Nicholas, J. v. Hofmann, D.

J-A24035-16
2017 PA Super 77JOHN T. NICHOLAS AND BRETT IN THE SUPERIOR COURT OF
STROTHERS, T/A NICHOLAS AND PENNSYLVANIA
STROTHERS, A PARTNERSHIP
Appellants
v.
DREW M. HOFMANN, INDIVIDUALLY;
THE ESTATE OF CONRAD J. HOFMANN,
DREW M. HOFMANN, EXECUTOR;
CONRAD G. HOFMANN, JR.,
INDIVIDUALLY AND KEEHOF BAR, INC.
No. 2567 EDA 2015
Appeal from the Judgment Entered October 6, 2015
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): September Term, 2013 No. 02154
BEFORE: BOWES, J., OTT, J., and SOLANO, J.
OPINION BY SOLANO, J.: FILED MARCH 24, 2017
Plaintiff Nicholas and Strothers (“N&S”), a Pennsylvania partnership
formed by John T. Nicholas (deceased) and Brett Strothers, appeals from a
judgment, following a bench trial, that was entered in favor of the
defendants in its mortgage foreclosure action and that voided a deed that
transferred real estate to N&S. After careful review, we vacate the judgment
and remand for further proceedings.
This case presents a complex set of facts that has been made more
complex by a series of factual and legal errors made by the parties prior to
and throughout these proceedings. Adding to the confusion is the fact that
principals to the underlying transaction, Mr. Nicholas and Conrad J.
J-A24035-16
Hofmann, are deceased, and those available to testify at trial displayed a
woeful lack of personal knowledge about the facts. The evidence left the trial
judge to conclude that there is such a lack of agreement about the facts that
there is no viable mortgage contract to enforce. We conclude that, because
of errors in the trial court’s analysis, it is necessary for the trial court to
reexamine the validity and enforceability of the mortgage. We also conclude
that our rules of procedure did not permit the trial court to entertain an
action to void the deed.
Conrad J. Hofmann owned the real property at issue, which is located
at 551 East Cambria Street in Philadelphia. He also owned all of the stock of
Keehof Bar, Inc., a Pennsylvania corporation which operated a bar and
restaurant on that property. Trial Ct. Op., 1/4/16, at 3.
Conrad J. Hofmann had two sons: Drew M. Hofmann and Conrad G.
Hofmann. Tr. Ct. Op. at 3. In the trial court, the parties referred to Conrad J.
Hofmann as “Conrad J. Hofmann, Sr.” and to Conrad G. Hofmann as “Conrad
G. Hofmann, Jr.” For ease of reference, this opinion refers to that father and
son as “Conrad Sr.” and “Conrad Jr.”
On May 10, 2010, Drew Hofmann, acting as agent for his father,
executed a first mortgage on the Cambria Street property to secure a
$32,000 loan from John H. Marg. Trial Ct. Op. at 3.
On July 26, 2010, Conrad Sr. died. Trial Ct. Op. at 3. In his Last Will
and Testament, he bequeathed the Cambria Street property and all shares
of Keehof Bar to his sons, giving Drew 51% of the real estate and stock and
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giving Conrad Jr. 49%. Id. at 3-4; Last Will and Testament (“Will”), Ex. P-2,
§ IV. The Will named Drew as Executor of the estate1 and gave him and any
successor executors broad general fiduciary powers, including the power to
compromise claims and, “[s]ubject to the other provisions of this [W]ill, to
alter, repair, improve, sell, mortgage, lease, exchange, or otherwise
develop, operate, or dispose of any real or personal property at any time for
such prices and on such terms and in private or public transactions as they
deem appropriate, without any liability on the purchasers to see to the
application of the purchase money.” Will § VI(C), (D). The Will listed some
outstanding debts of the decedent, id. § I, 2 and contained a protective
provision regarding claims against the estate, id. § VII. 3
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1
Letters testamentary were granted to Drew on August 10, 2010, by the
Surrogate Court of Cape May County, New Jersey. Trial Ct. Op. at 3.
2
The Will’s first section, entitled “Debts and Funeral Expenses,” listed debts
owed to Conrad Sr.’s brother, sister-in-law, daughter-in-law, and sister. Will
§ I. Relevant to this appeal, it did not list any debt owed to Mr. Nicholas or
John Marg. See id.
3
The Will’s seventh section, entitled “Protective Provisions,” stated in full:
To the extent permissible by law, no interest in income or
principle hereunder shall be subject or liable to anticipation, sale,
assignment, pledge, debts, contracts, engagements, orders,
liabilities, nor be subject or liable to levy, attachment, execution,
sequestration, or seizure under any legal, equitable, or other
processes.
Will § VII.
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On November 8, 2010, Drew executed a promissory note and
mortgage on the Cambria Street property, and this note and mortgage are
the principal sources of the issues in this action. The promissory note
documented a debt owed to N&S. It stated that “the Estate of Conrad J.
Hofmann, Drew M. Hofmann, executor” promised to pay N&S $195,000 plus
interest. Mortgage Note, Ex. P-5. In capital letters, the note added:
THIS IS A COMMERCIAL LOAN FOR COMMERCIAL PURPOSES.
THE LOAN IS A FIRST LIEN ON THE PROPERTY. THE SUM OF
$140,000 WAS ADVANCED DURING THE LIFETIME OF CONRAD
HOFMANN MAINLY TO FINANCE CON HOF MUSIC, LLC,
ROSELANE MUSIC, LLC WHICH OPERATED OUT OF WILDWOOD,
NEW JERSEY. SOME OF THE MONEY WAS USED TO MAKE
MORTGAGE PAYMENTS ON THE HOUSE OWNED BY CONRAD
HOFMANN AT 6210 SEAVIEW AVENUE WILDWOOD, NEW
JERSEY, AND ALSO TO PAY OBLIGATIONS FOR KEEHOF BAR,
INC., IN PHILADELPHIA. THE PARTIES AGREE THAT JOHN T.
NICHOLAS ADVANCED $140,000.00 ON THE DATE OF THIS
NOTE INCLUDING ACCRUED INTEREST, IF ANY. BRETT
STROTHERS ADVANCED $55,000.
Id. The note was due and payable on December 1, 2012, and interest was
due in monthly installments during the term of the note. The note stated it
was “JOINED BY KEEHOF BAR, INC. . . . as a guarantor,” and it authorized
N&S to file a financing statement against the stock of the bar. Id. The
signature block on the note read:
Intending to be legally bound, the party hereto has affixed
her [sic] hand and seal the day and year first above written.
Estate of Conrad Hofmann, deceased
By_DREW M. HOFMANN_______(SEAL)
Drew M. Hofmann, Executor
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_DREW M. HOFMANN_________ (seal)
Drew M. Hofmann
KEEHOF BAR, INC., a
Pennsylvania business Corporation
By _DREW M. HOFMANN__________
Drew M. Hofmann
President and sole shareholder
Id.
Like the note, the mortgage also was between the “Estate of Conrad J.
Hofmann, Drew M. Hofmann, executor” and N&S. Mortgage, Ex. P-4. It
provided:
Whereas, mortgagor has executed and delivered to mortgagee a
certain mortgage note of even date herewith, payable to the
order of mortgagee in the principal sum of One hundred, Ninety
Five Thousand Dollars ($195,000.00[)] and has provided therein
for payment of any additional moneys loaned or advanced
thereunder by mortgagee, together with interest thereon at the
rate provided in the note, in the manner and at the times therein
set forth, and containing certain other terms and conditions all of
which are specifically incorporated herein by reference; THIS
MORTGAGE SHALL BE DUE AND PAYABLE IN FULL WITHOUT
FURTHER DEMAND FOR PAYMENT OF SAME ON DECEMBER 1ST,
2012. Interest only shall be due on this mortgage until the due
date of December 1st, 2012.
