Cir. 1986), ruled, however, that because of McClellan's commercially unreasonable sales, a presumption arose that the value of the collateral sold by McClellan equalled the indebtedness. Tabor, 803 F.2d at 1307 (citing Savoy v. Beneficial Consumer Discount Co., 503 Pa. 74, 78, 468 A.2d 465, 467 (1983)). Accordingly, the Court of Appeals reversed our decision in Gleneagles III to the extent that it recognized McClellan's status as a creditor against the Trustee in Bankruptcy. In our Order No. 2 of December 16, 1986, following the mandate issued to us by the Court of Appeals, we declared the mortgages assigned to McClellan to be void as against the Trustee in Bankruptcy, and also declared that "McClellan possesses no rights as a creditor with respect to the putative assignment of the IIT mortgages." McClellan never raised any objection to this order or took any appeal therefrom. Based upon the foregoing, we conclude that the debt owed to McClellan was extinguished completely with respect to all parties, not just the Trustee in Bankruptcy. Because the debt was extinguished, there is no longer any "indebtedness" to be insured by Chicago Title's title insurance policy and McClellan is collaterally estopped from relitigating this issue. We will direct judgment in favor of Chicago Title on Count I of McClellan's complaint.
Count V of McClellan's complaint states that "Chicago Title Insurance Company, intentionally or negligently issued a title insurance policy implicitly certifying to Institutional Investors Trust, and to potential purchasers or assignees of the notes and mortgages including the Plaintiff, McClellan Realty Corporation, that the mortgages represented valid, binding, and enforceable first liens upon the real estate of the borrowing corporations." (Complaint, para. 28). McClellan asserts that it justifiably relied upon these implicit misrepresentations. (Complaint, para. 29).
One who fraudulently makes a misrepresentation of fact for the purpose of inducing another to act or refrain from acting in reliance thereon in a business transaction is liable to the other for the harm caused him by his justifiable reliance upon the misrepresentation. Shane v. Hoffmann, 227 Pa. Super. 176, 181, 324 A.2d 532 (1974). To be justifiable, reliance must be such that common prudence or diligence could not have ascertained the truth. Reimer v. Tien, 356 Pa. Super. 192, 514 A.2d 566, 569 (1986) (citing Shane v. Hoffmann, 227 Pa. Super. 176, 182, 324 A.2d 532 (1974)). In United States v. Gleneagles Investment Co., Inc., 571 F. Supp. 935, 951 (M.D. Pa. 1983), (" Gleneagles II "), we discussed McClellan's awareness that the mortgages were fraudulent conveyances. In Gleneagles II, we noted that McClellan's parent, Pagnotti Enterprises, was responsible for obtaining the assignment of the IIT mortgages to McClellan. Therefore, we looked to the knowledge and actions of Pagnotti Enterprises. We noted that under the Pennsylvania Uniform Fraudulent Conveyances Act (hereinafter "the Act"), the subsequent purchaser of a fraudulent conveyance or obligation takes subject to the rights of creditors under the Act unless the subsequent purchaser is a "purchaser for fair consideration without knowledge of the fraud at the time of the purchase." Id. (quoting 39 Pa. Stat. § 359(1)). We called such a purchaser a "bona fide purchaser." Id. We stated that under the Act, Pagnotti Enterprises would attain the status of a bona fide purchaser only if it could establish both that it purchased the IIT mortgages for fair consideration and that it neither knew nor should have known at the time of the purchase that the IIT mortgages were fraudulent conveyances. Id. at 951-52. We concluded that Pagnotti Enterprises either knew or should have known that the IIT mortgages were not supported by fair consideration and we also concluded that there were sufficient facts known to Pagnotti Enterprises which would have alerted a reasonably prudent person to the likelihood that the IIT mortgages were defective, and should thus have made further inquiry into the background of the IIT mortgages. Id. at 952. Our detailed findings of fact in Gleneagles II indicated that Pagnotti Enterprises did not obtain the mortgages in good faith. Id. at 952-53.
The United States Court of Appeals for the Third Circuit in United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1299 (3d Cir. 1986), concluded that although McClellan had attempted to distance itself from Pagnotti, it could not do this successfully. The Court in Tabor stated that a well recognized rule provides that an assignee gets only those rights held by its assignor and no more. Id. Accordingly, the Court ruled that because McClellan's rights as an assignee were no greater than Pagnotti's and because McClellan did not show that our findings of fact in Gleneagles II were clearly erroneous, McClellan had the same quality of faith as that possessed by Pagnotti. Accordingly, we conclude that McClellan stands in the shoes of Pagnotti Enterprises with respect to the purchase of the IIT mortgages, and that Pagnotti Enterprises' lack of good faith means that McClellan cannot now successfully put forth a claim that it Justifiably relied upon any misrepresentations which may have been made. Furthermore, we do not recall that any fresh representations were in fact made by Chicago Title directly to either Pagnotti or McClellan when Pagnotti bought the mortgages and obligation and McClellan makes no such claim. We shall dismiss Count V of McClellan's complaint.
Counts II, III, and IV of the complaint allege causes of action against the IIT Defendants. Count II of McClellan's complaint seeks recission of the sale of notes and mortgages by Institutional Investors Trust that occurred on January 26, 1977. Under Pennsylvania law, recission is to be granted only when the parties to the contract can be placed in their former positions with regard to the subject matter of the contract. Sullivan v. Allegheny Ford Truck Sales, Inc., 283 Pa. Super. 351, 423 A.2d 1292, 1295 (1980). When the party seeking recission cannot restore the opposite party to the status quo recission is unavailable as a remedy. Associated Hardware Supply Co. v. Big Wheel Distributing Co., 355 F.2d 114, 120-21 (3d Cir. 1965). As we have already noted, McClellan extinguished the underlying debt by its own private sales of certain of the collateral, thereby causing the notes and mortgages evidencing and securing the debt to be satisfied. Tabor, 803 F.2d at 1306-07. McClellan has permanently and irreparably altered the status quo.
Fraudulent misrepresentation may also serve as a basis to rescind a contract. Berger v. Pittsburgh Auto Equipment Co., 387 Pa. 61, 127 A.2d 334, 335 (1956). McClellan's claim fails on this issue as well. As we previously noted, the actions of McClellan's principal, Pagnotti Enterprises, in the underlying transaction means that McClellan is unable to raise the issue of fraud in this case. See Tabor, 803 F.2d at 1299 (holding that McClellan is charged with having the same quality of faith as Pagnotti).
Finally, on the question of recission, we note that a party who discovers facts which warrant recission of his contract must act promptly, and in case he elects to rescind, he must notify the other party without delay, or within a reasonable time. Fichera v. Gording, 424 Pa. 404, 227 A.2d 642 (1967). In the case before us, rather than acting without delay to rescind the sales contract upon discovering the insolvency of the indebted companies, McClellan chose to foreclose on the assets in a commercially unreasonable manner.
Count III of McClellan's complaint alleges a cause of action against the IIT Defendants for breach of warranty. The question of warranties in connection with the sale of the mortgages in the case before us was previously litigated in Gleneagles II. Accordingly, the doctrine of collateral estoppel is applicable once again. In Gleneagles II, we made the express finding of fact that
109. At the December 14 and 15, 1976, meetings between Pagnotti Enterprises and IIT, counsel for IIT emphasized that the mortgaged debts were being sold "as is" and with absolutely no representations or warranties.