DeSalvo experienced a lack of growth in his company
       and immediately failed to make timely monthly payments
       to [Appellant].

       8.    On January 12, 2009, judgment was entered by
       confession against…DeSalvo and in favor of [Appellant] at
       docket number 10040 of 2009, C.A. in the Lawrence
       County Court of Common Pleas.

                                  -2-
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       9.    The parties stipulated that [Mr.] Razzano paid
       [Appellant] a total of $1,800.00 which cured DeSalvo’s
       default during the [period from October 2008 to February
       2009]. As a result, on March 16, 2009, the case at docket
       number 10040 of 2009, C.A. was settled and discontinued
       without prejudice.

       10. [Appellant] excused DeSalvo from making the March
       2009 payment….

       11. [Mr.] Razzano, as guarantor/surety, made regular
       payments of approximately $220.00 to [Appellant] from
       April 2009 through September 2010[.] [Mr.] Razzano
       suggested to DeSalvo that [Appellant] may be willing to
       hire DeSalvo to work on [Appellant’s] properties and credit
       the work against the debt, and DeSalvo performed
       construction work for [Appellant] on four different projects
       identified as the following: Main Medical, Riverview, Lower
       Burrell, and South Park.

       12. While DeSalvo testified that he had an oral
       agreement with [Appellant] whereby he would not charge
       the full price for this work and [Appellant] would credit the
       difference between the fair market value of the work
       performed and the charges actually made toward the
       balloon payment obligation, this was denied by
       [Appellant], and as the statement is self-serving and
       DeSalvo has no records to substantiate it, the [c]ourt finds
       this allegation not proven.

       13. [Appellant] introduced…an accounting of the
       payments [Appellant’s] business, Briar Cliff [Financial
       Services], LLC, rendered to DeSalvo.      The accounting
       shows that [Appellant] issued checks to DeSalvo for the
       Main Medical and Review projects from September 4, 2009
       to March 3, 2010, totaling [$13,721.43]. [Appellant] also
       issued checks to DeSalvo for the Lower Burrell project on
       April 28, 2010, for $1,900.00; and [Appellant] issued
       checks for the South Park project on September 21, 2009,
       September 30, 2009, October 13, 2009, for $4,500.00,
       $3,000.00, and $100.00, respectively.

       14.    Although neither party presented expert testimony,

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           DeSalvo testified that the fair market value for the
           construction   he    performed     totaled   approximately
           $50,000.00 and that [Appellant] agreed that the work
           would pay the amount owed under the balloon payment.
           As stated above this allegation was not proven.

           15. [Mr.] Razzano had no further contact with
           [Appellant] until [Appellant] filed the Complaint in the
           instant case.

           16. Sometime in…2010, …DeSalvo ceased performing
           construction work for [Appellant] and relocated to
           Tennessee.

           17. In 2011 [Appellant] had a phone conversation with
           DeSalvo in which he informed DeSalvo that the property
           was scheduled to be sold for unpaid taxes. DeSalvo stated
           that he had no further interest in the property.[2]
           [Appellant] obtained a tax deed from the Tax Claim Bureau
           of Lawrence County for the property on October 3, 2011 in
           exchange for $1,000.00. No notice of the tax sale or of
           the purchase by [Appellant] was given to [the Razzanos].

           18. [Appellant] filed a Complaint against [DeSalvo and
           the Razzanos] on February 2, 2011.

           19. DeSalvo failed to respond to the Complaint, and
           [Appellant] filed a praecipe to enter default judgment
           against him in the amount of $19,181.14.[3]

           20. On June [20], 2011, default judgment was entered
           by the Prothonotary of Lawrence County against DeSalvo
           in the above amount.

(Trial Court Opinion, filed January 5, 2015, at 1-4) (internal citations to the

record omitted).
____________________________________________

2
 Appellant successfully bid $1,000.00 for the property at the tax sale, which
occurred in May 2011.
3
    The Razzanos filed their answer to the complaint on June 6, 2011.