Now therefore, mortgagor, in consideration of the debt or
principal sum and as security for the payment of the same and
interest as aforesaid, together with all other sums payable
hereunder or under the terms of the note, grants and conveys to
mortgagee, its successors and assigns all the lots or pieces of
ground situated in Carbon County [sic], Pennsylvania, more
specifically described as follows:
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Id. The mortgage then proceeded to describe the Cambria Street property in
Philadelphia, including an address, metes and bounds description, tax
assessment number, and title history. See id.4 The mortgage was signed by
Drew M. Hofmann as Executor for the Estate of Conrad Hofmann, and, unlike
the note, it provided for Drew to sign the document only once. Id. The
mortgage contained an acceleration clause and a clause permitting N&S to
confess judgment against the estate. Id. At the same time as the parties
entered into this mortgage, N&S fully satisfied the earlier mortgage on the
property with a payment to John Marg. Trial Ct. Op. at 4, ¶ 8; N.T. at 38,
53-54, 87.
In addition to the mortgage, Drew, again as executor of his father’s
estate, signed an “Irrevocable Stock Power” which transferred to N&S 100
shares of Keehof Bar stock. The bar had issued a certificate for those shares
a few weeks earlier. See Trial Ct. Op. at 4-5; Certificate, Ex. P-8.
Drew tried to use the N&S loan proceeds to reopen Keehof Bar and
make it profitable, but was unsuccessful. After a few months, the Hofmann
Estate failed to make the monthly interest payments required by the note,
and on September 27, 2011, N&S confessed judgment against Drew
Hofmann in the Court of Common Pleas of Carbon County. Trial Ct. Op. at 6.
The court struck the confessed judgment in July of 2012. Id.
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4
No party has argued to this Court that the mortgage’s erroneous statement
that the property was “situated in Carbon County” rendered it invalid.
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On January 25, 2012, Conrad Jr., “as heir of the Estate of Conrad J.
Hofmann, deceased,” executed a deed conveying “ONE HALF INTEREST” in
the Cambria Street property to N&S for $5,000. Trial Ct. Op. at 6; Deed, Ex.
P-3.5 The deed explained that Conrad Sr. had died and left a Will providing
that his residuary estate would be divided equally between Drew and Conrad
Jr., so that “both have been vested with a 50% interest in the real estate
described herein by operation of law.” Trial Ct. Op. at 6; Deed, Ex. P-3
(quoting Will § V). In citing the Will’s provision for an equal disposition of the
estate’s residue to Drew and Conrad, the deed overlooked the fact that a
different provision of Conrad Sr.’s Will, Section IV, stated that Conrad Sr.
gave Conrad Jr. only 49% of the Cambria Street property.6
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5
Strothers later explained the reason for this transaction:
I believed in the current condition with the amount of debt
imposed upon [the property], that it was a beneficial situation
for both ends, including us and Conrad, to come out of the
situation with some sort of money in his pocket and to peaceably
walk away in a gentleman’s fashion.
N.T. at 101-02.
6
The deed was drafted by a lawyer for Nicholas, Anthony Roberti, the same
person who drafted the note and mortgage. Roberti testified that when
Conrad executed the deed, he had an interest “only as an heir of the
estate,” but that pursuant to Pennsylvania law, “after one year . . . it
automatically goes to the heirs if nothing is done with the estate. So — and
it’s been longer than that now. It was just a matter of simplifying the
procedure.” N.T. at 21. Strothers testified that the deed’s statement that it
conveyed 50% of the property, even though Conrad was to inherit only
49%, was an error. Id. at 101.
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N&S filed a complaint to foreclose on the mortgage on September 19,
2013. Trial Ct. Op. at 6. As amended, the complaint named as defendants:
Drew M. Hofmann, individually; Drew M. Hofmann, as Executor of the Estate
of Conrad J. Hofmann, deceased; Conrad G. Hofmann, Jr., individually; and
Keehof Bar, Inc. Trial Ct. Op. at 1; see Am. Compl., 6/9/14.
On November 6, 2014, a default judgment was entered in favor of
N&S and against Conrad Jr. for failure to file an answer within the required
time. Trial Ct. Op. at 1-2. Three days later, Nicholas died, and on
November 20, 2014, N&S filed a Suggestion of Death to alert the court that
Strothers would be continuing the action on behalf of the partnership.
Suggestion of Death at 1-2.7
On December 26, 2014, the remaining defendants filed an Answer and
Counterclaim to Quiet Title, citing Pa.R.C.P. 1061(b)(3). Trial Ct. Op. at 2;
Answer to Second Amended Compl. with Countercl. to Quiet Title and
Affirmative Defenses, 12/26/14. The defendants claimed that the mortgage
was procured by fraudulent inducement and was void and invalid because
Drew never registered as an executor in Pennsylvania and therefore lacked
authority to enter into it. Id. at ¶ 33. In addition to alleging fraud, the
counterclaim averred that N&S was dissolved as a partnership by operation
of law upon Nicholas’ death and therefore could not maintain the mortgage
____________________________________________
7
The document erroneously stated that “John T. Strothers has passed.”
Suggestion of Death at 2.
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foreclosure action, and that Conrad Jr.’s deed of one-half of the property
was “defective and invalid.” Id. at ¶¶ 32, 33, 41. In an answer to the
counterclaim, N&S averred that the counterclaim was invalid under Rule
1148 of the Rules of Civil Procedure “as [the] claim does not relate to the
origination of the mortgage.” Pl.’s Ans. To Def.’s New Matter and Affirmative
Defenses, 1/14/15, at ¶ 32.
On July 13, 2015, the trial court held a non-jury trial. Trial Ct. Op. at
3. A major focus of the trial was on the meaning of the terms of the note
and mortgage, including, in particular, the $195,000 amount of the loan and
the capitalized paragraph in the note regarding the $140,000 portion of the
loan that was an advance. In this respect, each side presented conflicting
evidence, including extrinsic evidence, regarding the documents. N&S
presented the testimony of Attorney Anthony Roberti, Esquire, and Brett
Strothers. Id. at 2. Defendants presented the testimony of Drew Hofmann.
Id.
Roberti, who had previously represented Nicholas in other matters,
testified that he drafted the note and mortgage on November 8, 2010, at a
meeting in his office where Nicholas, Drew Hofmann, and William Gaffney8
____________________________________________
8
Roberti did not mention William Gaffney by name, but referred to him as
Drew’s financial advisor. N.T., 7/13/15, at 10. Strothers testified that
William Gaffney was Drew’s financial advisor who helped negotiate the
mortgage deal. Id. at 73, 79. Drew testified, however, that Gaffney was not
a financial advisor. Id. at 156.
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were present. Tr. Ct. Op. at 4; N.T., 7/13/15, at 9-11.9 Roberti testified that
Drew was not represented by counsel, but that in the middle of the meeting
Drew called and spoke with his attorney for fifteen minutes. Id. at 11, 47.
Roberti testified that $140,000 had been loaned by Nicholas to either
Conrad Sr. or to Drew Hofmann while Conrad Sr. was alive. N.T., 7/13/15,
at 32-26, 41, 43-44. Roberti did not know how that money was used.
