Monday, November 25, 2013

Judgment - execution - entireties property - separate judgments v. spouses cannot be combined

ISN Bank v. Rajaratnam – Superior Cour – November 25, 2012

Appellant, ISN Bank appeals from the order of the trial court dated January 24, 2013 denying a motion to consolidate two judgments, one each against Appellees, a married couple.

This case presents an issue of first impression for Pennsylvania appellate courts, namely whether separate judgments entered against a husband and wife may be consolidated so that assets held as tenants by the entireties may be executed upon to satisfy a joint indebtedness. For the reasons that follow, we conclude that they may not be consolidated and affirm the trial court’s order.

No procedural mechanism exists in Pennsylvania to consolidate judgments against different people. Rule 3025.1 of the Pennsylvania Rules of Civil Procedure authorizes the consolidation of “two or more judgments entered against the same person in the same county,” Pa.R.C.P. 3025.1, but no similar rule sanctions the consolidation of two or more judgments entered against different people (whether husband and wife, or otherwise).

Even if a procedural mechanism did exist for consolidating judgments against different people, Pennsylvania substantive law would not permit consolidation in this case. In this regard, we begin with the 1912 decision in Beihl v. Martin, 236 Pa. 519, 84 A. 953 (1912), in which our Supreme Court discussed “the modern innovations on the common law respecting the property rights of married women.” Id. at 522, 84 A. at 954.

One is the basic attributes of property held in a tenancy by the entireties is that, fundamentally the estate rests on the legal unity of husband and wife. It is therefore a unit, not made up of divisible parts subsisting in different natural persons, but is an indivisible whole, vested in two persons actually distinct, yet to legal intendment one and the same. Each is seised of the whole estate from its inception, and upon the death of one, while the right of survivorship remains to the other, that other takes no new title or estate. It is this striking peculiarity of the estate—the entirety alike in husband and wife—that operates to exempt it from execution and sale at the suit of a creditor of either separately. The enforcement of such process would be the taking of the property of one to pay the debt of another. Id. at 522-23, 84 A. at 954. Because of this “striking peculiarity,” the Supreme Court observed that any disposition of property held as tenants by the entireties must be based upon a “joint act” of husband and wife together.

Based upon the basic principles established in Beihl, the law of Pennsylvania has developed to provide that in order to execute upon property held as a tenancy by the entireties, a creditor must obtain a judgment against both the husband and the wife as joint debtors: The law of Pennsylvania is quite clear that a judgment creditor may execute on entireties  property to enforce his judgment if both spouses are joint debtors. However, if only one spouse is a debtor, entireties property is immune from process, petition, levy, execution or sale. In the latter situation, the judgment creditor has only a potential lien against property held by the entireties based on the debtor spouse's expectancy to become sole owner. Further, where a husband and wife own property as tenants by the entireties, they may alien it without infringing upon the rights of one spouse's creditors. Klebach v. Mellon Bank, N.A., 565 A.2d 448, 450 (Pa. Super. 1989) (citations omitted); see also Arch Street Bldg. & Loan Assn. v. Sook, 158 A. 595, 596 (Pa. Super. 1932) (“In order to bind the land held by entireties, judgment must include both of the parties.”); Napotnik v. Equibank and Parkvale Sav. Ass'n, 679 F.2d 316, 321 (3d Cir. 1982)  (“[A] creditor with a joint judgment on a joint debt may levy upon the property itself and thus upon the interests of both spouses.”).

 Beihl establishes the requirement of “joint action” by spouses to permit execution on property held as a tenancy by the entireties, but did not address what type of “joint action” is required of spouses to create a joint debt to permit an encumbrance. Beihl does not resolve the question of whether the “joint action” requirement must be satisfied by the performance of a single act performed by husband and wife together, or if instead separate acts resulting in the same indebtedness will suffice. In this case, Customers Bank contends that although the two judgments at issue here resulted from separate acts (i.e., signing two different guarantee agreements), the end result of these separate acts was a joint indebtedness of the Rajaratnams, thus permitting consolidation of the judgments to reach their entireties property to satisfy said joint indebtedness.  

 As noted, no Pennsylvania appellate court has addressed this issue. In A. Hupfel’s Sons v. Getty, 299 F. 939 (3d Cir. 1924), however, the Third Circuit Court of Appeals, applying Pennsylvania law, considered whether  separate acts by spouses resulting in a joint indebtedness may result in the encumbrance of entireties property under the principles set forth in Beihl. While the decision in A. Hupfel’s Sons is not binding upon this Court, we may consider it as persuasive authority on the issue now before this Court. See, e.g., Commonwealth v. Dunnavant, 63 A.3d 1252, 1255 n.2 (Pa. Super. 2013), appeal granted on other grounds, __ Pa. __, 73 A.3d 524 (2013).

 We agree with the Third Circuit that separate actions by spouses resulting in separate judgments are not sufficient to encumber entireties property.2 To establish a joint debt that may serve as the basis for a lien on entireties property, the two spouses must act together in the same transaction and in so doing incur a joint liability.3 Only by acting together will the spouses satisfy Beihl’s “joint action” requirement, as their mutual decision to incur a joint debt demonstrates a willingness to “strip the estate of its attributes and create a wholly different estate in themselves.” Beihl, 236 Pa. at 527-28, 84 A. at 956. In the present case, the separate judgments against the Rajaratnams were entered pursuant to separate documents, in separate transactions, and for separate considerations.