Hartley, D. and Hartley, D. v. Hynes, S.

J-A19023-18

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

D. MICHAEL HARTLEY AND D. KENT : IN THE SUPERIOR COURT OF

HARTLEY : PENNSYLVANIA

:

:

v. :

:

:

STEPHEN J. HYNES, DOUGLAS J. :

HYNES, LESLIE A. HYNES AND : No. 1991 MDA 2017

MIDLANTIC ERECTORS, INC. :

:

Appellants :

Appeal from the Order Entered December 13, 2017

In the Court of Common Pleas of Berks County Civil Division at No(s):

16-2126

BEFORE: GANTMAN, P.J., NICHOLS, J., and FORD ELLIOTT, P.J.E.

MEMORANDUM BY NICHOLS, J.: FILED OCTOBER 19, 2018

Appellants Stephen J. Hynes, Douglas A. Hynes, Leslie A. Hynes

(collectively, the Hynes), and Midlantic Erectors, Inc. (Midlantic), appeal from

the order denying their petition to open judgment by confession in favor of

Appellees D. Michael Hartley and D. Kent Hartley (collectively, the Hartleys).1

We affirm.

As the trial court observes, the factual background of this case is

intricate but substantially undisputed by the parties.2 Metropolitan Steel

____________________________________________

1 We refer to the individual Hynes by their first names.

2 Nonetheless, we state the facts in the light most favorable to Appellants.

Iron Worker’s Savs. & Loan Ass’n v. IWS, Inc., 622 A.2d 367, 370 (Pa.

Super. 1993) (IWS).

J-A19023-18

Industries, Inc. (MSI) is a steel fabrication company. MSI borrowed over $1.2

million from Wells Fargo, which was secured by a note (Wells Fargo Note)

giving Wells Fargo a lien and security interest in MSI’s assets, i.e., the

collateral for the loan. In pertinent part, the Wells Fargo Note provided that

MSI would pay the outstanding balance and interest by July 1, 2015.3 Default

under the note would occur if MSI failed to make any payment or if a guarantor

disputed the validity of any guaranty.4 R.R. at 25a (listing ten events of

default).5

To obtain the loan, each of the Hynes and Midlantic agreed to execute

a guaranty unconditionally guaranteeing payment of MSI’s loan to Wells

Fargo. In pertinent part, the guaranty provides as follows:

For good and valuable consideration, Guarantor absolutely and

unconditionally guarantees full and punctual payment and

satisfaction of Guarantor’s Share of the Indebtedness of Borrower

to Lender, and the performance and discharge of all Borrower’s

obligations under the Note and the Related Documents. This is a

guaranty of payment and performance and not of collection, so

Lender can enforce this Guaranty against Guarantor even when

Lender has not exhausted Lenders remedies against anyone else

obligated to pay the Indebtedness or against any collateral

securing the Indebtedness, this Guaranty or any other guaranty

of the Indebtedness. Guarantor will make any payments to

Lender or its order, on demand, in legal tender of the United

States of America, in same-day funds, without set-off or deduction

____________________________________________

3The Wells Fargo loan provided for eleven monthly payments in one set

amount, and the remainder in one “balloon” payment.

4The Wells Fargo Note referenced “Guarantor” and “Guaranty” but did not

define those terms.

5 We cite to the reproduced record for the parties’ convenience.

-2-

J-A19023-18

or counterclaim, and will otherwise perform Borrowers obligations

under the Note and Related Documents.

R.R. at 32a, 38a, 44a, 50a.

The guaranty also explicitly waives numerous rights by the guarantor,

including any right to require the lender to “resort for payment or to proceed

directly or at once against any person, including Borrower or any other

guarantor [and] to proceed directly against or exhaust any collateral held by

Lender from Borrower, any other guarantor, or any other person.” Id. at 33a,

39a, 45a, 51a. Furthermore, the guaranty specifically states that the

“Guarantor also waives any and all rights or defenses based on suretyship or

impairment of collateral.” Id. The guarantor also “waives and agrees not to

assert or claim at any time any deductions to the amount guaranteed under

this Guaranty for any claim of setoff, counterclaim, counter demand,

recoupment or similar right, whether such claim, demand or right may be

asserted by the Borrower, the Guarantor, or both.” Id.