Roberti said some of the $140,000 was used to pay residential mortgages,
but believed it was a small amount. Id. at 32-36, 42. He was not sure
whether the money was used to make payments on a house owned by
Conrad Sr. or Conrad Jr. Id. at 33. Roberti believed that all or most of the
$140,000 had been given directly to Drew. Id. at 36, 43-44. He could not
provide evidence substantiating the $140,000 debt, and he testified he was
never given a detailed itemization of it. Id. at 32-37, 44-45, 48.10
According to Roberti, the remaining $55,000 of the $195,000 loan
amount was advanced by Strothers and distributed on the date of the note’s
execution, November 8, 2010. N.T. at 35. He claimed that some of that
money went to paying off the $29,500 balance due on the first mortgage, as
____________________________________________
9
Roberti initially testified that Strothers was also present, N.T. 10, but then
became unsure, N.T. 37. Strothers testified that he was on a speakerphone
the day the mortgage was created. Id. at 81.
10
A spreadsheet introduced at trial as Exhibit P-9 says that $140,000 was
“already advanced” by John T. Nicholas, but does not include a breakdown of
this amount or specify to whom it was given.
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well as gas bills, water bills, and real estate taxes on the property. Id. at 35,
38-39, 53-54. Roberti testified that he distributed $34,754 on the day of the
mortgage, but also said it was “more than that. Something like $50,000.”
Id. at 38, 48. He did not bring to court the records of the checks he issued
that day. Id. at 61-62.11
Roberti stated that he included in the note whatever language the
parties instructed him to include, in order to make the note as detailed as
possible. N.T. at 31, 34. Roberti testified that he read both the mortgage
and note aloud in Drew’s presence. Id. at 46; see also id. at 33.
Plaintiff Strothers testified that —
Nicholas brought the matter to me, the opportunity that he had
a family friend that he had advanced money to previously, and
he had just passed away, and there was a looming
foreclosure[12] coming over a business asset that the family had,
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11
The spreadsheet introduced at trial shows that Brett Strothers “already
advanced”: $17,950 (no description listed), $735 (“cash to Drew Hofmann
11/3/10”), $1,000 (“TD Bank Roselane MC Center 11/5/10”), $548 (“Liquor
Control Board”), and $13.65 (“USPS”). Ledger, Ex. P-9. Combined with the
$140,000 “already advanced” by John T. Nicholas, these amounts total
$160,246.65; they were listed on the spreadsheet as the “TOTAL ADVANCED
TO DATE.” Id. Under the heading “I HAVE $34,754 TO DISTRIBUTE,” the
spreadsheet showed distributions of $29,500 to John H. Marg, and $5,254 to
Drew M. Hofmann. Id. We note that the amounts advanced ($160,246.65)
and the amounts distributed ($34,754) total $195,000.65. The ledger also
includes a column, “TO BE PAID BY HOFMANN/not paid at closing,” which
includes amounts for City of Philadelphia Real Estate Taxes, Gas Services,
and a Water bill, which total approximately $12,000. Id.
12
On cross-examination, Strothers recalled the first mortgage being a 2008
two-year mortgage; however, Defendants’ counsel pointed out that the
(Footnote Continued Next Page)
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and he had some outstanding debt, and to prevent trying — to
kill two birds with one stone, to prevent a foreclosure on the bar
and also secure his debt, I came on board by buying out a
previous mortgage that was about to foreclose and also provided
additional funds to get the bar up and running again that had
previously been closed so he could provide income for Mr.
Hofmann, Drew.
...
The purpose of the mortgage [for $195,000] was that most of
this money was advanced to Drew and his businesses with the
credit history of Drew’s father who was still alive at the time.
Once he passed away, John Nicholas was worried he would not
be able to collect based on history and wanted to secure his debt
in some form or another.
Id. at 69-74.
Strothers testified that the $140,000 was comprised entirely of loans
to Drew based on his father’s credit backing. N.T. at 73-74, 76, 88-89, 91.
He had seen checks written from Drew and Drew’s businesses to Nicholas in
repayment for loans, but Strothers said that Nicholas would not cash the
checks because they would bounce. Id. at 77, 89-90. The parties to the
mortgage finally agreed on the amount of $140,000 following days of
negotiations. Id. at 73, 79. Strothers testified that part of the $55,000 that
he provided was used to pay off the first mortgage, but he did not specify
how the rest of the $55,000 was allocated. Id. at 80, 86-87.13
_______________________
(Footnote Continued)
mortgage with John Marg was dated just six months before the instant
mortgage, and did not specify a due date. N.T. at 85-86.
13
Strothers testified that he paid $39,500 to satisfy the first mortgage. N.T.
87. As previously noted, the spreadsheet stated and Roberti testified that
$29,500 was used to satisfy the first mortgage.
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Defendant Drew Hofmann testified that the intention behind the
mortgage at issue was to obtain funds to reopen the bar and then pay back
the mortgage loan with the bar profits. N.T. at 152-53, 156. When asked
about the $140,000 debt, Drew said that “there really wasn’t an
understanding.” Id. at 153-54. He said he never received the $140,000 loan
and that in the past Nicholas had lent him $30,000 at most. Id. at 166.
Regarding the $55,000, Drew admitted that he “signed” for it, and that
the $55,000 “given to him” was “a loan to open the bar.” N.T. at 153. He
said that of the $55,000, approximately $17,000 was “given towards the
builders” and “given to other people to open the bar, get the bar open, and
the difference to John Marg.” Id. at 156. At the same time, Drew testified
that he personally received $5,000, and that he believed that was all he was
“signing for.” Id. at 153-54, 156.
Drew testified that he read and signed the mortgage, and that he
understood that if he failed to make payments he would be in default. N.T.
at 175-78. He admitted that he made only two payments under the
mortgage. Id. at 176-78. He also testified that N&S promised him additional
funds to help open the bar, but that agreements regarding the additional
funds were not included in the written mortgage documents. Id. at 156-59;
175-76. The additional funds were never provided, which was why Drew was
unsuccessful at reopening the bar and turning a profit early enough to repay
the mortgage as planned. Id.
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At the conclusion of N&S’ case, the defendants moved for a directed
verdict on behalf of Defendants Keehof Bar and Drew Hofmann, individually.
Trial Ct. Op. at 2. The Court granted the motion with respect to Keehof Bar
only. Id.
The day following the trial, the trial court issued an order which struck
both the mortgage and deed as void, quieted title on the property in favor of
Defendants, and barred N&S from making any future claims on the property.
Order, 7/14/15. The full text of the trial court’s order reads:
AND NOW, this 14th day of July, 2015, upon consideration of the
pleadings and after a non-jury trial in this Foreclosure action, it
is hereby ORDERED and DECREED as follows:
1) Judgment is entered in favor of Defendants, Drew M.
Hofmann, Conrad G. Hofmann, Jr., and [Keehof] Bar, Inc., and
against Plaintiffs, John T. Nicholas, Brett Strothers, t/a Nicholas
and Strothers, a Pennsylvania partnership;
2) The Mortgage dated November 8, 2010, executed by Drew M.
Hofmann, Executor of the Estate of Conrad J. Hofmann, Sr., and
recorded on November 16, 2010 in the Department of Records of
Philadelphia County under Document No. 52282705, and
assigned to John T. Nicholas and Brett Strothers, a Pennsylvania
partnership known as Nicholas and Strothers by Assignment
recorded November 16, 2010 in the Department of Records of
Philadelphia under Assignment No. 36N6-105, for the Property
551 East Cambria Street, Philadelphia, Pennsylvania 19134,
described more fully in Exhibit “A” attached hereto (“Property”)
is unenforceable and is hereby marked VOID and
CANCELLED[14];
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14
As N&S has noted, the order refers to the mortgage at issue as assigned,
but there is no suggestion that it did not originate with the partnership. Pl.’s
Post-Trial Mot. at ¶ 26-27.
