FDIC argues, any claim or defense of illegality is available only to Centennial and not to defendant Barness, and therefore does not affect defendant's liability on the note. Finally, FDIC observes that the transfer of Centennial's assets, including the note, has been judicially approved by Judge Rosenwald under the circumstances we have described.
Our threshold task is to determine whether to use the Uniform Commercial Code or the common law of assignment in analyzing the issues in this case. We readily conclude that the common law of assignment must be applied, for Barness's note to the Centennial Bank is not a negotiable instrument.
Under Pennsylvania law, the confession of judgment provision, which permits judgment to be entered either before or after default, renders the note non-negotiable even though it is in form a demand note. Cheltenham National Bank v. Snelling, 230 Pa.Super. 498, 326 A.2d 557 (1974), cert. denied, 421 U.S. 965, 95 S. Ct. 1955, 44 L.E.2d 453 (1975). Under Article 3 of the Uniform Commercial Code, an instrument which is otherwise negotiable is made non-negotiable by a term authorizing the confession of judgment before payment is due. 12A P.S. § 3-112(1)(d) & Comment 2. Since the note is non-negotiable, the substantive provisions of Article 3 are inapplicable and the rights of the parties are governed by common-law contract principles. Id. § 3-102(1)(e), § 3-805 Comment.
We turn now to a seriatim discussion of the counts of defendant's motion to open judgment, treating them in the same order as before, to assess whether any or all of them justify the opening of the judgment.
A. Counts One and Four
Since we must apply the principles of the law of assignment, any defenses which would be available against Centennial are available against FDIC, the assignee of Centennial's receiver. "[Under] ordinary principles of contract law, the assignee of a non-negotiable instrument . . . takes subject to all defenses, set-offs and counterclaims that the obligor might assert against the assignor." Stevwing v. Western Pennsylvania National Bank, 468 Pa. 24, 30-31, 359 A.2d 793, 797 (1976). See also n.9, supra. The defenses asserted in counts one and four of defendant's motion would relieve defendant of liability to Centennial, if they are valid, and therefore they may be asserted against FDIC. We now discuss whether these defenses are precluded for other reasons.
1. The Parol Evidence Rule
The parol evidence rule only applies to written agreements which are integrated. Friestad v. Travelers Indemnity Co., 260 Pa.Super. 178, 393 A.2d 1212 (1978). The scope of application of the rule under Pennsylvania law is aptly stated in Crompton-Richmond Co. v. Smith, 253 F. Supp. 980, 983 (E.D.Pa.1966) (Luongo, J.), aff'd, 392 F.2d 577 (3d Cir. 1967):
The rule applies if the writing is the entire agreement between the parties. Whether the writing is the entire agreement is a matter to be determined by the court, not by a jury. That determination must be made by examining the writing and comparing it with the alleged oral agreement. If the writing and the oral agreement relate to the same subject matter and if the court concludes that parties, situated as were the contracting parties, would normally have included both in the one agreement, then the subject of the alleged oral agreement must be considered as having been covered by the writing.
See Bardwell v. The Willis Co., 375 Pa. 503, 506, 100 A.2d 102, 104 (1953); Gianni v. Russell & Co., 281 Pa. 320, 323, 126 A. 791, 792 (1924); LeDonne v. Kessler, 256 Pa.Super. 280, 389 A.2d 1123 (1978). Moreover, the parol evidence rule is inapplicable if parol testimony reveals that the parties never intended the written instrument to have binding force. Corn Exchange National Bank & Trust Co. v. Burkhart, 401 Pa. 535, 165 A.2d 612, 616 (1960).
The written agreement involved in this action is a printed form of promissory note. The only additions to the printed form are the place and date of signing, the amount, the word "demand," and the signatures of defendant and a witness. The verified allegations of defendant's motion relate an oral agreement that defendant would sign the note to accommodate Centennial and third parties, and would not be held liable on it. We cannot conclude that parties situated as were Centennial and Barness would normally have included their agreement in the same writing with the form promissory note. Therefore the parol evidence rule is inapplicable.
Plaintiff relies on Third National Bank & Trust Co. v. Rodgers, 330 Pa. 523, 198 A. 320 (1938), and Commerce National Bank in Lake Worth v. Baron, 336 F. Supp. 1125 (E.D.Pa.1971) (Lord, J.), in support of his parol evidence argument. While both those cases invoke the parol evidence rule, neither discusses the standard for determining whether the rule is applicable.