Leslie, who owned MSI’s stock, sold the stock to his sons, Stephen and

Douglas. On November 6, 2014, Stephen and Douglas subsequently entered

a stock purchase agreement to sell MSI to Steelco Acquisitions, LLC (Steelco).

Steelco is owned by the Hartleys and non-party CECTraining, LLC, a company

controlled by Charles Farris. Simply put, for a combined total of $5,000,000,

Michael and Kent each purchased 30% of MSI’s stock, and CECTraining

-3-

J-A19023-18

purchased the remaining 40%.6 Of the $5,000,000 purchase price, $750,000

was payable at closing, with the remainder payable under a promissory note

(Hynes Promissory Note) executed by Steelco that same day.

Section 7.4 of the stock purchase agreement provided that Steelco could

offset the amount owed under the Hynes Promissory Note in accord with the

following:

In event that Purchaser should determine that that the Company

actually had (i) less collectible Accounts Receivable as of

September 30, 2014, then Purchaser shall notify the Shareholders

of the same, and the Note shall be offset by the amount of the

deficit, or (ii) greater Accounts Payable as of September 30, 2014,

then Purchaser shall notify the Shareholders of the same, and the

Note shall be offset by the amount of the excess.

R.R. at 301a.

On February 1, 2015, Steelco made an initial installment payment under

the Hynes Promissory Note. On April 29, 2015, the Hartleys and CECTraining

advised the Hynes that they would be invoking Section 7.4 and not make

payments due under the Hynes Promissory Note. Id. at 194a. They

____________________________________________

6 Steelco, the Hartleys, and CECTraining had executed an assignment and

assumption agreement, in which Steelco assigned its rights to purchase the

MSI stock directly to the Hartleys and CECTraining. In conjunction with the

execution of the (1) stock purchase agreement and (2) assignment and

assumption agreement, MSI, Wells Fargo, the Hynes, the Hartleys, and

CECTraining signed a consent agreement. The agreement provided that Wells

Fargo consented to the stock sale of MSI as long as the Wells Fargo loan was

paid before any other debts. The Hynes and Midlantic each signed a

reaffirmation of commercial guaranty, which confirmed their guarantor status

of the Wells Fargo loan.

-4-

J-A19023-18

suggested that MSI had debts and accounts payable in excess of what was

represented in the stock purchase agreement. Id. at 195a. Therefore, the

Hartleys and CECTraining withheld payment. MSI failed to make a payment

under the Wells Fargo Note, including the final payment owed by July 1, 2015.7

On July 31, 2015, Wells Fargo notified all parties, including MSI, the

Hynes, and Midlantic, of the default under the Wells Fargo Note. On

September 21, 2015, the Hartleys purchased the Wells Fargo Note and the

above-mentioned guaranties under a loan sale agreement for the full value of

the then-outstanding amount owed to Wells Fargo, i.e., approximately $1.2

million. Accordingly, the Hartleys assumed the role of Wells Fargo, the lender,

in the Wells Fargo Note, and also received the Hynes Promissory Note.

Subsequently, on March 10, 2016, the Hartleys became the sole

shareholders of MSI.8 MSI continued to have financial issues, and ultimately

filed for bankruptcy on August 3, 2016. East Coast SteelFab, LLC, a company

owned by the Hartleys, offered to purchase MSI’s assets. The bankruptcy

____________________________________________

7 On July 24, 2015, Appellants sued Steelco, the Hartleys, CECTraining, and

Farris. That lawsuit, which is separate from the one before us, raises various

claims regarding payment under the Hynes Promissory Note and is still

ongoing. The most recent activity on the docket was on October 9, 2018,

when the Hynes and Midlantic moved to strike the objection of the Hartleys

and Steelco to a proposed third-party subpoena. Docket, No. 15-15579

(C.C.P. Berks).