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3) Plaintiffs, John T. Nicholas, Brett Strothers, and the
partnership known as Nicholas and Strothers, his/its successors
and assigns, and/or anyone claiming under, by or through
him/it, are forever barred from asserting any right, lien,
mortgage, title or interest in the Property 551 East Cambria
Street, Philadelphia, Pennsylvania 19134;
4) The Commissioner of the Department of Records of
Philadelphia County is directed to record a certified copy of this
Order and to void the Mortgage to properly acknowledge that the
Mortgage dated November 8, 2010, and recorded in Philadelphia,
Pennsylvania under Document No. 52282705, and assigned to
John T. Nicholas and Brett Strothers, a Pennsylvania partnership
known as Nicholas and Strothers by Assignment recorded
November 16, 2010 in the Department of Records of Philadelphia
under Assignment No. 36N6-105, is removed from record;
5) The Deed dated January 25, 2012, purporting to transfer title
of the Property located at 551 East Cambria Street, Philadelphia,
Pennsylvania 19134, from Conrad G. Hofmann, as heir of the
Estate of Conrad J. Hofmann, to John T. Nicholas and Brett
Strothers, a Pennsylvania partnership known as Nicholas and
Strothers recorded in Philadelphia Recorder of Deeds on January
27, 2012 under Document No. 52439964, described more fully in
Exhibit “B” attached hereto (“Deed”), is declared VOID and
CANCELLED as of record;
6) Plaintiffs, John T. Nicholas, Brett Strothers, and the
partnership known as Nicholas and Strothers, and all persons
claiming under him and/or it, are forever barred from asserting
any right, lien, title or interest in the Property identified as 551
East Cambria Street, Philadelphia, Pennsylvania 19134, and title
to the Property is hereby QUIETED in favor of Defendants, Drew
M. Hofmann and Conrad G. Hofmann, Jr., as Tenants in Common
(Fifty-One percent (51%) to Drew M. Hofmann and Forty-Nine
percent (49%) to Conrad G. Hofmann), against all claims of the
Plaintiffs;
7) The Commissioner of the Department of Records of
Philadelphia County is further directed to record a certified copy
of this Order to properly acknowledge Defendants, Drew M.
Hofmann and Conrad G. Hofmann, Jr., as the legal owners of the
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Property 551 East Cambria Street, Philadelphia, Pennsylvania
19134;
8) Defendants are responsible for obtaining a certified copy of
this Order from the Prothonotary’s Office. Defendants are also
responsible for giving certified copies of this Order to the
Document [R]ecording Division of the Department of Records.
Id.
Later, in an opinion filed under Appellate Rule 1925(a), the court
explained that it found the mortgage unenforceable “because (1) the parties
did not have a meeting of the minds and (2) there was a lack of
consideration.” Tr. Ct. Op., 1/4/16, at 8. The court stated:
The parties did not agree upon the essential terms in the
Mortgage agreement; thus, contractual formation never
occurred. The lack of mutual assent was apparent from the plain
language in the Mortgage Note; it stated, in part, that “the sum
of $140,000 was advanced during the lifetime of Conrad
Hofmann . . . .” In the same paragraph, it stated, “[t]he parties
agree that John T. Nicholas advanced $140,000.00 on the date
of this note including accrued interest, if any . . . .” These two
clauses are clearly contradictory; both cannot be true. The
parties disputed a single loan in the amount of $140,000.00;
that loan could not have been distributed twice — once during
the lifetime of Conrad Hofmann and once on November 8, 2010,
the date of the Note. Moreover, Conrad Hofmann, Sr. was not
alive on November 8, 2010.
The lack of mutual assent was also demonstrated by the
conflicting testimony of Brett Strothers and Defendant Drew
Hofmann at trial. These parties disagreed about the material
terms of the Mortgage agreement, including who received the
$140,000.00 referenced in the Note. Although the Note stated
that $140,000.00 was advanced during the lifetime of Conrad
Hofmann, Brett Strothers testified that the money was advanced
to Defendant Drew Hofmann. . . .
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Defendant Drew Hofmann, however, testified that he never
received the $140,000.00 referenced in the Note; he only
received $5,000.00. . . .
Even Mr. Roberti, a licensed attorney and drafter of the
Note, disagreed about the material terms of the Mortgage
agreement. According to Mr. Roberti, the sum of $140,000.00
was either advanced to Conrad J. Hofmann Sr. or Conrad G.
Hofmann, Jr. . . .
The inconsistency and ambiguity with regard to these
essential terms demonstrates the lack of mutual assent between
the parties. Moreover, the testimony demonstrated that the
nature and extent of the parties’ obligations was not certain. As
such, this Court properly found that the mortgage was
unenforceable, in part, because there was no meeting of the
minds.
Id. at 8-11 (citation to record omitted).
The court also concluded that the mortgage was unenforceable
because it was supported by past consideration. Citing the “general rule that
past consideration is not sufficient to support a subsequent promise where
the writing does not contain an express statement that the signer intends to
be legally bound,” the court stated that the “past act of advancing
$140,000.00, prior to the execution of the Mortgage, did not constitute
consideration sufficient to create a binding contract.” Tr. Ct. Op., 1/4/16, at
11-12.15 In addition, the court concluded that entry into the mortgage by
Drew, as Conrad Sr.’s executor, was prohibited by the protective provisions
____________________________________________
15
The court noted that there was no evidence of any past debt by Conrad
Sr. to Nicholas in Conrad Sr.’s Will, even though the Will listed various debts
owed by Conrad Sr. Tr. Ct. Op. at 12-13.
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of Conrad Sr.’s Will, which, the court believed, prevented creditors from
asserting claims against the estate, and that the mortgage and note violated
the Statute of Frauds. Id. at 15-16.
The court said it voided the January 25, 2012 deed of the Cambria
Street property from Conrad Jr. to N&S because the deed “purported to
convey a greater share of the Subject Property than Conrad G. Hofmann Jr.
owned.” Tr. Ct. Op. at 16. In addition, the court said the deed was invalid
because Conrad Jr. had not yet received his interest in the estate at the time
he made the deed. Id. at 17.
On July 24, 2015, N&S filed a timely Post-Trial Motion for Judgment
Notwithstanding the Verdict. Trial Ct. Op. at 2. It argued that the evidence
at trial supported enforcement of the mortgage, and that the trial court’s
order invalidating the January 25, 2012 deed exceeded the bounds of a
foreclosure action as defined by the Rules of Civil Procedure. Post-Trial Mot.
(citing Pa.R.C.P. 1141 to 1150). N&S’ brief in support of its motion claimed
that “the preponderance of the evidence at trial supports the court finding in
favor of the Plaintiff.” Pl.’s Br. in Support of Post-Trial Mot. at 3-4 (excessive
capitalization removed). The trial court denied the motion on August 5,
2015. Trial Ct. Op. at 2.
N&S filed a Notice of Appeal to this Court on August 6, 2015. It filed a
Statement of Matters Complained of on Appeal with the trial court on
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August 31, 2015.16 On October 6, 2015, the court entered judgment, thus
perfecting this appeal. See generally Johnston the Florist, Inc. v.