                                           -4-
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       The court conducted a bench trial on October 27, 2014. On January 5,

2015, the court entered a verdict in favor of the Razzanos and against

Appellant.    Appellant timely filed a post-trial motion on January 15, 2015.

On April 21, 2015, the Razzanos filed a motion to conform pleadings to

evidence, to add any defenses available to the Razzanos based on the

evidence presented at trial, including the defense of “discharge.” On May 1,

2015, the court denied Appellant’s post-trial motion and granted the

Razzanos’ motion to conform pleadings to evidence.         Appellant filed a

premature notice of appeal on May 21, 2015.          The court entered final

judgment in favor of the Razzanos on June 16, 2015.4       The court did not

order Appellant to file a concise statement of errors complained of on

appeal, pursuant to Pa.R.A.P. 1925(b), and Appellant filed none.

       Appellant raises the following issues for our review, which we have

reordered for purposes of disposition:

____________________________________________

4
  Ordinarily, an appeal properly lies from the entry of judgment, not from
the order denying post-trial motions. See generally Johnston the Florist,
Inc. v. TEDCO Constr. Corp., 657 A.2d 511, 516 (Pa.Super. 1995) (en
banc). Nevertheless, a final judgment entered during pendency of an appeal
is sufficient to perfect appellate jurisdiction. Drum v. Shaull Equipment
and Supply, Co., 787 A.2d 1050 (Pa.Super. 2001), appeal denied, 569 Pa.
693, 803 A.2d 735 (2002).          Here, Appellant filed a notice of appeal
prematurely on May 21, 2015, prior to the entry of judgment. Thus,
Appellant’s notice of appeal relates forward to June 16, 2015, the date
judgment was entered. See Pa.R.A.P. 905(a) (stating notice of appeal filed
after court’s determination but before entry of appealable order shall be
treated as filed after such entry and on date of entry).         Hence, no
jurisdictional defects impede our review.

                                           -5-
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          WHETHER THE TRIAL COURT ERRED ALLOWING THE
          RAZZANOS TO PRESENT THE AFFIRMATIVE DEFENSE OF
          “WAIVER”?

          WHETHER THE TRIAL COURT ERRED BY ALLOWING THE
          RAZZANOS TO PRESENT ANY AFFIRMATIVE DEFENSES?

          WHETHER THE TRIAL COURT ERRED IN HOLDING THAT
          [APPELLANT]    “SURRENDERED”  OR    “IMPAIRED”
          COLLATERAL TO DESALVO?

          WHETHER THE TRIAL COURT ERRED IN DETERMINING
          THAT THERE WAS A “MATERIAL MODIFICATION” OF THE
          TERMS OF THE RELATIONSHIP BETWEEN [APPELLANT]
          AND DESALVO?

          WHETHER THE TRIAL COURT ERRED IN DETERMINING
          THAT  THE  RAZZANOS    WERE “GRATUITOUS”  OR
          “UNCOMPENSATED” SURETIES?

          WHETHER THE TRIAL COURT ERRED IN HOLDING THAT
          [APPELLANT’S] DEMAND FOR A JUDGMENT WAS
          “UNCONSCIONABLE”?

(Appellant’s Brief at 7).

       In issues one and two, Appellant argues the Razzanos failed to raise

“discharge”5 or any other affirmative defense in their answer and new

matter. Appellant asserts the Razzanos did not amend their new matter to

include the defense of discharge at any time before or during trial, so it is

waived. Appellant further contends the Razzanos were barred from raising

any affirmative defense due to the entry of default judgment against Mr.

____________________________________________

5
 Appellant’s brief mistakenly refers to the Razzanos’ discharge defense as a
“waiver” defense. The Razzanos, however, claimed their surety obligation
was discharged by Appellant’s purchase of the property at the tax sale.