8 MSI purchased CECTraining’s shares.

-5-

J-A19023-18

trustee for MSI and the United States Bankruptcy Court for the Eastern District

of Pennsylvania approved the sale. The court’s order approving the sale noted

that the Hartleys would have a secured claim against MSI for around $1.2

million—the amount apparently owed under the Wells Fargo Note.9

On December 7, 2016, the Hartleys filed a complaint for confession of

judgment against Appellants for $1,392,547.29, which included the $1.2

million principal, interest, and counsel fees. R.R. at 6a. On January 12, 2017,

Appellants filed a petition to open the judgment, which raised several

defenses. First, Appellants argued that the Wells Fargo Note was satisfied

when East Coast SteelFab purchased MSI’s assets at the bankruptcy sale. Id.

at 140a-41a. Second, after the Hartleys purchased the Wells Fargo Note,

Appellants contended that they are entitled to a discharge because the

Hartleys impaired or otherwise failed to preserve MSI’s assets—the collateral

for the Wells Fargo Note. Id. at 142a. Third, Appellants claimed the Hartleys

acted in bad faith by intentionally or negligently mismanaging MSI by failing

to sell MSI’s assets to satisfy the Wells Fargo Note. Id. Although Appellants’

petition did not argue that the guaranties were invalid, their brief in support

argued that the guaranties’ waiver of defenses should be invalid when “the

holders of a note [i.e., Appellees,] are simultaneously in full control of the

principal obligee on the note [i.e., MSI].” Id. at 522a.

____________________________________________

9 Appellants’ brief did not address this particular amount.

-6-

J-A19023-18

Following Appellees’ brief in opposition and oral argument, the parties

filed supplemental briefs addressing the validity of the guaranties’ waiver-of-

defenses clause. Appellants argued that the Pennsylvania Uniform

Commercial Code (UCC) invalidated the guaranties’ waiver of Appellants’

“impairment of collateral defense.” Id. at 576a. Appellees disagreed. Id. at

564a.

The trial court denied Appellants’ petition to open the judgment on

December 13, 2017. Appellants timely appealed and timely filed a court-

ordered Pa.R.A.P. 1925(b) statement.

Appellants raise the following questions on appeal:

1. Did the trial court err by not finding that the confessed

judgment should be opened because (1) Creditor Appellees D.

Michael Hartley and D. Kent Hartley (the “Hartleys”), who were

100 percent owners of the principal Debtor Metropolitan Steel

Industries, Inc. (“MST”), and thus owed themselves the full

amount of the Wells Fargo Loan, intentionally impaired the

collateral for the Wells Fargo Loan by refusing to pay off a single

penny of the loan or sell the company’s assets to satisfy the debt

and ultimately drove Metropolitan Steel Industries into bankruptcy

knowing they would just pursue the Hynes Defendants instead,

and (2) the waiver of defenses contained in the commercial

guaranties provided by the Hynes Defendants is void and

unenforceable to the extent that it conflicts with the provisions of

the Uniform Commercial Code, as adopted and codified in

Pennsylvania, that require creditors to use reasonable care to

preserve collateral, as set forth in 13 Pa. C.S.A. § 9207(a)?

2. Did the trial court err by not finding that principles of equity

required that the confessed judgment be opened because the

Hartleys had acted in bad faith by deliberately, or at the very least

grossly negligently, mismanaging MSI into bankruptcy and

destroying the value of its assets while holding the Wells Fargo

Loan, before purchasing the company’s assets out of bankruptcy

free of all liens and encumbrances?

-7-

J-A19023-18

Appellants’ Brief at 6-7.

We summarize Appellants’ arguments for both of their issues together.

Appellants begin by asserting that under 13 Pa.C.S. § 9207(a), a “secured

party shall use reasonable care in the custody and preservation of collateral

in [its] possession.” Id. at 23 (quoting 13 Pa.C.S. § 9207(a)) (brackets in

original and internal quotation marks omitted); id. at 23-24 (citing caselaw

recognizing the defense of impairment of collateral). Appellants concede that

a guarantor may waive such a defense, but maintain that any such waiver

would violate the anti-waiver provisions of the Pennsylvania UCC. Id. at 24-

25 (citing Ford Motor Credit Co. v. Lotosky, 549 F. Supp. 996 (E.D. Pa.

