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FIDELITY BANK v. S. MARSHALL GORSON (02/26/82)

filed: February 26, 1982.

THE FIDELITY BANK,
v.
S. MARSHALL GORSON, CLAIRE G. AXELROD AND LEONARD AXELROD, EXECUTORS OF THE ESTATE OF JOSEPH S. GORSON, DECEASED, HARRY F. GLAZAR AND S. MARSHALL GORSON, INDIVIDUALLY AND T/A GORSON ENTERPRISES, A PENNSYLVANIA LIMITED PARTNERSHIP. APPEAL OF HARRY F. GLAZAR. THE FIDELITY BANK, V. S. MARSHALL GORSON, CLAIRE G. AXELROD AND LEONARD AXELROD, EXECUTORS OF THE ESTATE OF JOSEPH S. GORSON, DECEASED, HARRY F. GLAZAR AND S. MITCHELL GORSON, INDIVIDUALLY AND T/A GORSON ENTERPRISES, A PENNSYLVANIA LIMITED PARTNERSHIP. APPEAL OF S. MARSHALL GORSON, CLAIRE G. AXELROD AND LEONARD AXELROD, EXECUTORS OF THE ESTATE OF JOSEPH S. GORSON, DECEASED. THE FIDELITY BANK, APPELLANT, V. S. MARSHALL GORSON, CLAIRE G. AXELROD AND LEONARD AXELROD, EXECUTORS OF THE ESTATE OF JOSEPH S. GORSON, DECEASED, HARRY F. GLAZAR AND S. MARSHALL GORSON, INDIVIDUALLY AND T/A GORSON ENTERPRISES, A PENNSYLVANIA LIMITED PARTNERSHIP



No. 1885 Philadelphia, 1980, No. 1958 Philadelphia, 1980, No. 2066 Philadelphia, 1980, Appeal from Order of the Court of Common Pleas, Civil Division, of Philadelphia County at No. 1427 January Term, 1980

COUNSEL

Walter W. Rabin, Philadelphia, for appellants (at Nos. 1885 & 1958) and for appellees (at No. 2066).

Marc J. Sonnenfeld, Philadelphia, for Fidelity, appellant (at No. 2066) and for appellee (at Nos. 1885 & 1958).

Spaeth, Cavanaugh and Lipez, JJ. Spaeth, J., files concurring and dissenting opinion.

Author: Cavanaugh

[ 296 Pa. Super. Page 3]

These cases involve appeals from court orders upon petitions to open and strike judgments which were entered upon a promissory note by The Fidelity Bank against S. Marshall Gorson, The Estate of Joseph N. Gorson and Harry F. Glazer, individually and trading as Gorson Enterprises. The note was an unsecured demand note in the amount of three million dollars dated May 23, 1978. It contained a provision empowering Fidelity to confess judgment against the maker at any time before or after maturity. A confession of judgment was entered on the note pursuant to a complaint filed in the Common Pleas Court of Philadelphia County on January 11, 1980. S. Marshall Gorson and Glazer filed petitions to open the confessed judgments. Gorson and the executors of the Estate of Joseph N. Gorson, who had been a maker of the note but had deceased, filed petitions to strike the judgment. The court opened the judgment as to S. Marshall Gorson and denied the petitions filed on behalf of Glazer and the Estate of Joseph N. Gorson. Fidelity has appealed the opening of the S. Marshall Gorson judgment and Glazer and the Gorson Estate have appealed from the order denying their petitions. The three appeals have been consolidated and Fidelity has been designated appellant pursuant to Pa.R.A.P. 2136.

[ 296 Pa. Super. Page 4]

I

Fidelity v. S. Marshall Gorson

After the execution of the note and as a result of certain disputes which had arisen with Fidelity, S. Marshall Gorson entered into negotiations and eventually reached a supplemental agreement with the bank dated October 23, 1979. This agreement contained the following provision relevant to the present dispute:

Gorson (together with others) owes Bank $3,000,000 on a demand basis. Bank agrees not to demand any payment of principal from Gorson for a period of one year from the date hereof, except upon a default in payment of interest by Gorson during that period. Bank agrees that no payment of interest shall be due or payable for a period of sixty days from the date hereof. Thereafter, interest shall be payable at the same rate and at the same intervals as heretofore. Interest which has accrued during the sixty-day period shall become due upon maturity of the note. (Emphasis added).

Following entry of the judgment Fidelity did not seek to execute upon the judgment or obtain payment of the principal. The judgment was entered, said the bank, only for purposes of security. Gorson, on the other hand, argued that under the October supplemental agreement Fidelity was entitled to take action upon the note only in the event that interest was not paid, an event which had not occurred. Thus the issue is whether under the parties' agreement the bank had the right to enter judgment solely for the purpose of creating a lien for security. The lower court found that the entry of judgment on the demand note was in fact a "demand" in contravention to the above quoted provision of the agreement between the parties which prohibited for one year any demand for payment of principal. The parties are not in disagreement that under Pennsylvania law a judgment note may ordinarily be employed as a security device and that the judgment may be entered at any time. An early Pennsylvania case recognized the general right to employ a note as security. The court stated:

[ 296 Pa. Super. Page 5]

The difficulty in the view of the appellee, and apparently of the learned court below, is in failing to distinguish between the present right of the plaintiff to his judgment as security for a debt payable in the future, and the right to execution or satisfaction on a debt presently due. As security, the creditor has a right to as large collateral, and as many different forms of it, as the parties chose to contract for. That is a matter with which the court cannot interfere. But the enforcement of satisfaction, by execution or otherwise, is a matter to be governed by the rights and equities of the parties, and comes within the jurisdiction of the court. In the present case the creditor did nothing more than enter up his judgment on the bond, as part of the security agreed on. In so doing he was within his strict legal rights, and the court had no authority to interfere with his action.