                                           -6-
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DeSalvo.     Appellant maintains the judgment against Mr. DeSalvo operated

as res judicata against the Razzanos because the Razzanos’ liability was

contingent on Mr. DeSalvo’s liability under the mortgage note.          Appellant

concludes the court erred when it permitted the Razzanos to raise any

affirmative defense not pled in their responsive pleading. We disagree.

      Our standard of review of a judgment following a non-jury trial is as

follows:

           We must determine whether the findings of the trial court
           are supported by competent evidence and whether the
           trial judge committed error in the application of law.
           Additionally, findings of the trial [court] in a non-jury case
           must be given the same weight and effect on appeal as a
           verdict of a jury and will not be disturbed absent error of
           law or abuse of discretion.

Good v. Holstein, 787 A.2d 426, 429 (Pa.Super. 2001), appeal denied, 568
Pa. 738, 798 A.2d 1290 (2002) (citation omitted).

           When this Court reviews the findings of the trial [court],
           the evidence is viewed in the light most favorable to the
           victorious party below and all evidence and proper
           inferences favorable to that party must be taken as true
           and all unfavorable inferences rejected.

           The trial court’s findings are especially binding on appeal,
           where they are based upon the credibility of the witnesses,
           unless it appears that the court abused its discretion or
           that the court’s findings lack evidentiary support or that
           the    court   capriciously   disbelieved    the   evidence.
           Conclusions of law, however, are not binding on an
           appellate court, whose duty it is to determine whether
           there was a proper application of law to the fact by the
           trial court. With regard to such matters, our scope of
           review is plenary as it is with any review of questions of
           law.

                                       -7-
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Piston v. Hughes, 62 A.3d 440, 443 (Pa.Super. 2013) (internal citations

omitted).

       “[A]n affirmative defense pertains to a defendant’s assertion of facts

and arguments that, if true, will defeat the plaintiff’s…claim, even if all the

allegations in the complaint are true.” Reott v. Asia Trend, Inc., 618 Pa.
228,   240,     55 A.3d 1088,    1095     (2012).    Generally,    “affirmative

defenses…must be pleaded in a responsive pleading under the heading ‘New

Matter.’”     Dilauro v. One Bala Avenue Associates, 615 A.2d 90, 92

(Pa.Super. 1992) (citing Pa.R.C.P. 1030). Affirmative defenses not raised in

new matter are generally waived pursuant to Pa.R.C.P. 1032.             Iorfida v.

Mary Robert Realty Co., Inc., 539 A.2d 383, 386 (Pa.Super. 1988),

appeal denied, 520 Pa. 576, 549 A.2d 136 (1988).                      Nevertheless,

Pennsylvania Rule of Civil Procedure 1033 states:

            Rule 1033. Amendment

            A party, either by filed consent of the adverse party or by
            leave of court, may at any time change the form of
            action, add a person as a party, correct the name of a
            party, or otherwise amend the pleading. The amended
            pleading may aver transactions or occurrences which have
            happened before or after the filing of the original pleading,
            even though they give rise to a new cause of action or
            defense. An amendment may be made to conform
            the pleading to the evidence offered or admitted.

Pa.R.C.P. 1033 (emphasis added).

       “Leave to amend lies within the sound discretion of the trial court and

the right to amend should be liberally granted at any stage of the

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proceedings unless there is an error of law or resulting prejudice to an

adverse party.” Werner v. Zazyczny, 545 Pa. 570, 584, 681 A.2d 1331,

1338 (1996).    “Prejudice that would prevent the grant of an amendment

must be…something more than a detriment to the other party since any

amendment almost certainly will be designed to strengthen the legal position

of the amending party and correspondingly to weaken the position of the

adverse party.” Carpitella by Carpitella v. Consolidated Rail Corp., 533
A.2d 762, 763-64 (Pa.Super. 1987).          “[T]he lateness of a proposed