1982)).10 Appellants claim that no Pennsylvania state court has addressed

the “waivability of a creditor’s duty to use reasonable care to preserve

collateral” but assert that several states have held that such a duty is not

waivable. Id. at 26-27. Appellants then argue that the record establishes

that the Hartleys impaired MSI’s collateral. Id. at 28-29. Appellants fault the

____________________________________________

10We recognize that “federal court decisions do not control the determinations

of the Superior Court. Our law clearly states that, absent a United States

Supreme Court pronouncement, the decisions of federal courts are not binding

on Pennsylvania state courts, even when a federal question is involved.”

NASDAQ OMX PHLX, Inc. v. PennMont Secs., 52 A.3d 296, 303 (Pa.

Super. 2012) (citation omitted). In any event, as explained below, Ford

Motor Credit construed 13 Pa.C.S. § 9501, which was subsequently replaced

and renumbered. Appellants elected to waive any argument addressing the

applicability, if any, of section 9501’s statutory successor.

-8-

J-A19023-18

trial court for not reviewing the guaranties against that backdrop. Id. at 31.

Appellants similarly suggest that their failure to object to the guaranty’s

waiver clause at the time of execution was not a waiver because a clause that

violates public policy is void. Id. at 31-32.

Appellants also assert that they are entitled to equitable relief given the

Hartleys’ actions in purchasing MSI, causing MSI to file for bankruptcy, and

then entering confessed judgments. Id. at 34. Appellants suggest that the

bankruptcy court’s approval of the sale of MSI’s assets to the Hartleys did not

prevent them from challenging the confession of judgment based on the

Hartleys’ bad faith. Id. at 36.

We review an order denying a petition to open a confessed judgment

for an abuse of discretion. IWS, 622 A.2d at 370. The IWS Court provides

as follows:

Traditionally, a confessed judgment will be opened in only a

limited number of circumstances, and only when the person

seeking to open acts promptly, alleges a meritorious defense and

presents sufficient evidence of that defense to require submission

of the issues to the jury. In making such a determination, the

court employs the same standard as that of the directed verdict—

viewing all the evidence in the light most favorable to the

petitioner and accepting as true all evidence and proper inferences

therefrom supporting the defense while rejecting adverse

allegations of the party obtaining the judgment.

Id. (citations and quotation marks omitted). “Equitable considerations are

generally no longer relevant unless related to a particular defense asserted.”

Bell Fed. Sav. & Loan Ass’n of Bellevue v. Laura Lanes, Inc., 435 A.2d

1285, 1286 (Pa. Super. 1981) (Bellevue) (citation, quotation marks, and

-9-

J-A19023-18

alteration in original omitted); accord Homart Dev. Co. v. Sgrenci, 662

A.2d 1092, 1097 (Pa. Super. 1995). Equity must follow the law. Murray v.

Willistown Twp., 169 A.3d 84, 94 (Pa. Super. 2017).

Pennsylvania Rule of Civil Procedure 2959 addresses the opening of a

judgment.

The court shall dispose of the rule on petition and answer, and on

any testimony, depositions, admissions and other evidence. The

court for cause shown may stay proceedings on the petition

insofar as it seeks to open the judgment pending disposition of

the application to strike off the judgment. If evidence is produced

which in a jury trial would require the issues to be submitted to

the jury the court shall open the judgment.