2. "Accommodation Party" Argument
Plaintiff also argues that defendant's alleged status as an "accommodation party" does not constitute a defense to the note, citing First Pennsylvania Bank v. Weber, 240 Pa.Super. 593, 360 A.2d 715 (1976), and Philadelphia Bond & Mortgage Co. v. Highland Crest Homes, Inc., 221 Pa.Super. 89, 288 A.2d 916 (1972). In those cases, the Superior Court of Pennsylvania stated that the holder of an instrument who has taken it for value has the rights of a holder in due course against an accommodation party who signed as maker. The precedents cited are inapposite here, for FDIC is not a holder of the note. "Holder" is defined as "a person who is in possession of . . . an instrument . . . drawn, issued or indorsed to him or to his order or to bearer or in blank," 12A P.S. § 1-201(20). The note is not drawn, issued, or indorsed in the manner required.
As assignee of the note, FDIC took it subject to any defenses which might be asserted against Centennial. Stevwing v. Western Pennsylvania National Bank, supra. Centennial's rights in the instrument are clearly subject to the defense that Centennial, as holder and payee of the note, "induced the maker to become an accommodation party, as by actually agreeing that he should not be held liable as a principal." Weber, supra, 240 Pa.Super. at 602, 360 A.2d at 720-21, quoting Highland Crest, supra, 221 Pa.Super. at 93, 288 A.2d 916 (emphasis in original). FDIC's rights in the note are subject to the same defense. Stevwing, supra.
3. Federal Deposit Insurance Act
A section of the Federal Deposit Insurance Act, 12 U.S.C. § 1823(e), provides that "No agreement which tends to diminish or defeat the right, title or interest of the (FDIC) in any asset acquired by it under this section . . . shall be valid against the (FDIC) unless such agreement . . . shall be in writing . . . ." Id. (emphasis added). We agree with defendant that plaintiff cannot invoke this section without showing that the note was in fact acquired under the provisions of § 1823. Since FDIC has produced no such evidence, it cannot claim the benefit of § 1823(e) on the present record.
We conclude then that the defense asserted in count one of the motion to open judgment is meritorious in that, if proved, it would defeat FDIC's claim on the note. Moreover, since defendant's allegations are verified and FDIC has produced no evidence to rebut those allegations, the defense in count one raises a jury question. Accordingly, defendant has met the evidentiary threshold under the Pennsylvania Rules of Civil Procedure, and is entitled to have the judgment opened. We turn next to FDIC's objections to the defense of "no consideration" raised in count four of defendant's motion to open judgment.
4. Uniform Written Obligations Act
Plaintiff contends that the defense of no consideration is precluded by the Uniform Written Obligations Act, 33 P.S. § 6, which provides that a signed promise is not invalid for lack of consideration "if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound." Id. He contends that the words "the Undersigned . . . promises to pay to the order of Centennial Bank. . . ." are an "additional express statement" within the meaning of the statute.
In Gershman v. Metropolitan Life Insurance Co., 405 Pa. 585, 176 A.2d 435 (1962), the Pennsylvania Supreme Court considered whether an agreement without legal consideration was nonetheless effective because it included the words "Approved by" followed by the obligor's signature. The Court gave short shrift to that argument:
We merely say, in response to this argument, that we fail to see how the simple approval of the letter constituting the agreement can be considered as "an additional express statement * * * to be legally bound."
176 A.2d at 436-37. In Fedun v. Mike's Cafe, Inc., 204 Pa.Super. 356, 364-65, 204 A.2d 776, 780-81 (1964), aff'd, 419 Pa. 607, 213 A.2d 638 (1965), the court ruled that the words "(w)e . . . release you . . . and will not hold you . . . ." did not constitute the additional express statement required by the Uniform Written Obligations Act. Cf. Kay v. Kay, 460 Pa. 680, 683 n.1, 334 A.2d 585, 586 n.1 (1975) (no consideration necessary for agreement containing words "Husband agrees to be legally bound . . . husband further agrees and legally binds himself . . . ."); Thomas v. First National Bank of Scranton, 376 Pa. 181, 183-84, 101 A.2d 910, 911 (1954) (no consideration necessary for agreement containing words "(t)he undersigned agrees to be legally bound hereby").