amendment is only to be considered insofar as it presents a question of

prejudice to the opposing party.       It has been consistently held that

‘unreasonable delay,’ by itself, is an insufficient ground upon which to base a

denial of an amendment motion.”      Horowitz v. Universal Underwriters

Ins., 580 A.2d 395, 399 (Pa.Super. 1990), appeal denied, 527 Pa. 610, 590
A.2d 297 (1991).     See also Dilauro, supra (stating trial court properly

instructed jury on assumption of risk even though defendant did not raise

defense in responsive pleading, where facts indicated assumption of risk

would be central issue in case; court in effect permitted amendment of

defendant’s answer on court’s own motion); Standard Pipeline Coating

Co. v. Solomon & Teslovich, Inc., 496 A.2d 840 (Pa.Super. 1985)

(holding trial court did not err when it permitted plaintiff to amend complaint

to state cause of action based upon breach of oral novation, where

defendant first raised issue of novation and presented testimony regarding

                                     -9-
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meeting at which purported novation had occurred).

      “The doctrine of res judicata holds that a final valid judgment upon the

merits by a court of competent jurisdiction bars any future suit between the

same parties or their privies on the same cause of action.”           Dempsey v.

Cessna Aircraft Co., 653 A.2d 679, 680-81 (Pa.Super. 1995) (en banc),

appeal denied, 541 Pa. 631, 663 A.2d 684 (1995).               “Application of the

doctrine of res judicata requires that the two actions possess the following

common elements: (1) identity of the thing sued upon; (2) identity of the

cause of action; (3) identity of the parties; (4) identity of the capacity of the

parties.” Id. at 681.

      Instantly, the trial court reasoned as follows:

         During the course of the trial and in [Appellant’s] case in
         chief, [Appellant’s] counsel asked [Appellant]:

            Q.    Sir, there was a reference a moment ago in
            [the Razzanos’ counsel’s] opening statement about
            the fact that you have, in fact, acquired this property
            – the subject property?

            A.    Yes.

            Q.    Is it a vacant lot?

            A.    Yes.

            Q.    Where is it located?

            A.    On 65 near the corner of 422.

            Q.   Did you acquire          the    property   through   a
            mortgage foreclosure?

            A.    Tax -- tax sale.

                                        - 10 -
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            Q.     How did you acquire the property?

            A.     I bid at the tax sale.

            Q.   Okay, so you didn’t use a mortgage foreclosure
            process to obtain this property?

            A.     No.

            Q.    Okay, and how much did you pay at the tax
            sale?

            A.     $1,000.

            Q.     Was the public able to bid on this property?

            A.     Yes. Somebody else bid $500.

         [N.T. Trial, 10/27/14, at 24-25].

         The purchase by [Appellant] at [the] tax sale of the
         property in question[,] which was the subject of a
         mortgage loan from [Appellant] to [Mr.] DeSalvo[,] is the
         single fact upon which the court determined that [the
         Razzanos] as sureties were discharged from any further
         liability.  [The Razzanos] did not present any of the
         evidence concerning [Appellant’s] purchase of the property
         at tax sale. The evidence of the purchase was presented
         by [Appellant] as hereinabove stated. As such there is no
         issue of failure to plead an affirmative defense.
         [Appellant] cannot present the evidence on which the court
         relies and then complain that the evidence was admitted.

(Trial Court Opinion, filed May 1, 2015, at 1-2).         We agree that the

Razzanos’ initial failure to plead the affirmative defense of discharge in their

answer and new matter was not fatal under these circumstances. The tax

sale occurred after Appellant had filed the complaint, so the complaint did

not refer to it.   There also is no evidence that prior to filing a responsive

                                      - 11 -
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pleading, the Razzanos otherwise knew Appellant had acquired the property

at a tax sale.      Appellant’s own testimony regarding the purchase of the

property introduced the evidence underlying the Razzanos’ discharge

defense.6 Following the close of evidence, the Razzanos argued in their trial

memorandum that they were discharged from liability as sureties for Mr.