Integrity Title Insurance, Trust & Safe Deposit Company v. Rau, 153 Pa. 488, 491-92, 26 A. 220 (1893).

The right to enter judgment on a note has been stated to be present whenever the note is silent as to when judgment may be taken. Triangle Building Supplies & Lumber Company v. Zerman, 242 Pa. Super. 315, 363 A.2d 1287 (1976). See also General Electric Credit Corporation v. Slawek, 269 Pa. Super. 171, 409 A.2d 420 (1979). The provision in the October agreement is that "[the] Bank agrees not to demand any payment of principal from Gorson for a period of one year from date hereof, except upon a default in payment of interest by Gorson during that period." (emphasis added). Since there was no execution, or threat of execution upon the judgment, the act of confessing the judgment was not a demand under a fair reading of this provision. The provision simply insulates Gorson from the obligation to make any payment of the principal sum for a period of one year so long as interest payments are made. The lower court has relied upon two cases in concluding that the entry of judgment was prohibited by the conditional "demand" language of the October agreement. In Better Bilt Door Co. v. Oates, 165 Pa. Super. 465, 69 A.2d 425 (1949), the entry of judgment

[ 296 Pa. Super. Page 6]

    was held to constitute a sufficient demand to initiate the payment of interest under a note which required a demand before interest became due. In Dominion Trust Co. v. Hildner, 243 Pa. 253, 90 A. 69 (1914), it was held that entry of judgment was sufficient demand so as to negate the need for a prior demand before instituting suit on a note. We think that these cases are not inapposite since they represent a reasonable interpretation of the intent of the parties. Likewise, in this case we conclude that it would unreasonably strain the language of the October agreement to interpret it as precluding the entry of judgment for security. The parties in reaching the terms of the negotiated October agreement could have altered the rights under the original note by prohibiting the entry of judgment on the note by so providing, but they failed to do so. We disagree with the lower court which concluded that entry of judgment was violative of the terms of the October agreement. The order of the court opening the judgment against S. Marshall Gorson is reversed and judgment is reinstated.

II

Fidelity v. Estate of Joseph N. Gorson, Deceased

Joseph N. Gorson was one of the makers of the judgment note dated May 23, 1978. He died on February 4, 1979. The Gorson Estate was not a party to the October 1979 agreement discussed in the case of S. Marshall Gorson, supra. Judgment was entered against the Estate on January 11, 1980. This appeal is from the refusal of the lower court to strike judgment on a demand note after the death of the maker. On close analysis we are unable to accept Fidelity's conclusion that the cases distinguish between situations where the right to confess judgment is contingent upon a default which occurs after the maker's death, and the right to enter judgment on a note (as here) not contingent upon a default, and that they permit the entry of judgment in the latter situation. A reading of the cases does not make such a distinction cognizable under Pennsylvania law. Rather, the cases indicate that the maker's demise terminates the

[ 296 Pa. Super. Page 7]

    warrant of attorney to confess judgment. First Federal Savings and Loan Association v. Porter, 408 Pa. 236, 183 A.2d 318 (1962). It is true that the early case of Webb v. Wiltbank, 1 Clark 324, 2 Pa.L.J. 303 (1842) is cited by the lower court as support for the principle that the death of the maker does not void the warrant to confess. However, this authority is merely a brief summary of a lower court decision and in light of later pronouncements by the Pennsylvania Supreme Court is of doubtful authority.

It is also true that the validity of the "death voids warranty" principle has been questioned. In Brennan v. Ennis, 219 Pa. Super. 291, 280 A.2d 605 (1971), the court stated:

Cases citing the general rule that judgment cannot be entered by confession after the maker's death have done so without discussion of any underlying rationale. Stucker v. Shumaker, 290 Pa. 348, 351, 139 A. 114 (1927); First Fed. Savings and Loan Ass'n of Green County v. Porter, 408 Pa. 236, 241, 183 A.2d 318 (1962); Kummerle v. Cain, [82 Pa. Super. 528] supra; Kingston Nat. Bk. v. Walters et ux., supra. Kummerle v. Cain, [163 Pa. Super. 624, 63 A.2d 380] supra (1924), is the latest Pennsylvania appellate case actually implementing the rule, and recent cases have placed possible reasons for the rule in question. See Mid-City Federal Savings and Loan Ass'n of Phila. v. Allen, 413 Pa. 174, 196 A.2d 294 (1964); Chaniewicz v. Chaniewicz, 214 Pa. Super. 294, 257 A.2d 605 (1969); Restatement of Agency 2d, ยงยง 138, 139(1)(d); Annot., 44 A.L.R. 1309, 1311 et seq.

219 Pa. Super. at 294 n.1, 280 A.2d at 606 n.1.

Indeed, in Mid-City Federal cited by the Brennan decision as one of the cases questioning the authority of the no entry of judgment after the maker's death line of cases, Justice Eagen wrote in ...


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