TEDCO Const. Corp., 657 A.2d 511, 514 (Pa. Super. 1995) (en banc).
On appeal, N&S raises the following issues:
1. Did the trial court err in determining that the Mortgage
securing the Note was unenforceable for a lack of consideration
despite satisfying the Statute of Frauds with the language
“intending to be legally bound”[?]
____________________________________________
16
The Statement raised the following issues:
1. The Trial Court erred in finding that the Mortgage was
unenforceable because the debt was not acknowledged in the
decedent’s Last Will and Testament.
2. The Trial Court erred in finding that the Mortgage was
unenforceable as the parties did not have a meeting of the
minds.
3. The Trial Court erred by finding the Mortgage was
unenforceable for a lack of consideration.
4. The Trial Court erred in finding that the exercise of the
Irrevocable Stock Power by the Plaintiff to [] transfer the liquor
license was improper and thereby violated the Mortgage.
5. As a matter of Law, the incontrovertible evidence adduced
through the trial of the case was overwhelmingly in favor of
enforcing Plaintiff’s November 8, 2010 Mortgage and Note
against the Defendant, The Estate of Conrad Hofmann, Drew
Hofmann, executor.
6. The Trial Court erred as a matter of law in its finding that the
deed dated January 25, 2012 was void.
Statement, 8/31/15.
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2. Did the trial court err in relying on parol[] evidence to
determine that the Mortgage securing the Note was
unenforceable for the parties did not have a “meeting of the
minds”[?]
3. As a matter of law, the incontrovertible evidence adduced
through the trial of the case was overwhelmingly in favor of
enforcing the [N&S] Mortgage and Note against the Appellee,
The Estate of Conrad Hofmann, Drew Hofmann, executor.
4. As a matter of law, did the trial court exceed the scope of an
in rem foreclosure proceeding by considering and opining on a
Deed and power of attorney to assign stock in Keehof Bar[?]
Pl.’s Br. at 6 (footnote omitted).17
Upon appeal of a non-jury trial verdict, we consider the evidence in a
light most favorable to the verdict winner and will reverse the trial court only
if its findings of fact lack the support of competent evidence or its findings
are premised on an error of law. Allegheny Cty. Hous. Auth. v. Johnson,
908 A.2d 336, 340 (Pa. Super. 2006).
When this Court reviews the findings of the trial judge, the
evidence is viewed in the light most favorable to the victorious
party below and all evidence and proper inferences favorable to
____________________________________________
17
While N&S presents four questions for our review, its appellate brief is
divided into five sections. The additional section is entitled, “The Trial Court
Ignored the Provision of the Will to Allow Drew Hofmann as Executor to
enter into the Note and Mortgage.” See Appellant’s Brief at 32-35. This
argument apparently relates to the trial court’s statement that the mortgage
is invalid because Drew was precluded by protective provisions of the Will
from entering into it. Because N&S did not raise that issue in its Statement
of Questions Involved, see id. at 6, this issue is not before us. See Krebs v.
United Refining Co., 893 A.2d 776, 797 (Pa. Super. 2006). However, as
we discuss below, we conclude that this question is so closely related to
other issues in the case that our remand will require reexamination of the
trial court’s holding with respect to it.
- 20 -
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that party must be taken as true and all unfavorable inferences
rejected. The court’s findings are especially binding on appeal,
where they are based upon the credibility of the witnesses,
unless it appears that the court abused its discretion or that the
court’s findings lack evidentiary support or that the court
capriciously disbelieved the evidence.
Hart v. Arnold, 884 A.2d 316, 330–31 (Pa. Super. 2005) (internal
quotation marks and citations omitted), appeal denied, 897 A.2d 458 (Pa.
2006). It is inappropriate for an appellate court to make factual
determinations in the face of conflicting evidence. Lanard & Axilbund, Inc.
v. Muscara, 575 A.2d 615, 619 (Pa. Super. 1990).
The Trial Court’s Holding
That the Note and Mortgage Are Unenforceable
Consideration and the Statute of Frauds
N&S first challenges the trial court’s conclusion that the mortgage and
note were unenforceable because they were supported by past
consideration. See Pl.’s Br. at 21-23. Of the $195,000 reflected by the
mortgage note, $140,000 had allegedly been given by Nicholas of N&S to
Defendant Conrad Sr. before Conrad Sr. died. The trial court stated that, “It
is a general rule that past consideration is not sufficient to support a
subsequent promise where the writing does not contain an express
statement that the signer intends to be legally bound. . . . Th[e] past act of
advancing $140,000.00, prior to the execution of the Mortgage, did not
constitute consideration sufficient to create a binding contract.” Tr. Ct. Op.
at 11-12.
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N&S argues that because the note contains the words “intending to be
legally bound,” it satisfied Pennsylvania’s Uniform Written Obligations Act
(“UWOA”), 33 P.S. § 6, part of what is commonly known as the “Statute of
Frauds,” 18 and therefore did not require other consideration. As a result,
N&S contends, the trial court erred in voiding the mortgage and note simply
because a portion of the consideration described in the note had changed
hands in the past. Pl.’s Br. at 21-23 (citing 33 P.S. § 6; Hazelwood
Lumber Co. v. Smallhoover, 455 A.2d 108, 110 (Pa. 1982); and Laudig
v. Laudig, 624 A.2d 651 (Pa. Super. 1993)). Like the trial court, Defendants
claim that “under contract law” past consideration is inadequate to support a
contract, but they cite no authority for this position. See Defs.’ Br. at 11.19
____________________________________________
18
In Pennsylvania, the general “Statute of Frauds” encompasses a collection
of statutes, some of which date back to the Commonwealth’s colonial era,
that are unofficially codified at 33 P.S. §§ 1-8 (Purdon). The UWOA was
added to that collection in 1927, see Act No. 1927-475, P.L. 985 (May 13,
1927), and is unofficially codified at 33 P.S. §§ 6-8. The purpose of the
UWOA is to allow a statement of an intent to be legally bound to function as
the equivalent of a seal at common law. Socko v. Mid-Atlantic Systems of
CPA, Inc., 126 A.3d 1266, 1277 (Pa. 2015).
19
Defendants also argue that N&S did not preserve this issue by including it
in its Rule 1925(b) statement. Defs.’ Br. at 12. Among the issues listed in
N&S’s Rule 1925(b) statement was that “The Trial Court erred by finding the
Mortgage was unenforceable for a lack of consideration.” Statement,
8/31/15 (emphasis added). While this broad language does not mention
past consideration or the UWOA, it encompasses the arguments and rulings
made during trial regarding the inadequacy of the consideration supporting
the contract. We therefore decline to find that N&S has waived the question
whether the trial court erred in finding that past consideration was
insufficient to support the contract.
- 22 -
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Section 1 of the UWOA, 33 P.S. § 6, reads in its entirety:
A written release or promise, hereafter made and signed by the
person releasing or promising, shall not be invalid or
unenforceable 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.
Under this provision, if an agreement is accompanied by an intentional,
binding statement, it does not require further consideration:
Our caselaw has explained that, generally, this section provides
that a written agreement will not be deemed to be void for lack
of consideration if it contains an express statement that the
signer intends to be legally bound, Yocca v. Pittsburgh
Steelers Sports, Inc., 578 Pa. 479, 854 A.2d 425, 433 (2004),
and, more explicitly, has interpreted this provision to supply the
necessary consideration for an agreement. See Morgan’s
[Home Equip. Corp. v. Martucci], 136 A.2d [838,] at n. 12
[(Pa. 1957)] (parties’ express intention to be legally bound
within meaning of UWOA has the same effect in importing
consideration as a seal on the agreement). . . . [A]ny party
challenging the validity of a contract containing an express intent
to be legally bound will not be entitled to relief from the
agreement on the basis that the promises made therein lack
consideration.
Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266, 1276-77
(Pa. 2015).20 The UWOA applies to notes and mortgages, just as it does to
____________________________________________
20
Socko created an exception to the UWOA for restrictive covenants. See
126 A.3d at 1277-78. That exception is not relevent here. We also note that
the UWOA does not apply to a failure of consideration — that is, where a
contract contemplates the exchange of consideration, but a party fails to
provide it. As we explained in McGuire v. Schneider, Inc., 534 A.2d 115(Pa. Super. 1987), aff’d, 548 A.2d 1223 (Pa. 1988):
A lack of consideration, if such existed, would not render [an]
agreement a nullity, [if] the parties expressed therein their
(Footnote Continued Next Page)
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other contract documents. See, e.g., First Fed. Sav. & Loan Ass’n of
Pittston v. Reggie, 546 A.2d 62, 66–67 (Pa. Super. 1988) (applying
UWOA, but holding that mortgage was unenforceable because it did not
specify intent to be legally bound); Kronz v. Cech, 175 B.R. 585, 593
(Bkrtcy. W.D. Pa. 1994) (holding requirements of UWOA satisfied by
language in mortgage instrument).21
Here, the trial court declared that because the note and mortgage
were supported primarily by consideration paid in the past, they were
“unenforceable” for lack of valid consideration. Tr. Ct. Op. at 11-12.22 The
_______________________
(Footnote Continued)
intent to be legally bound. Under the Uniform Written Obligations
Act, 33 P.S. § 6, that statement of intent removes lack of
consideration as a ground for avoiding the contract. Failure of
consideration, on the other hand, goes to the heart of any claim
based on an agreement and is always available as a defense to
that claim. . . . [F]ailure of consideration does not contradict the
terms of the instrument, but shows that the consideration
contemplated was never received.
534 A.2d at 118-19 (citations omitted, emphasis added). The issue in this
case is lack of consideration, not failure of consideration.
21
Federal district court decisions offer this Court persuasive, but not binding,
authority. NASDAQ OMX PHLX, Inc. v. PennMont Secs., 52 A.3d 296,
303 (Pa. Super. 2012).
22
The court’s emphasis on “past consideration” is problematic in several
respects in addition to that discussed in the text. For one thing, the parties
had not made an argument based on past consideration at trial. And while
the court emphasized the importance of the “past consideration” in the case,
it did not discuss the substantial portion of the consideration, $55,000, that
indisputably was provided on the date the mortgage was executed. In
addition, the court questioned whether the $140,000 had ever passed from
(Footnote Continued Next Page)
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only authority the trial court cited to support that conclusion was the UWOA,
33 P.S. § 6. See id. 23 But although the UWOA explicitly states that a
contract without consideration is valid and enforceable if its signer intends to
be legally bound, the court, inexplicably, did not address whether the
mortgage note contained the language that would make it valid and
enforceable under the statute. In fact, the mortgage note contains the
following language preceding Drew’s signature:
Intending to be legally bound, the party hereto has affixed
her [sic] hand and seal the day and year first above written.
[Emphasis added.]
This language satisfies the UWOA, and it made the note and the mortgage
that secures the note valid and binding. See Socko, 126 A.3d at 1276. The
trial court erred in overlooking this critical part of the contract and in holding
the note and mortgage invalid and unenforceable as a result.
In addition to holding the mortgage invalid and unenforceable under
the UWOA, the trial court also invoked an 1855 “supplement” to the Statute
_______________________
(Footnote Continued)
N&S to Defendants at all, noting that Drew “testified that he never received
the $140,000.00,” that the payment “was not substantiated by the evidence
and testimony at trial,” and that the evidence tended to show that the sum
of $140,000 was not advanced to Conrad Hofmann.” Trial Ct. Op. at 12
(emphasis in original). But that discussion had nothing to do with whether
the note and mortgage were valid under the UWOA.
23
Although our cases recognize that a contract based solely on past
consideration may sometimes be unenforceable in equity, see Newman v.
Sablosky, 407 A.2d 448, 451 (Pa. Super. 1979) (citing cases), the court did
not invoke that authority and it is inapposite here.
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of Frauds of 1772, Act No. 1855-322, § 1, P.L. 308 (Apr. 26, 1855), 33 P.S.
§ 3, 24 to hold that N&S could not foreclose on the mortgage because the
note was a contract to answer for the debt of another and was not fully
contained in a writing that “disclose[d] the charged party’s intention to be
bound by the asserted contract.” Tr. Ct. Op. at 15-16. Once again, however,
the note explicitly did disclose the signer’s intention to be bound, and to the
extent it held otherwise, the court erred.25
The trial court suggested that Drew was without power to execute the
note and mortgage because the spendthrift provision in Section VII of
Conrad Sr.’s Will stated that “no interest in income or principal hereunder
shall be subject or liable to” any pledge, debt, contract, or liability or
“subject or liable to levy, attachment, execution, sequestration, or seizure.”
The court interpreted this provision to prohibit Drew from entering into the
____________________________________________
24
This statute provides:
No action shall be brought whereby to charge any executor
or administrator, upon any promise to answer damages out of
his own estate, or whereby to charge the defendant, upon any
special promise, to answer for the debt or default of another,
unless the agreement upon which such action shall be brought,
or some memorandum or note thereof, shall be in writing, and
signed by the party to be charged therewith, or some other
person by him authorized.
33 P.S. § 3.
25
We render no view on any other issue under the 1855 statute, and the
trial court is free to reexamine that issue upon remand in light of our other
holdings.
- 26 -
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mortgage contract. Tr. Ct. Op. at 15. Drew signed the note three times — as
executor of Conrad Sr.’s estate, in his personal capacity, and as president
and sole shareholder of Keehof Bar. The trial court’s discussion of Section
VII pertained to Drew’s authority to sign as executor, and if the trial court’s
interpretation of the Will were correct, then the validity of Drew’s statement
in the note that he intended to be legally bound by its terms might be in
question — at least insofar as Drew signed as executor. Because the trial
court overlooked Drew’s statement that he intended to be bound, it will be
necessary for the trial court to reconsider the question of Drew’s authority to
sign that statement in light of the terms of the Will. In this connection, we
note that the trial court also appears to have overlooked Section VI.C. and
D. of Conrad Sr.’s Will, which authorized Drew, as executor, to mortgage
real property and to compromise claims. See also PEF Code, 20 Pa. C.S.
§ 3354 (discussing power to mortgage). The court therefore should
reconsider this question on remand.
Meeting of the Minds and the Parol Evidence Rule
N&S also contends that the trial court erred in relying on parol
evidence to determine that the note and mortgage were unenforceable
because the parties did not have a “meeting of the minds.” See Pl.’s Br. at
27-29. The trial court stated, “For a meeting of the minds to occur, the
parties must mutually assent to the same contractual terms.” Trial Ct. Op.,
1/4/16, at 8 (citing Mountain Props., Inc. v. Tyler Hill Realty Corp., 767
- 27 -
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A.2d 1096, 110[1] (Pa. Super.), appeal denied, 782 A.2d 547 (Pa. 2001)).
