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HARRISON v. GALILEE BAPTIST CHURCH (09/26/67)

decided: September 26, 1967.

HARRISON
v.
GALILEE BAPTIST CHURCH, APPELLANT



Appeal from order of Court of Common Pleas No. 2 of Philadelphia County, March T., 1965, No. 6752, in case of Esther Harrison, assignee of Bernard L. Kanter v. Galilee Baptist Church.

COUNSEL

Joseph A. McNeal, for appellant.

Harry R. Kozart, for appellee.

Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Jones. Mr. Justice Cohen dissents. Dissenting Opinion by Mr. Justice Musmanno. Mr. Justice Roberts joins in this dissenting opinion. Dissenting Opinion by Mr. Justice Roberts.

Author: Jones

[ 427 Pa. Page 249]

This appeal challenges the efficacy as an estoppel of a declaration of no set-off to a mortgage given by the mortgagor to an assignee for value of the mortgage.

Galilee Baptist Church (Galilee), agreed in writing with Bernard Kanter (Kanter), to purchase a building located on Parrish Street, Philadelphia, which Galilee contemplated using for church purposes. According to this purchase-sell agreement, Galilee was to pay Kanter $35,000 of which $8,000 was to be paid in cash by the time of settlement and the balance of $27,000 was to be secured by a purchase money mortgage to be held by Kanter. Attached to and, by reference thereto, made a part of the agreement was an "addendum" under the terms of which Kanter agreed that, within 60 days of the settlement date, he would furnish the labor and materials necessary to make certain specified repairs and renovations to the building.

In order to satisfy certain liens against the property and clear the title thereto, Kanter approached an attorney, M. H. Weissman, for a $13,750 loan. Weissman agreed to secure $13,750 for Kanter provided that Kanter would assign to Weissman, or his nominee, the $27,000 purchase money mortgage to be executed by Galilee, this mortgage to be collateral security for the $13,750 loan. Weissman then had checks totaling $13,750 credited to Kanter's bank account, settlement under the Galilee-Kanter agreement was effected and title was taken in the name of Galilee, a mortgage and a bond for $27,500 was executed and delivered and Galilee then executed a declaration of no set-off. This declaration recited, inter alia, that Galilee, as owner of the property covered by the mortgage, had received notice of the assignment about to be made of the mortgage and bond by Kanter, the mortgagee, to Esther Harrison (Weissman's nominee), and that it then had "no charge, claim, demand, plea or set-off upon, for or

[ 427 Pa. Page 250]

    against" the mortgage and bond. The bond, mortgage, assignment and declaration were then forwarded to Weissman for Esther Harrison, the assignee.

Thereafter, Kanter failed to make the repairs and renovations which he had agreed to make under the provisions of the "addendum". Galilee had to engage someone else to make the repairs and renovations and, from the date of the mortgage -- January 3, 1964 -- until June 2, 1964, Galilee did not pay either interest or principal on the mortgage.

Esther Harrison, assignee, then entered judgment on the mortgage bond and issued an execution against Galilee's property in the Court of Common Pleas No. 2 of Philadelphia County. On July 2, 1964, the court stayed a sheriff's sale of the property on such execution and granted a rule to show cause why the judgment should not be opened and Galilee let into a defense. After answer filed and depositions taken, the court below refused to open the judgment and from that order this appeal has been taken.

Initially, it must be noted that, when the declaration of no set-off was given, Galilee had, in fact, no claim against Kanter because Kanter was not then in default under the "addendum" and it was not until some time after Galilee had notice of the assignment and gave the declaration that it had any claim against Kanter. Moreover, the claim of Galilee against Kanter was and still is an unliquidated claim.

When Galilee gave the declaration of no set-off it (a) acknowledged receipt of notice of the assignment of the bond and mortgage to Esther Harrison and (b) admitted the validity of the mortgage debt of $27,000 and the absence of any defense to the payment of that obligation. Cf. Ladner, Real Estate Conveyancing, 2d ed. Vol. 1, p. 283.

Normally and ordinarily, one who takes an assignment of a bond and mortgage does so at his peril because

[ 427 Pa. Page 251]

    he becomes subject to every defense then existing or that it might be subjected to in the hands of the assignor. However, that rule is not applicable where the mortgage debtor, who has notice of the assignment of the bond and mortgage, gives a declaration of no set-off ...


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