DeSalvo’s mortgage debt based on Appellant’s acquisition of the collateral,

i.e., the property.     In a motion for post-trial relief, Appellant claimed the

Razzanos had waived that defense.              The Razzanos, in turn, successfully

sought to conform the pleadings to the evidence, including the addition of

the affirmative defense of discharge.           Appellant fails to explain how the

Razzanos’ amendment of their answer and new matter prejudiced Appellant.

Appellant was the first party to present evidence supporting the Razzanos’

discharge defense and did not claim unfair surprise. Additionally, the timing

of the Razzanos’ motion to amend, absent more, is insufficient to establish

prejudice. See Horowitz, supra. Based on the foregoing, we conclude the

court properly allowed the Razzanos to conform their pleadings to the

evidence presented at trial. See Werner, supra.

       Additionally, the default judgment against Mr. DeSalvo did not trigger
____________________________________________

6
  Contrary to the statement of the trial court, the Razzanos also presented
testimony regarding Appellant’s purchase of the property. (See N.T. Trial at
66-67). Nevertheless, at that point, Appellant already had testified that he
bought the property.     Mr. Razzano’s testimony was cumulative of the
evidence first presented by Appellant. Thus, the trial court’s misstatement
does not affect our analysis.

                                          - 12 -
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the doctrine of res judicata and preclude the Razzanos from raising any

defenses. Mr. DeSalvo and the Razzanos are separate parties. Further, the

nature of Appellant’s cause of action against Mr. DeSalvo as principal

borrower was distinct from Appellant’s claims against the Razzanos in their

capacity as sureties (and whether the Razzanos had any meritorious

defenses in their capacity as sureties).     The default judgment against Mr.

DeSalvo established only his individual liability for the mortgage debt.

Therefore, the doctrine of res judicata is inapplicable to Appellant’s cause of

action against the Razzanos. See Dempsey, supra.

      In issue three, Appellant argues the property would have been lost to

a third-party buyer if Appellant had not purchased it at the public tax sale,

which protected and preserved the property as collateral. Appellant asserts

the Razzanos had no “security” in the property under the mortgage note,

and Appellant’s purchase of the property did not impair any legal right of the

Razzanos.     Appellant concludes the trial court erred when it decided

Appellant had surrendered or impaired the collateral under the note, which

discharged the Razzanos’ surety obligations. We disagree.

      The following general principles govern a surety arrangement:

         Where there is a surety relationship, an obligee…is entitled
         to performance of a contractual duty by the principal or
         alternatively, if the principal defaults, by the principal’s
         surety. The surety, therefore, stands in the shoes of the
         principal and must complete any obligation due the obligee
         at the time of default.

Kiski Area School Dist. v. Mid-State Surety Corp., 600 Pa. 444, 450,

                                    - 13 -
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967 A.2d 368, 371 (2008). “Attendant to this special relationship are duties

of the creditor to the surety.” Good, supra at 430. “[W]here a surety has

performed upon the default of the principal debtor, the surety has a right to

reimbursement from the principal debtor and is subrogated to the rights of

the creditor.”   Reuter v. Citizens & Northern Bank, 599 A.2d 673, 677

(Pa.Super. 1991). “[A] release or impairment of collateral defeats in whole

or part the surety’s right to look to such security for recourse should he have

to pay the principal debt.” Keystone Bank v. Flooring Specialists, Inc.,

513 Pa. 103, 114, 518 A.2d 1179, 1185 (1986). “[I]f a creditor surrenders

or impairs collateral which serves as security for the principal’s debt, the

surety is discharged from his obligation to the extent that the collateral

would have produced sufficient funds to pay the debt in whole or in part.”

