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Good v. Holstein

In case concerning default on mortgage by defendant's corporation, judgment finding defendants personally liable on the deficiency remaining on the mortgage reversed because plaintiff could not be permitted to manipulate the mortgage priority rules to extend a surety agreement on a senior mortgage to an unrelated junior mortgage.

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�1 Appellants, Timothy and Donna Holstein, ask us to determine whether the trial court erred when it found them personally liable to Appellee, Ethan Good, in the amount of $315,841.18. We hold that the trial court improperly found Appellants personally liable and reverse the trial court’s judgment.

�2 The relevant facts and procedural history of this appeal are as follows. On May 29, 1992, Appellants’ corporation, Blue Mack, Inc., bought real estate at 401 West High Street in Pottstown, Pennsylvania, from Mrs. Smiths, Inc. (later “Eggo”). The parties executed a purchase money mortgage to finance the conveyance in the amount of $340,000.00. Appellants also executed a personal surety agreement with Mrs. Smith’s for the full amount of the mortgage.

�3 In 1993, Blue Mack purchased the assets of Appellee’s corporation, Good Transport Ltd. In the transaction, Good Transport acquired a second mortgage from Blue Mack on the 401 West High Street property. There was no personal surety agreement between the parties concerning the second mortgage. In May, 1995, Blue Mack defaulted on both mortgages. Mrs. Smith’s, now doing business as Eggo, did not sue on the default of the first mortgage, but Good Transport did sue on the second mortgage and obtained a writ of execution for the 401 West High Street property on June 4, 1998. Appellee, Ethan Good, then purchased the first mortgage and note on the property from Eggo on August 28, 1998 for $70,000.00. No mention was made of the surety agreement during this transaction.

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