The opinion of the court was delivered by: BARD
This matter arises on motions of each of the defendants to vacate a judgment entered against them by confession on a bond and warrant, and on a motion by the defendant Steinman to dissolve an attachment issued pursuant to such judgment. To these motions plaintiff filed answers. A hearing was held before me at which a large volume of evidence was adduced. Before considering the various grounds which defendants have assigned in support of their motions, it is necessary to summarize the facts appearing from this evidence.
In 1926 defendants purchased a parcel of real estate from Nucom Kenin and Max Shapiro. For an unpaid balance of $100,000 they executed bonds secured by two mortgages of equal lien, in the amount of $50,000 each, one running to Kenin and the other to Shapiro, and each payable in two years. At the time of the maturity of these mortgages, defendants, in order to arrange for their payment, borrowed from the Market Street Title & Trust Company the sum of $80,000 upon their demand note. With this sum and $20,000 of other funds, defendants paid the mortgage debt and the two bonds and mortgages were duly assigned to the Market Street Title & Trust Company as collateral security for the $80,000 note. By payments from funds realized from the proceeds of the sale of various portions of the mortgaged property released by the trust company, the amount of the defendants' note was reduced to $30,000 by 1930, and at that time, in consideration of a reduction in the interest rate, defendant Steinman conveyed a piece of real estate in Frankford, Pennsylvania, to a nominee of the trust company as additional collateral for the payment of the balance due on the note. A further credit against this balance reduced the principal amount of the loan to $28,500.
In 1938 the Integrity Trust Company, which was the successor to the Market Street Title & Trust Company, demanded payment of defendant Steinman of the balance of $28,500, in default of which it advised him it would sell the mortgage collateral at public sale. No payment being made, it thereupon sold the two $50,000 bonds and mortgages at public sale and purchased them itself for $14,000, for which amount it gave defendants credit against the balance due on the note, reducing the principal thereof to $14,500. Subsequently it foreclosed on the Kenin mortgage and became the purchaser of the mortgaged real estate for a nominal consideration.
Shortly thereafter negotiations were begun by the defendant Steinman for the satisfaction of the $14,500 balance of the principal due on the note. Apparently in November 1939 Steinman's counsel submitted an offer to pay Integrity $1,000 in cash and to execute a quitclaim deed to the Frankford real estate held by the Integrity as collateral, and was advised by an officer of Integrity that such offer was acceptable to it. A written agreement between Integrity and Steinman was thereupon prepared by counsel for Integrity. This agreement recited that the loan had been reduced to $14,500 and that certain other sums were owing by Steinman to Integrity; that the Frankford real estate was held by a nominee of Integrity as security for these obligations; that the parties desired to settle this indebtedness; that the Frankford fral estate should become the absolute property of Integrity, and that Steinman and his wife should execute and deliver to it a quitclaim deed thereto at the time of the execution of the agreement; that Steinman surrender to Integrity all his interest in other collateral held by it for his debts to it; that Steinman agreed to pay Integrity $1,000, $500 at the time of the signing of the agreement and $100 per month for five months thereafter; that after the receipt of these payments and compliance by Steinman with the other terms of the agreement, Integrity would release him of all claims and deliver to him an order to satisfy the judgment entered in the foreclosure proceedings. The agreement further provided that in the event of any further default by Steinman, Integrity should be entitled to apply any payments on account of his indebtedness and to sell the Frankford real estate, provided that "nothing herein shall be taken to require any such sale or to affect the absolute and unconditional ownership of Integrity in and to the said premises if Integrity does not elect to disaffirm this agreement and to deprive Steinman of the benefits hereof." It was further provided that the agreement was in no way to discharge or release the defendant Lesse from his liability to Integrity.
The agreement was dated November 1939, but the date for its execution was left blank. Integrity executed its copy, but it was never delivered to Steinman. In January of 1940 the plaintiff, Federal Deposit Insurance Corporation (hereinafter referred to as F.D.I.C.), made a loan of $20,000,000 to Integrity, which transferred all its assets to F.D.I.C. and ceased to do business. Among the real estate assets conveyed to plaintiff was the Frankford real estate registered in the name of a nominee or Integrity. Thereafter Steinman signed his copy of the agreement and repeatedly tendered to plaintiff the sum of $1,000 and a quitclaim deed for the Frankford real estate, but plaintiff did not accept these tenders. Some time later it started suit against the present defendants in the Court of Common Pleas of Philadelphia County, but it failed to proceed in that action.
On August 3, 1942 plaintiff entered judgment against defendants upon a confession signed by an attorney pursuant to the warrant contained in the bond accompanying the $50,000 mortgage of which Max Shapiro was the original mortgagee. Damages were assessed in the amount of $101,025.98, and an attachment sur judgment against the Corn Exchange National Bank & Trust Company was issued. Defendants thereupon filed the present motions.