First Federal Sav. & Loan Ass’n of Pittston v. Reggie, 546 A.2d 62, 65

(Pa.Super. 1988). See also Franklin Savings & Trust Co. of Pittsburgh

v. Clark, 283 Pa. 212, 129 A. 56 (1925) (stating: “[W]hen a creditor has in

his possession the property of a principal debtor, out of which his debt may

be paid, and does not apply it to the payment of the debt, but gives it up, a

surety is discharged; or if the property be not actually in his hands, or he did

not really assent to its passing from him, yet if, by the use of reasonable

diligence, the property may be obtained and applied to the debt, his duty is

to obtain and so use it”);   First Nat. Bank & Trust Co. of Ford City v.

Stolar, 197 A. 499 (Pa.Super. 1938) (stating impairment of collateral

                                     - 14 -
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discharges surety to extent of impaired value even if surety was not in

position to enforce subrogation at time of impairment).

        Instantly, Mr. DeSalvo obtained a mortgage loan from Appellant to

purchase the property from Razzano Holdings, LLC. The Razzanos executed

a surety agreement with Appellant with respect to Mr. DeSalvo’s obligations

under the mortgage note.      Mr. DeSalvo subsequently defaulted on the

mortgage, and the Razzanos cured the default with an agreed-upon payment

to Appellant.   Mr. DeSalvo again failed to make payments, and Appellant

filed the instant complaint against Mr. DeSalvo and the Razzanos in February

2011.    The property also was tax delinquent.   After he filed his complaint

against Mr. DeSalvo and the Razzanos, Appellant purchased the property at

a public tax sale in May 2011 for $1,000.00. The Razzanos had no notice of

the tax sale.    The property served as collateral securing Mr. DeSalvo’s

mortgage debt.    As sureties, the Razzanos were entitled to subrogation to

Appellant’s creditor rights in the event they paid off Mr. DeSalvo’s debt,

including the right to the collateral. After Appellant purchased the property

at the tax sale, however, he failed to apply its value to Mr. DeSalvo’s debt,

and the Razzanos could no longer exercise their subrogation rights to obtain

the property. Therefore, Appellant’s actions impaired the entire value of the

collateral and discharged the Razzanos’ obligation as sureties to the extent

of the impairment.    See Franklin Savings & Trust Co. of Pittsburgh,

supra; First Federal Sav. & Loan Ass’n of Pittston. The property was

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valued at $25,000.00 by an “arm’s length” transaction between Appellant

and Mr. DeSalvo in 2007.7 The tax sale occurred in May 2011. According to

Appellant’s own documentary evidence, Mr. DeSalvo’s mortgage debt

amounted to $17,703.69 as of June 2, 2011. Thus, the impaired collateral

would have provided sufficient funds to pay off the entire debt. Therefore,

the trial court properly concluded the Razzanos were completely discharged

from their obligation as sureties on behalf of Mr. DeSalvo. See id.

       In issues four and five, Appellant argues the Razzanos’ suretyship

materially benefitted the Razzanos’ company because it facilitated the

company’s sale of the property to Mr. DeSalvo.         Appellant contends the

Razzanos were not gratuitous or uncompensated sureties in light of their

material interest in the loan to Mr. DeSalvo. Appellant asserts the Razzanos

could only be discharged if, without their consent, there was a material

modification of the creditor-debtor relationship that substantially increased

the Razzanos’ risk.          Appellant claims the creditor-debtor relationship

between Appellant and Mr. DeSalvo was not materially modified by

Appellant’s purchase of the property at a tax sale. Appellant maintains Mr.

DeSalvo had no involvement in Appellant’s decision to buy the property, and

no evidence shows the purchase of the property had any purpose other than
____________________________________________

7
  Appellant produced no evidence regarding any change in the property’s
value since that time. Mr. Razzano also presented testimony that he valued
the property at $35,000.00 or $40,000.00 at the time of the sale to Mr.
DeSalvo.

                                          - 16 -
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to preserve the collateral. Appellant further argues there was no evidence

that the tax sale purchase substantially increased the risk borne by Mr.