Pa.R.Civ.P. 2959(e).11

Before quoting the relevant Pennsylvania UCC statutes, we state the

rules of statutory construction, which are well-settled:

The Statutory Construction Act, 1 Pa.C.S. §§ 1901–1991, sets

forth principles of statutory construction to guide a court’s efforts

with respect to statutory interpretation. In so doing, however, the

Act expressly limits the use of its construction principles. The

purpose of statutory interpretation is to ascertain the General

Assembly’s intent and to give it effect. In discerning that intent,

courts first look to the language of the statute itself. If the

language of the statute clearly and unambiguously sets forth the

legislative intent, it is the duty of the court to apply that intent

and not look beyond the statutory language to ascertain its

____________________________________________

11 Rule 2959(c) provides that a “party waives all defenses and objections

which are not included in the petition or answer.” Pa.R.Civ.P. 2959(c). Here,

Appellants did not challenge the validity of the guaranties’ waiver-of-defenses

clause until oral argument, during which the trial court apparently ordered

supplemental briefs on this particular argument. Because the trial court did

not find waiver, we similarly decline. Indeed, we note that the trial court

quoted Rule 2959(c) without further discussion. Trial Ct. Op. at 4.

- 10 -

J-A19023-18

meaning. Courts may apply the rules of statutory construction

only when the statutory language is not explicit or is ambiguous.

. . . We must read all sections of a statute together and in

conjunction with each other, construing them with reference to

the entire statute. When construing one section of a statute,

courts must read that section not by itself, but with reference to,

and in light of, the other sections. Statutory language must be

read in context, together and in conjunction with the remaining

statutory language.

Every statute shall be construed, if possible, to give effect to all

its provisions. We presume the legislature did not intend a result

that is absurd, impossible, or unreasonable, and that it intends

the entire statute to be effective and certain. When evaluating

the interplay of several statutory provisions, we recognize that

statutes that relate to the same class of persons are in pari

materia and should be construed together, if possible, as one

statute.

Retina Assocs. of Greater Phila., Ltd. v. Retinovitreous Assocs., Ltd.,

176 A.3d 263, 270 (Pa. Super. 2017) (citations and internal quotation marks

omitted) (Retina). “In construing a statute, the court must ascertain and

give effect to the legislative intention as expressed in the language of the

statute, and cannot, under its powers of construction, supply omissions in a

statute, especially where it appears that the matter may have been

intentionally omitted.” In re T.S., ___ A.3d ___, 2018 WL 4001825, *11 (Pa.

2018) (citation and brackets omitted).

With regard to whether a contract or a particular contractual clause

violates public policy, the Pennsylvania Supreme Court has stated:

Public policy is more than a vague goal which may be used to

circumvent the plain meaning of a statute. . . .

- 11 -

J-A19023-18

Public policy is to be ascertained by reference to the laws

and legal precedents and not from general considerations of

supposed public interest. As the term “public policy” is

vague, there must be found definite indications in the law of

the sovereignty to justify the invalidation of a contract as

contrary to that policy. Only dominant public policy would

justify such action. In the absence of a plain indication of

that policy through long governmental practice or statutory

enactments, or of violations of obvious ethical or moral

standards, the Court should not assume to declare contracts

contrary to public policy. The courts must be content to

await legislative action.

It is only when a given policy is so obviously for or against

the public health, safety, morals or welfare that there is a

virtual unanimity of opinion in regard to it, that a court may

constitute itself the voice of the community in so declaring.

There must be a positive, well-defined, universal public

sentiment, deeply integrated in the customs and beliefs of

the people and in their conviction of what is just and right

and in the interests of the public weal. Only in the clearest

cases, therefore, may a court make an alleged public policy

the basis of judicial decision.

Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994) (citations and

ellipses in original omitted); see also Seebold v. Prison Health Servs.,

Inc., 57 A.3d 1232, 1245 n.19 (Pa. 2012) (stating it “is the Legislature’s chief

function to set public policy and the courts’ role to enforce that policy, subject

to constitutional limitations” (citation omitted)).

Section 3605 of the Pennsylvania UCC, Article 3, Negotiable

Instruments, states that a party may not assert a defense of impairment of

collateral if that party waived such a defense either generally or specifically:

(i) Other limitations on discharge.—A party is not discharged

under this section if:

* * *

- 12 -

J-A19023-18

(2) the instrument or a separate agreement of the party

provides for waiver of discharge under this section either

specifically or by general language indicating that parties waive

defenses based on suretyship or impairment of collateral.