The note sued on, like the agreements before the Court in Gershman and Fedun, contains no "additional express statement." It contains only the bare promise to pay money. That promise alone is not sufficient to bring it within the terms of the Uniform Written Obligations Act:
The purpose of this act, as declared by Professor Williston, who drafted it, was to make the law "substantially the same as it was when seals were in force, so far as the doctrine of consideration is concerned, except that in lieu of the formality of a seal, the formality of this statement is substituted". . . . The statement that the signer intends to be legally bound, in order to take the place of a seal, in a release or contract, as respects consideration, must be an additional express statement, to the effect that the signer intends to be legally bound. It is never to be inferred from circumstances.
Taylor v. Philadelphia, 126 Pa.Super. 196, 211-12, 190 A. 663, 669-70 (1937), aff'd on opinion below, 328 Pa. 383, 196 A. 64 (1938) (emphasis and citations omitted). Since the note contains no "additional express statement," the Uniform Written Obligations Act does not preclude the defense of no consideration.
5. Adoption of the Seal
The note contains the printed word "(Seal)" immediately to the right of the line on which the defendant placed his signature. FDIC contends that defendant thereby adopted the printed seal, making the note a sealed instrument, and that the absence of consideration is therefore no defense to defendant's liability.
Under Pennsylvania law, the adoption by an individual of a seal printed on a document which he signs is "largely a matter of intention." Collins v. Tracy Grill & Bar Corp., 144 Pa.Super. 440, 443, 19 A.2d 617, 620 (1941). The presence of the printed word "(Seal)" opposite defendant's signature on the note gives rise only to a rebuttable presumption that defendant adopted the seal, thereby rendering the note a sealed instrument. Swaney v. Georges Township Road District, 309 Pa. 385, 164 A. 336 (1932); Graybill v. Juniata County School District, 21 Pa.Cmwlth. 630, 347 A.2d 524 (1975). Thus the note may not be a sealed instrument at all, since defendant may be able to prove that he did not adopt the printed seal. However, the defendant has not produced any evidence to rebut the presumption that he adopted the printed seal. On the present record, therefore, we must assume that he did adopt the seal.
The common-law effect of a seal on a written instrument was to foreclose the defense of "want" of consideration, but not of "failure" of consideration. Poelcher v. Zink, 375 Pa. 539, 101 A.2d 628 (1954); In Re Conrad's Estate, 333 Pa. 561, 3 A.2d 697 (1938). Failure of consideration means that exchange of a valuable consideration was intended, but was not received by the defendant; want of consideration means that no consideration was intended to pass. In Re Levine's Estate, 383 Pa. 354, 118 A.2d 741 (1955).
The common-law doctrine affording special status to a sealed instrument has long been in decline. Approximately half of the states, including New York, have enacted statutes making seals on written instruments wholly inoperative, thereby abolishing the common law doctrine. 1A A. Corbin, Corbin on Contracts § 254 (1963). See, e.g., N.Y.Gen.Constr.Law § 44-a.
Several other states, including New Jersey, have limited the effect of a seal to the creation of a rebuttable presumption of consideration, permitting the "want" of consideration to be raised in defense to rebut the presumption. Corbin, supra. See, e.g., 2A N.J.S.A. § 82-3.
Pennsylvania has not abolished the common law of sealed instruments by statute, although the enactment of the Uniform Commercial Code made the law of sealed instruments inapplicable to contracts for the sales of goods, 12A P.S. § 2-203, and to negotiable instruments, id. § 3-113. See also 21 P.S. § 10 (deeds effective without seal).
The last decision of the Supreme Court of Pennsylvania which stated the common-law rule foreclosing the defense of want of consideration in an action on a sealed instrument was In Re Brereton's Estate, 388 Pa. 206, 130 A.2d 453 (1957). In a subsequent decision, Selden v. Jackson, 425 Pa. 618, 230 A.2d 197 (1967), the Court apparently stated a new rule. Affirming a judgment for the plaintiff on a note which was under seal, the Court stated:
By placing the sealed note into evidence, Selden made out a prima facie case that consideration had moved from him to the maker for the amount involved. . . . Jackson could plead lack of consideration, and introduce evidence to support that assertion, but the burden of proof always remained with him to prove lack of consideration. He had to carry that burden up and over the formidable mountain of the presumption of consideration.