In Purman v. Smith, 126 Pa.Super. 234, 237, 191 A. 65, 66, the plaintiff attacked the mortgage which he created as invalid. The court held: "His sale of the real estate subject to the mortgage was an act of ratification and the grantee took the real estate subject to the mortgage, although assuming no personal liability to any one but her grantor."
See, also, Federal Trust Co. v. Bristol County Street Railway Co., 218 Mass. 367, 105 N.E. 1064 (distinguishing Weed Sewing Machine Co. v. Emerson, 115 Mass. 554, cited by counsel for the trustee in bankruptcy), and Fair Oaks Building & Loan Association v. Kahler, 320 Pa. 245, 181 A. 779, 111 A.L.R. 1108; American Waterworks Co. v. Farmers' Loan & Trust Co., 8 Cir., 73 F. 956; Cheffee v. Geageah, Supreme Judicial Court of Massachusetts, 253 Mass. 586, 149 N.E. 620.
In American Waterworks Co. v. Farmers' Loan & Trust Co., supra [73 F. 961], it was held:
"The New Jersey Company, we think, is estopped from asserting the invalidity of the mortgages executed by its predecessor, the Illinois Company, by virtue of the well-established rule that a purchaser of property who accepts a conveyance thereof which describes incumbrance existing thereon, and expressly declares that the conveyance is made subject thereto, will not be allowed to question the validity of such incumbrances. One who thus buys property has no right to challenge the validity of a mortgage lien existing thereon at the date of his purchase, which his grantor by the terms of his conveyance did not see fit to challenge, but recognized in the most formal manner by declaring that he conveyed the property subject to the existing lien. Whether such mortgage is valid or otherwise is no concern of the purchaser, for in contemplation of law he only acquires an equity of redemption in the property conveyed to him, -- that is to say, a right to discharge the mortgage debt, -- and it would be a breach of good faith, having purchased this right and nothing more, to deny the validity of the incumbrance, and seek to avoid the payment thereof on that ground. As between the grantor and grantee in a conveyance made subject to an existing mortgage, the amount of the incumbrance should be regarded as a part of the purchase price left unpaid at the date of the conveyance which the grantee undertakes to pay. At all events, he impliedly agrees not to challenge the validity of the incumbrance. The authorities to this point are amply sufficient, in our opinion, to preclude the New Jersey Company from defending against the foreclosure on the ground that the mortgages are invalid. Freeman v. Auld, 44 N.Y. 50; Johnson v. Thompson, 129 Mass. 398; Ritter v. Phillips, 53 N.Y. 586; D'Wolf v. Johnson, 10 Wheat. 367 [6 L. Ed. 343]; Calkins v. Copley, 29 Minn. 471, 13 N.W. 904; Shufelt v. Shufelt, 9 Paige [N.Y.] 137, 145 [37 Am.Dec. 381]; Jones, Mortg. (4th Ed.) §§ 744, 1491, and cases there cited."
I agree with the court in Federal Trust Co. v. Bristol County Street Railway Co., supra [218 Mass. 367, 105 N.E. 1066], that the position of the trustee in bankruptcy "does not commend itself to a court of equity and its contentions would not be sustained unless required by the law". In this case on the foreclosure of a mortgage its validity was assailed upon the ground that the corporation which created it did not have authority to do so. The mortgaged property had been sold and conveyed after the creation of the mortgage, pursuant to certain receivership proceedings. The decree of sale in the receivership proceedings decreed specifically that the conveyance should be subject to the mortgage. In determining that the grantee in the receivership proceedings was estopped to deny the validity of the mortgage the court said:
"Under the facts thus disclosed the Taunton & Pawtucket Street Railway Company is estopped to deny the validity of the mortgage. * * * The price obtained by the receivers was based upon the assumption that the purchaser would be obliged to pay, or assume the obligation to pay, so far as secured by the property, the sum of this mortgage, and the cash passing to the receivers was diminished by that amount. The thing which was conveyed by the receivers was in substance the equity above the mortgage. The position of the new company does not commend itself to a court of equity and its contentions would not be sustained unless required by the law."
In Fair Oaks B. & L. Association v. Kahler, supra, the court said at page 251 of 320 Pa., at page 781 of 181 A., 111 A.L.R. 1108: "Where a conveyance is made subject to a mortgage, the amount due on the mortgage is presumptively part of the consideration for the purchase."
The Act of June 12, 1878, P.L. 205, 21 P.S.Pa. § 655,
cited by the referee has no application to this case. The question of personal liability of the grantee is in no way involved, and to use the language of Gibson v. Lyon, supra, "If [the recital under and subject to the mortgage] does not create a personal liability for the payment of the debt, enforceable against the purchaser in an action of covenant, it is, nevertheless, a condition upon which his title vested and depends."
As enunciated by the cases referred to above, the doctrine of estoppel by deed is a distinct kind of estoppel which does not require all of the elements of estoppel in pais. Hence the argument of counsel for the trustee in bankruptcy based upon the general principles of estoppel is inapplicable.
The referee evidently fell into error by reason of the fact he seemed to regard the action as seeking to establish a personal liability on the part of the bankrupt, which was barred by the Pennsylvania Act of June 12, 1878. There is no attempt in this case to fasten such personal liability upon the bankrupt. The action seeks only to establish that the bankrupt, when he took title together with another from himself and his wife under and subject to the mortgages, was bound by the mortgages and could not question their validity under the law.
I agree with the referee that the trustee in bankruptcy stands in the shoes of the bankrupt to the extent of the bankrupt's interest in the property (Section 70, sub. c, of the Bankruptcy Act, 11 U.S.C.A. § 110, sub. c.
). The trustee's (in bankruptcy) rights can rise no higher than that of the bankrupt. Since the undisputed testimony is that the bankrupt estate has no equity over and above the mortgage held by the petitioner, there appears to be no reason for denying the prayer of the petition.
See Janney v. Bell, 4 Cir., 111 F.2d 103. In that case the court held (pages 108, 109): "The bankrupt-trustee is not a bona fide purchaser for value, but stands generally in the shoes of the bankrupt and takes property subject to equities existing against the bankrupt. Wiltshire v. Warburton, 4 Cir., 59 F.2d 611. See also Glenn, Fraudulent Conveyances and Preferences (Rev.Ed.) Section 100 d., and see Hewit v. Berlin Machine Works, 194 U.S. 296, 24 S. Ct. 690, 48 L. Ed. 986; York Manufacturing Co. v. Cassell, 201 U.S. 344, 26 S. Ct. 481, 50 L. Ed. 782; Zartman v. Waterloo First National Bank, 216 U.S. 134, 30 S. Ct. 368, 54 L. Ed. 418; In re Scruggs, D.C., 205 F. 673, 675. Section 70, sub. c, of the Bankruptcy Act, U.S.C.A. Title 11, Sec. 110, sub. c makes specific and separate provisions as to two different situations."
See, also, Commercial Credit Co. v. Davidson, 5 Cir., 112 F.2d 54.
For the reasons stated the order of the referee is reversed and the prayer of the petitioner is granted.