13 Pa.C.S. § 3605(i)(2).12

Section 9207 of the Pennsylvania UCC, Division 9, Secured Transactions,

imposes a duty of care upon a secured party in possession of collateral:

(a) Duty of care when secured party in possession.—Except

as otherwise provided in subsection (d),[13] a secured party shall

use reasonable care in the custody and preservation of collateral

in the secured party’s possession. In the case of chattel paper or

an instrument, reasonable care includes taking necessary steps to

preserve rights against prior parties unless otherwise agreed.

(b) Expenses, risks, duties and rights when secured party

in possession.—Except as otherwise provided in subsection (d),

if a secured party has possession of collateral:

* * *

(4) The secured party may use or operate the collateral:

(iii) except in the case of consumer goods, in the manner

and to the extent agreed by the debtor.

____________________________________________

12No party, however, explicitly addressed whether the guaranties at issue are

negotiable instruments under article 3, qualify as “separate agreements”

under 13 Pa.C.S. § 3605(i)(2), or are secured transactions under article 9. All

parties have seemingly construed the guaranties as subject under both

articles.

13Subsection (d) addresses when “the secured party is a buyer of accounts,

chattel paper, payment intangibles or promissory notes or a consignor.” 13

Pa.C.S. § 9207(d).

- 13 -

J-A19023-18

13 Pa.C.S. § 9207(a), (b)(4)(iii).

Section 9602 lists the rights and duties that cannot be waived by a

debtor or obligor:

Except as otherwise provided in section 9624 (relating to

waiver),[14] to the extent that they give rights to a debtor or

obligor and impose duties on a secured party, the debtor or obligor

may not waive or vary the rules stated in:

(1) section 9207(b)(4)(iii) (relating to expenses, risks, duties

and rights when secured party in possession) . . . .

13 Pa.C.S. § 9602(1). Comment 2 to section 9602 states that the “specified

rights of the debtor and duties of the secured party may not be waived or

varied except as stated.” Id. cmt. 2. Comment 3 similarly states that section

____________________________________________

14 Section 9624 follows:

(a) Waiver of disposition notification.—A debtor or secondary

obligor may waive the right to notification of disposition of

collateral under section 9611 (relating to notification before

disposition of collateral) only by an agreement to that effect

entered into and authenticated after default.

(b) Waiver of mandatory disposition.—A debtor may waive

the right to require disposition of collateral under section 9620(e)

(relating to mandatory disposition of consumer goods) only by an

agreement to that effect entered into and authenticated after

default.

(c) Waiver of redemption right.—Except in a consumer-goods

transaction, a debtor or secondary obligor may waive the right to

redeem collateral under section 9623 (relating to right to redeem

collateral) only by an agreement to that effect entered into and

authenticated after default.

13 Pa.C.S. § 9624.

- 14 -

J-A19023-18

9602 “provides generally that the specified rights and duties ‘may not be

waived or varied.’” Id. cmt. 3. Section 9207(a) is not in the list of sections

that cannot be waived under section 9602.

In Lotosky, a federal district court was tasked with construing a prior

version of the Pennsylvania UCC, specifically 13 Pa.C.S. § 9501(c), which

provided as follows:

(c) Limitation on waiver of certain provisions.—To the extent

that they gave rights to the debtor and impose duties on the

secured party, the rules stated in the following provisions of this

title may not be waived or varied except as provided with respect

to compulsory disposition of collateral (Section 9505(a)) and with

respect to redemption of collateral (section 9506) but the parties

may by agreement determine the standards by which the

fulfillment of these rights and duties is to be measured if such

standards are not manifestly unreasonable.

(1) Section 9502(b) and section 9404(b) insofar as they require

accounting for surplus proceeds of collateral.

(2) Section 9504(c) and section 9505(a) which deal with

disposition of collateral.

(3) Section 9505(b) which deals with acceptance of collateral as

discharge of obligation.

(4) Section 9506 which deals with redemption of collateral.

(5) Section 9507(a) which deals with the liability of [a] secured

party for failure to comply with this chapter.

