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AUERBACH v. CORN EXCH. NAT. BANK & TRUST CO.

December 30, 1943

AUERBACH
v.
CORN EXCHANGE NAT. BANK & TRUST CO., PHILADELPHIA



The opinion of the court was delivered by: KALODNER

This matter comes before me on plaintiff's motion for judgment on complaint and answer. The facts herein set forth are taken from the pleadings.

On February 24, 1933, the defendant as assignee of a mortgage on a property located at 314-16 South 50th Street, Philadelphia, upon default of payment after maturity, entered judgment against the plaintiff in the Common Pleas Court of Philadelphia County on the bond accompaying the mortgage and assessed damages in the sum of $32,555. On April 24, 1933, the plaintiff and defendant entered into an agreement pursuant to which the plaintiff paid the defendant the sum of $5,000 on account of the principal of the mortgage, deposited certain bonds, and assigned a certain life insurance policy as additional security and the balance of the principal of the mortgage in the sum of $25,000 was extended for two years. The agreement provided: "* * * The party of the second part (plaintiff) covenants and agrees to pay the premiums on said policy of life insurance as the same shall become due and payable. In the event that he shall fail so to do or if he shall default in the performance of any of the terms and conditions of said bond and mortgage as modified hereby, the party of the first part (defendant), at its option, may surrender said policy of life insurance and receive the cash surrender value thereof, crediting the same against the principal and interest due on said bond and judgment, and/or in the event of any such default the party of the first part may sell, assign and deliver the whole or any part of the securities . . . or any substitutes therefor or additions thereto, at any broker's board or at public or private sale, at the option of the party of the first part, at any time or times thereafter, without advertisement or notice to the party of the second part, and with the right in the party of the first part to become the purchaser thereof, at such sale or sales, absolutely freed and discharged of any equity of redemption and of all trusts and claims whatsoever, and thereupon to transfer, assign and deliver the securities sold and after deducting all legal and other costs, attorneys' fees and expenses of collection, sale and delivery, to apply the residue of the proceeds of such sale or sales so made on account of the principal of said bond and judgment thereon, returning the overplus, if any, to the party of the second part."

 On August 28, 1933, the plaintiff and defendant entered into another written agreement whereby the plaintiff agreed to satisfy the above-mentioned mortgage and judgment whereby the defendant agreed to satisfy the above-mentioned mortgage and judgment upon the execution and delivery by the plaintiff to the defendant of a new bond and mortgage in the principal sum of $25,000 and secured upon the same premises. This agreement provided that the life insurance policy and the bonds deposited as additional security under the prior agreement of April 24, 1933, should continue to be held by the defendant as additional security for the principal in the new bond and mortgage with the same rights upon default as given in the agreement of April 24, 1933.

 On June 6, 1941, the plaintiff being in default on the new mortgage, the fefendant entered judgment against him in the Court of Common Pleas No. 4 as of June Term, 1941, No. 658, and assessed damages in the sum of $24,223.72. On June 11, 1941, defendant issued a writ of fieri facias (real estate) under which the mortgaged premises were sold at public sale by the Sheriff of Philadelphia County to the defendant on July 7, 1941, for the sum of $95. On August 4, 1941, the Sheriff executed and delivered his deed poll for said premises to the defendant.

 Meanwhile, on July 16, 1941, the Governor of Pennsylvania approved and made effective on the same day an Act of the Legislature commonly known as the Deficiency Judgment Act, P.L.1941, page 400, 12 P.S.Pa. ┬ž 2621.1 et seq., which required a plaintiff who sells real estate under a judgment for a price insufficient to satisfy the judgment, interest and costs, to file a petition to fix the fair market value of the real estate within six months from the date of the sale or the enactment of the law, whichever date is later.

 On September 26, 1941, defendant sold the securities deposited under the aforesaid agreement at public sale which had been advertised in a newspaper of general circulation and after notice had been given by the defendant and received by the plaintiff, of the sale and the fact that the real estate which had been acquired by the defendant in the foreclosure proceedings had been sold by the defendant at a loss. The defendant itself purchased the securities at the public sale for the sum of $3,503.19 and resold them a few days later through a broker for the net sum of $3,783.07.

 The plaintiff has now brought suit to recover from the defendant the value of the securities by reason of the fact that the defendant has never, within the statutory period or any other time, filed a petition to fix the fair value of the real estate in accordance with the Deficiency Judgment Act. The defendant in its answer sets forth that the amount realized from the sale of the real estate which it had acquired by the foreclosure, plus the amount realized from the sale of the securities (apparently the insurance policy was lapsed and had no value) is less than the principal and interest due it by plaintiff and that plaintiff is estopped by failing to object to the sale of the securities and raising no question as to the validity of the defendant's action until it was too late for defendant to institute proceedings under the Deficiency Judgment Act.

 Prior to the Deficiency Judgment Act of 1941 the rule in Pennsylvania was that the price at which real estate was sold at a Sheriff's sale in execution proceedings was conclusive between the parties as to its value, and established the amount of the deficiency owed by the obligor. Lomison v. Faust, 1892, 145 Pa. 8, 23 A. 377; In re Ruetschlin's Estate, 1914, 245 Pa. 473, 478, 91 A. 857; In re White's Estate, 1936, 322 Pa. 85, 185 A. 589; In re Emlen's Estate, 1939, 333 Pa. 238, 247, 4 A.2d 143; Mollenauer v. Smith, 1912, 51 Pa.Super. 517. In a great majority of cases such real estate was bought in by the creditor without competitive bidding for a nominal sum sufficient only to cover costs, and as a result the creditor became the owner of the real estate while the debtor stil remained liable for the full amount of the debt. It was to remedy this obviously inequitable situation that the Pennsylvania Legislature passed a number of so-called Deficiency Judgment Acts, commencing with the Act of 1934, P.L. 243 and finally culminating in the present Act of 1941, P.L. 400. The three earlier Acts, to wit, the Act of 1934, P.L. 243, the Act of 1935, P.L. 503, and the Act of 1937, P.L. 2751, were held to be unconstitutional by the Pennsylvania appellate courts in the cases of Beaver County Building & Loan Association v. Winowich, 1936, 323 Pa. 483, 187 A. 481, 921; Shallcross v. Building & Loan Association, 1936, 123 Pa.Super. 593, 187 A. 819, and Pennsylvania Company v. Scott, 1938, 329 Pa. 534, 198 A. 115, respectively. It was not until the 1941 Act was sustained by the Pennsylvania Supreme Court in the cases of Fidelity-Philadelphia Trust Company v. Allen, 1941, 343 Pa. 428, 22 A.2d 896, and Pennsylvania Company v. Scott, 1942, 346 Pa. 13, 29 A.2d 328, 144 A.L.R. 849, that Pennsylvania succeeded in establishing the fair and equitable system of requiring the creditor to credit the fair market value of the real estate bought in at sheriff's sale against the amount of the debt.

 The relevant portions of the 1941 Deficiency Judgment Act are as follows:

 Section 1. "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. * * *."

 Section 2 provides for the contents of the petition; Section 3, 4, 5 and 6 the procedure under the petition.

 Section 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 plaintiff shall file such petition within six months after the effective date of this act. In the event no petition is filed within such period, the debtor, obligor, guarantor and any other person liable directly or indirectly to the plaintiff or plaintiffs for the payment of the debt shall be released and discharged of such liability to the plaintiff or plaintiffs."

 Section 9 provides "* * * nothing in this act shall be construed to effect a release or discharge of any person otherwise than, nor to any greater ...


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