DeSalvo, who had already defaulted on the note. Appellant concludes the

court erred when it determined the Razzanos’ surety obligation was

discharged on the grounds that they were gratuitous sureties and Appellant’s

purchase of the property materially modified the contractual relationship

between Appellant and Mr. DeSalvo. We disagree.

     “[W]here the creditor and the debtor materially modify the terms of

their relationship without obtaining the surety’s assent thereto, the surety’s

liability may be affected.” J.F. Walker Co. v. Excalibur Oil Group, Inc.,

792 A.2d 1269, 1274 (Pa.Super. 2002).

        A material modification in the creditor-debtor relationship
        consists of a significant change in the principal debtor’s
        obligation to the creditor that in essence substitutes an
        agreement substantially different from the original
        agreement on which the surety accepted liability.
        Furthermore, Pennsylvania courts have consistently
        differentiated   between    gratuitous   (uncompensated)
        sureties and sureties who are compensated:

           While we have held that in cases of corporate
           sureties the bond is to be strictly construed in favor
           of the obligee, we have also held that, when
           obligations of suretyship or indemnity are assumed
           by individuals without pecuniary compensation, their
           obligations are not to be extended by implication or
           construction. Their liability is strictissimi juris.

        [W]here, without the surety’s consent, there has been a
        material modification in the creditor-debtor relationship, a
        gratuitous  (uncompensated)       surety    is   completely
        discharged.    In contrast, a compensated surety is
        discharged only if, without the surety’s consent, there has

                                    - 17 -
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         been a material modification of the creditor-debtor
         relationship and said modification has substantially
         increased the surety’s risk.

Id.   (internal    citations   and   quotation   marks   omitted)   (holding   sole

shareholder in corporation was not gratuitous surety where, in exchange for

his guarantee, creditor extended line of credit to corporation).

      Instantly, the trial court reasoned as follows: “[The] Razzanos are

gratuitous sureties.     [The] R[a]zzanos are discharged from any liability on

the Guarantee and Suretyship Agreement as [Appellant] has taken for his

own benefit the collateral, thus drastically altering the relationship between

[Appellant] and DeSalvo.” (Trial Court Opinion, filed January 5, 2015, at 7).

We agree. Appellant’s acquisition of the property effectively eliminated the

collateral securing the loan and materially modified the creditor-debtor

relationship.     The Razzanos did not consent to Appellant’s purchase of the

property.       Consequently, as gratuitous sureties, the Razzanos were

completely discharged from performance of Mr. DeSalvo’s obligations to

Appellant. See id. The Razzanos’ indirect benefit from the loan transaction

did not make them compensated sureties.           The facts of J.F. Walker Co.

supra, are distinguishable because the surety in that case was also the sole

shareholder of the corporation that received the guaranteed line of credit.

Moreover, the unavailability of the collateral to the Razzanos substantially

increased their risk as sureties.          Therefore, the Razzanos would be

discharged even if they were classified as compensated sureties.          See id.

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J-A10040-16

Based on the foregoing, the trial court properly concluded the Razzanos’

surety obligations were completely discharged on two grounds: (1)

Appellant’s impairment of the collateral; and (2) material modification of the

creditor-debtor      relationship     between      Appellant   and   Mr.   DeSalvo.

Accordingly, we affirm.8

       Judgment affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 6/9/2016

____________________________________________

8
   In issue six, Appellant disputes the court’s use of the word
“unconscionable” and cites law pertaining to the defense of unconscionability
in contract law. The court stated: “Now [Appellant] seeks to collect the
money loaned and keep the land. Such a result is not only unconscionable
but also not sanctioned by the law.” (Trial Court Opinion, filed January 5,
2015, at 7). The context of the statement makes clear the court was not
using the term “unconscionable” in the strict contract law sense but simply
emphasizing the unjust result that would occur if the court granted
Appellant’s requested relief.   Therefore, we give this issue no further
attention.

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