- 15 -

J-A19023-18

Lotosky, 549 F. Supp. at 999 n.16 (quoting 13 Pa.C.S. § 9501(c) (repealed

2001)).15 According to the court in Lotosky, a comment to section 9501

codified

this long standing and deeply rooted attitude: the specified

rights of the debtor and duties of the secured party may not

be waived or varied except as stated.

13 Pa.Con.Stat.Ann. § 9501 comment 4 . . . . Thus, the statute

and comments unequivocally declare that as a matter of public

policy a creditor’s duty to use reasonable care in the custody and

preservation of collateral and upon default to dispose of the

collateral in a commercially reasonable manner is not subject to

waiver or modification by agreement.

Id. at 1001 (emphases and footnotes omitted).

Initially, section 3605 explicitly permits a separate agreement of a party

to waive the defense of impairment of collateral. See 13 Pa.C.S. § 3605(i)(2).

Appellants signed separate agreements—the guaranties—explicitly waiving

“any and all rights or defenses based on suretyship or impairment of

collateral.” See R.R. at 33a, 39a, 45a, 51a. Appellants have not argued they

are not parties. Accordingly, after construing the plain language of the

statute, as we must, Retina, 176 A.3d at 270, because Appellants signed

separate agreements providing for waiver, section 3605 does not permit

Appellants recourse. See 13 Pa.C.S. § 3605(i)(2).

____________________________________________

15 As noted above, Lotosky construed the then-existing version of the

Pennsylvania UCC.

- 16 -

J-A19023-18

Appellants, however, argue that their waiver—notwithstanding the

language of section 3605—violates the Pennsylvania UCC’s anti-waiver

provisions. In support, Appellants cite Lotosky, which construed an older

version of Article 9 and did not address section 3605. Appellants, however,

have not presented any argument addressing the present version of Article

9 and any pertinent anti-waiver provisions. Absent any such argument, it

would be inappropriate for us to adopt the reasoning of Lotosky.16

Regardless, assuming that section 9602 applies, whether in addition to

or independently of section 3605, section 9602 lists the rights that may not

be waived. See 13 Pa.C.S. § 9602. Section 9207(a), which imposes a duty

of care upon a secured party in possession of collateral, is not among the

rights listed in section 9602. See id. (omitting section 9207(a) from the list

of rights and duties that cannot be waived). Appellants have not articulated

how section 9602 may be construed to preserve the rights set forth in section

9207(a). See generally Retina, 176 A.3d at 270. Further, if the legislature

intended to preserve any such right, then it could have been explicitly listed

in section 9602. See In re T.S., ___ A.3d at ___, 2018 WL 4001825 at *11.

The legislature did not, and Appellants have not referred this Court to long-

standing Pennsylvania jurisprudence or some other signal that this

____________________________________________

16In any event, Lotosky does not bind this Court. See NASDAQ OMX PHLX,

52 A.3d at 303.

- 17 -

J-A19023-18

Commonwealth rejects the waiver of a defense of impairment of collateral.

See generally Seebold, 57 A.3d at 1245 n.19; Hall, 648 A.2d at 760.17

Thus, we decline to address whether Appellants’ waivers are void on the basis

of public policy.18

As for Appellants’ arguments that they are entitled to equitable relief,

we cannot consider the Hartleys’ purported actions to the extent they do not

relate to Appellants’ alleged impairment of collateral defense. See Bellevue,

435 A.2d at 1286-87. To the degree the Hartleys’ purported actions relate to

their defense, we have previously held that such a defense was unavailable to

Appellants as a matter of law and thus does not provide a basis for relief. See

Murray, 169 A.3d at 94 (stating equity must give way to the law). In sum,

we discern no abuse of discretion in the trial court’s holding that Appellants

have failed to demonstrate a meritorious defense. See IWS, 622 A.2d at

370.

Order affirmed.

____________________________________________

17As Appellees pointed out, a party may waive the defense of impairment of

collateral under Article 3. See 13 Pa.C.S. § 3605.

18 Without a statutory basis to void their waiver, we need not address

Appellants’ argument that the record established the Hartleys impaired MSI’s

collateral.

- 18 -

J-A19023-18

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

Date: 10/19/2018

- 19 -