Before considering the various defenses presented by both defendants and an individual defense urged by the defendant Steinman, there is an individual defense urged by the defendant Lesse which in my opinion operates to relieve him from liability upon the debt upon which this judgment was entered, and which will therefore be disposed of first. This defense is based upon the following additional facts not set forth above. The property originally mortgaged to Kenin had a frontage of 250 feet beginning at a corner. By the terms of each mortgage, the mortgagee was obliged to release from the lien thereof the 125 feet adjacent to the corner upon the payment of $30,000 and the other 125 feet upon the payment of $20,000. In August 1929, in consideration of the sum of $20,000, plaintiff's predecessor released 100 feet of the latter half from the lien of the mortgages. Thereafter, in November 1929, defendant Lesse conveyed all his title in the remaining 150 feet to Steinman. In July 1930, without the knowledge of Lesse, plaintiff's predecessor released the remaining 25 feet of the inside tract and 75 feet of the corner tract from the lien of the two mortgages in consideration of the payment by Steinman to it of $30,000. There was thus left subject to the mortgages 50 feet of the corner tract.
Defendant Lesse contends that the mortgagee's release from the lien of the mortgages of the 100 feet of the mortgaged property in July 1930 operates as a release to him of further liability for the debt secured by the mortgage under the rule established by a number of cases and set forth in Greater Adelphia Building & Loan Association v. Trilling, 323 Pa. 361, at page 367, 185 A. 716, at page 718, as follows: "As respects the real security, the land, the mortgagee may not release it or any portion of it from the lien of the mortgage or otherwise deal with it as between itself and the mortgagor's grantee so as to destroy or impair its value as security for the debt, thus tending to enlarge the mortgagor's personal liability on his bond or original undertaking. Meigs v. Tunnicliffe, 214 Pa. 495, 63 A. 1019, 112 Am.St.Rep. 769, 6 Ann.Cas. 549; Hunter's Assigned Estate, 257 Pa. 32, 101 A. 79. The reason for this, as Judge Keller stated in Zusin v. Wharton Business Men's B. & L. Assn., 107 Pa.Super. 181, 188, 163 A. 377, 380, is that the mortgagor, or one in succession to his rights (as are defendants in the case at bar) 'would have to right to pay the original debt or obligation to the (mortgagee) and require the assignment to her or him, respectively, of the securities held by the (mortgagee) for its payment.'"
The difficulty with plaintiff's argument is that each of the two mortgages require a payment of $30,000 to the mortgagee in order that the 125 foot corner tract be released from its lien and it would therefore have required a payment of $60,000 to justify the mortgagee in releasing that tract from the lien of both mortgages. Plaintiff therefore cannot rely on the provisions of the mortgages as evidencing the consent of Lesse to the release of the 100 foot tract for $30,000 after he had conveyed his interest in the mortgaged premises to Steinman.
Plaintiff further contends, however, that under the Pennsylvania law the mortgagee's release of a portion of the mortgagee's grantee does not operate as a complete discharge of the mortgagor, but as a discharge only to the extent that the mortgagor can establish that he has been prejudiced thereby. This contention is not supported by the Pennsylvania authorities. In the leading case of Meigs v. Tunnicliffe, 214 Pa. 495, 63 A. 1019, 112 Am.St.Rep. 769, 6 Ann.Cas. 549, it was held that a showing by a mortgagor that the mortgagee has released a portion of the mortgaged property in the hands of the mortgagee's grantee, and without the mortgagor's consent, operated as a complete discharge of the mortgagor from the mortgagee's debt. No showing by the mortgagor of the extent of the prejudice or injury resulting from the release was required. In Assigned Estate of James Hunter, 257 Pa. 32, at page 35, 101 A. 79, at page 80, the Supreme Court of Pennsylvania said: "Where the mortgagor has parted with his title to the mortgaged premises, a release of a part thereof by the mortgagee, without the knowledge or consent of the mortgagor, will discharge the latter from personal liability for any loss to the mortgagee resulting from a deficiency in the proceeds of a subsequent sale in foreclosure proceedings. Meigs v. Tunnicliffe, 214 Pa. 495, 63 A. 1019, 112 Am.St.Rep. 769, 6 Ann.Cas. 549, see opinion by Mr. Justice Stewart. By such release the mortgagee assumes the risk of the unreleased portion of the property being of sufficient value to secure his debt."
It is clear, therefore, that under the Pennsylvania law the mortgagee cannot release a portion of the security from the lien of a mortgage without the consent of the mortgagor, and thrust upon the mortgagor the burden of establishing at some later date the extent to which he was thereby prejudiced. The motion of defendant Lesse to vacate the judgment against him must be granted.
Turning now to the defenses offered by the remaining defendant, there are first presented several grounds upon which he asserts that he has been discharged of all liability to Integrity and to plaintiff as its successor. The first of these is that he was discharged of his liability to Integrity by its failure to file a petition under the Pennsylvania Act of July 16, 1941, P.L. 400, 12 P.S. § 2621.1 et seq., to fix the fair value of the mortgaged property sold at foreclosure under the Kenin mortgage. Section 1 of this Act, 12 Purd.Stat. § 2621.1, provides: "Whenever any real property has heretofore been or is hereafter sold, directly or indirectly, to the plaintiff in execution proceedings and the price for which such property has been sold was or is not sufficient to satisfy the amount of the judgment, interest and costs and the plaintiff seeks to collect the balance due on said judgment, interest and costs, the plaintiff or plaintiffs shall petition the court having jurisdiction to fix the fair market value of the real property sold as aforesaid. Said petition shall be signed and sworn to by the plaintiff or plaintiffs." Section 7 of the Act, 12 Purd. Stat. § 2621.7, provides: "The plaintiff or plaintiffs shall file all petitions in accordance with section one and section two of this act not later than six months after the sale of any real property: Provided, however, That, if the sale occurred prior to the effective date of this act, the ...