The court explained that it examined the ambiguous language in the note
surrounding the $140,000 — “THE SUM OF $140,000 WAS ADVANCED
DURING THE LIFETIME OF CONRAD HOFMANN . . . THE PARTIES AGREE
THAT JOHN T. NICHOLAS ADVANCED $140,000.00 ON THE DATE OF THIS
NOTE” — and considered the conflicting testimony about it that was given at
trial. Id. at 8-11.26 Based on the testimony, the trial court found that “the
nature and extent of the parties’ obligations was not certain,” and “[t]he
parties did not agree upon the essential terms in the Mortgage; thus,
contractual formation never occurred.” Id. at 8-9, 11. N&S insists, however,
that because the essential language in the mortgage contract was clear, the
trial court should not have strayed from its four corners when interpreting its
meaning. Pl.’s Br. at 28 (citing, inter alia, Goldsmith v. Means, 158 A. 596,
599 (Pa. Super. 1932) (“[W]hen the intention of the parties can be clearly
ascertained from the deed and the plan, parol evidence cannot be received
to alter it”)).27
____________________________________________
26
Strothers testified that the $140,000 had been advanced to Drew for his
recording studio; Drew testified that he never received the $140,000 and
that he believed that he was “only on the hook for $5,000”; and Roberti
testified that some of the $140,000 was used to make home mortgage
payments for a house in New Jersey owned either by Conrad Sr. or Conrad
Jr. Trial Ct. Op. at 9-11 (citing N.T. 88-89, 153-54, 33-35).
27
Defendants argue that N&S waived the claim that the trial court
improperly considered parol evidence by failing to raise that issue during
(Footnote Continued Next Page)
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We agree that the trial court erred. First, this is an action by N&S to
foreclose on the mortgage securing the note. Although the trial court
focused on an ambiguous term that it found in the note, it did not assert
that any provision of the mortgage itself is ambiguous. Nor could it. The
mortgage clearly provides that the estate executed a $195,000 note and
that it “grants and conveys” the Cambria Street property as security for
payment of the note. Mortgage, Ex. P-4. The obligation under the mortgage
document is clear.
The trial court held, however, that there was no “meeting of the
minds” regarding the mortgage debt set forth in the note itself. In doing so,
the court misunderstood the role of a “meeting of the minds” in contract
formation. Because a court is constrained to construe the parties’ contract
based on the parties’ outward and objective actions — particularly, the plain
terms of their written agreement — a subjective, or “true and actual,”
_______________________
(Footnote Continued)
trial or in its Rule 1925(b) Statement. Appellees’ Br. at 12-13. We disagree.
When ruling from the bench, the court stated, “Anybody knows fundamental
contract law is a meeting of the minds, and there has to be a clear
understanding and intention of the parties.” N.T. at 210-11. The trial court
did not make entirely clear that it was basing its decision on the parol
evidence presented at trial. N&S’ subsequent Rule 1925(b) Statement stated
that “[t]he Trial Court erred in finding that the Mortgage was unenforceable
as the parties did not have a meeting of the minds.” Although N&S did not
use the words “parol evidence,” the issue stated by N&S sufficiently
challenged the trial court’s conclusion that there was no meeting of the
minds and necessarily implicated any error in the legal analysis employed by
the trial court in so concluding. Moreover, we hold that the primary error by
the trial court was not in its use of parol evidence, but in its conclusion that
the contract was unenforceable.
- 29 -
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meeting of the minds is not necessary for an enforceable contract to form.
Long v. Brown, 582 A.2d 359, 363 (Pa. Super. 1990); see also
Krizovensky v. Krizovensky, 624 A.2d 638, 643 (Pa. Super.) (“where the
parties' agreement has been reduced to a writing, the actual intent of the
parties is not relevant unless it has been expressed in the writing”), appeal
denied, 637 A.2d 287 (Pa. 1993). “Contracting parties are normally bound
by their agreements, without regard to whether the terms thereof were read
and fully understood and irrespective of whether the agreements embodied
reasonable or good bargains.” Simeone v. Simeone, 581 A.2d 162, 165
(Pa. 1990) (citation omitted). “Once a person enters into a written
agreement[,] he builds around himself a stone wall, from which he cannot
escape by merely asserting he had not understood what he was signing.” Id.
at 165-66 (quoting Bollinger v. Central Pennsylvania Quarry Stripping
& Construction Co., 229 A.2d 741, 742 (Pa. 1967)). It should not “be
assumed that the parties were ignorant of the meaning of the language
employed.” Steuart v. McChesney, 444 A.2d 659, 662 (Pa. 1982).
Thus, when faced with determining whether the parties mutually
assented to the contract, the trial court should have heeded the following —
The principles that guide this inquiry are well-settled. The
fundamental rule in contract interpretation is to ascertain the
intent of the contracting parties. In cases of a written contract,
the intent of the parties is the writing itself. . . . When the terms
of a contract are clear and unambiguous, the intent of the
parties is to be ascertained from the document itself. When,
however, an ambiguity exists, parol evidence is admissible to
explain or clarify or resolve the ambiguity, irrespective of
- 30 -
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whether the ambiguity is patent, created by the language of the
instrument, or latent, created by extrinsic or collateral
circumstances.
Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 905 A.2d 462, 468–
69 (Pa. 2006) (citations omitted).
Whether a contract contains ambiguous terms is a question of law.
Walton v. Philadelphia Nat. Bank., 545 A.2d 1383, 1388 (Pa. Super.
1988). “To determine whether there is an ambiguity, it is proper for a court
to hear evidence from both parties and then decide whether there are
objective indications that the terms of the contract are subject to differing
meanings.” Krizovensky, 624 A.2d at 643. “A contract is ambiguous if it is
reasonably susceptible of different constructions and capable of being
understood in more than one sense.” Ins. Adjustment, 905 A.2d at 469.
The fact that the parties do not agree upon a proper interpretation does not
necessarily render a contract ambiguous. Krizovensky, 624 A.2d at 642.
Here, the trial court found that the mortgage note contains an
ambiguity: the language stating “THE SUM OF $140,000 WAS ADVANCED
DURING THE LIFETIME OF CONRAD HOFMANN,” clearly conflicts with the
statement a few lines later that, “THE PARTIES AGREE THAT JOHN T.
NICHOLAS ADVANCED $140,000.00 ON THE DATE OF THIS NOTE.” Because
these provisions cannot be read as consistent with one another, we agree
that they are ambiguous and that the trial court was free to use parol
evidence to “resolve the ambiguity.” Ins. Adjustment, 905 A.2d at 468–69.
- 31 -
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But that is not what the trial court did. Rather, after having identified this
ambiguity within the language of the note, the court surveyed testimony by
various parties to the contract and its drafting (Drew, Strothers, and
Roberti) to certify that the parties did not agree on what the ambiguous
terms meant. See Tr. Ct. Op. at 9-11.28 And then, having failed to resolve
the ambiguity, the court declared that the “[t]he inconsistency and
ambiguity . . . demonstrates the lack of mutual assent between the parties”
and that “the nature and extent of the parties’ obligations was not certain.”
Id. at 11. Thus, the court used an ambiguity in the contract that it failed to
resolve as a tool to declare the mortgage unenforceable. See id.
The trial court had no license to invalidate the mortgage in this way.
“While an agreement in order to be binding must be sufficiently definite to
enable a court to give it an exact meaning, In re Friese's Estate, 9 A.2d
401, 403 (Pa. 1939), “not every term of a contract must always be stated in
complete detail.” Helpin v. Trustees of Univ. of Pennsylvania, 969 A.2d
601, 610–11 (Pa. Super. 2009), aff'd, 10 A.3d 267 (Pa. 2010). Where an
essential term is missing or not clearly expressed, “the court may infer the
parties' intent from other evidence and impose a term consistent with it.”
Id. Here, however, the ambiguity on which the trial court focused did not
____________________________________________
28
Strothers testified that the $140,000 consisted of past loans, particularly
to Drew. Drew said he had no understanding about the $140,000 and
thought he was “signing for $5,000” and no more. And Roberti thought that
the money had gone either to Conrad Sr. or Conrad Jr. Tr. Ct. Op. at 9-11.
- 32 -
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pertain to an essential term of the note or mortgage. Rather, it related only
to whether $140,000 of the $195,000 mortgage debt was advanced prior to
or at the time of execution of the mortgage. Resolution of that question was
not necessary to determine that the note obligated its signers to repay the
$195,000 debt recited in it,29 or that the Cambria Street property stood as
security for that payment and was subject to foreclosure if the payment was
not made. The amount of the debt, due date, and property description were
clearly stated in the documents. Therefore, the ambiguity regarding the
$140,000 did not make the note and mortgage too indefinite to be binding.
See In re Berry, 11 B.R. 886, 891 (Bankr. W.D. Pa. 1981) (signed
mortgage has “the indications of validity” where it “clearly states that it is a
mortgage and describes the real property in detail”); cf. also GMH Assocs.,
Inc. v. Prudential Realty Grp., 752 A.2d 889, 900 (Pa. Super. 2000)
(“The essential terms that must be identified and agreed to in order to form
a valid contract for the sale of real estate are the naming of the specific
parties, property and consideration or purchase price”).
____________________________________________
29
Although Drew testified that he thought he was “only on the hook for
$5,000,” N.T. 7/13/15, at 153-54, the plain language of the note made clear
that the debt was $195,000, not $5,000. Any understanding of Drew that
contradicted the note’s plain language on this issue is immaterial. See
Volunteer Firemen's Ins. Servs., Inc. v. CIGNA Prop. & Cas. Ins.
Agency, 693 A.2d 1330, 1339 (Pa. Super. 1997) (“[The Superior Court] will
not rewrite the contract or give it a construction that conflicts with the plain,
ordinary and accepted meaning of the words used”).
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The trial court’s error was two-fold. First, it failed to recognize that the
parties agreed to the material, essential terms so that a contract was
formed, and that the only term lacking clarity was the non-critical detail of
when the $140,000 was advanced. Second, with respect to this ambiguous
element, the court failed to resolve the ambiguity in such a way as to give
effect to the parties’ intentions.30 For present purposes, it is the first of these
errors that controls our disposition. Because the trial court held the note and
mortgage invalid on the basis of this error of law, its decisions on these
issues cannot stand. See Allegheny Cty. Hous. Auth., 908 A.2d at 340.
Vacatur
Because we hold that the trial court erred in both of its holdings
regarding lack of consideration and “meeting of the minds,” we will vacate
the judgment in favor of Defendants on the mortgage foreclosure issues.
Because that judgment was entered after a non-jury trial, we will remand
this matter to the trial court to consider its other rulings on the mortgage
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30
We need not resolve this second issue. However, we note that the
testimony of Roberti and Strothers indicated that the second clause (stating
that $140,000 was advanced on the date of the note) was a mistake, as
they explained to the trial court that the $140,000 was given by John T.
Nicholas during the lifetime of Conrad Sr., and not on the date that the
mortgage was executed. See N.T., 7/13/15, at 32-26, 41, 43-44, 73-74, 76,
88-89, 91. This reading comports well with the rest of the plain language in
the mortgage note, which describes how at least part of that money had
been spent (for example, to finance a music studio, make home mortgage
payments, and pay the operating costs of Keehof Bar).
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foreclosure afresh in light of these holdings. Due to our disposition, we will
not address the other issues that N&S presents, but instead leave those
issues for reconsideration on remand. See Weaver v. Martin, 655 A.2d
180, 182 n.1 (Pa. Super. 1995).
The Trial Court’s Holding
That the Deed Given to N&S by Conrad Jr. Is Invalid
In N&S’s final issue, it complains that the trial court exceeded the
scope of an in rem foreclosure proceeding by deciding Defendants’
counterclaim to quiet title in their favor and declaring the deed given to N&S
by Conrad Jr. to be invalid and void. Pl.’s Br. at 35-39.31 N&S claims that the
rules governing mortgage foreclosure, Pa.R.Civ.P. 1141 et seq., do not
permit counterclaims unless they arise “from the same transaction from
which the plaintiff’s cause of action arose.” Pl.’s Br. at 35 (quoting Green
Tree Consumer Disc. Co. v. Newton, 909 A.2d 811, 814 (Pa. Super.
2006)). Therefore, according to N&S, any determinations made by the trial
court aside from whether the mortgage was in default, such as voiding the
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31
In its brief, N&S frames this final issue as: “As a matter of law, did the
trial court exceed the scope of an in rem foreclosure proceeding by
considering and opining on a Deed and power of attorney to assign stock in
Keehof Bar.” Pl.’s Br. at 6. However, the argument presented by N&S in its
brief does not address Keehof Bar or the power to assign its stock, and
therefore the latter portion of N&S’ question is waived. See Purple Orchid,
Inc. v. Pennsylvania State Police, 813 A.2d 801, 804 (Pa. 2002) (issues
not addressed or developed in an appellate brief are waived).
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January 25, 2012 deed or quieting title in favor of Defendants, were outside
the proper scope of the mortgage foreclosure proceeding. Id. at 36.
Defendants do not respond specifically to N&S’ challenge to the scope
of the trial court’s rulings. Instead, Defendants argue that N&S admitted at
trial that the deed was void ab initio. Appellee’s Br. at 16. Our review of the
record discloses that when Defendants introduced the deed during trial to
show that N&S already had title to the property under mortgage, N&S
objected on grounds of relevance, stating that both parties had agreed that
the deed was void ab initio. N.T. at 16-17. It is this statement on which
Defendants rely. However, other than citing this statement, Defendants
make no legal argument and cite no authority in opposition to N&S’ position
on this issue. If Defendants’ argument is that N&S’ statement amounts to a
judicial admission (and it is unclear if this is what Defendants posit), we note
that judicial admissions apply only to disputed facts, and are “exclusive of
legal theories and conclusions of law,” such as the validity of a legal
document. John B. Conomos, Inc. v. Sun Co., Inc. (R&M), 831 A.2d
696, 713 (Pa. Super. 2003), appeal denied, 845 A.2d 818 (Pa. 2004). In
fact, our review of the record suggests to us that throughout the pleadings
both parties have argued both for and against the validity of the deed. See
Am. Compl., 4/11/14, ¶ 9; Am. Compl., 6/9/14, ¶¶ 10-13.; Prelim. Objs.,
12/23/13, ¶ 5; Answer, 12/26/14, ¶¶ 10, 34-35, 40-41. We therefore
decline to resolve this issue on this basis.
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The trial court’s Rule 1925(a) opinion justifies its voiding of the deed
for two reasons: (1) the deed conveyed a greater share of the property than
Conrad Jr. was expecting to inherit, 32 and (2) Conrad Jr. had not yet
inherited the property. 33 Trial Ct. Op., 1/4/16, 16-17. The court did not
address whether its ruling on these issues exceeded the proper scope of a
mortgage foreclosure action under the procedural rules.
The Rules of Civil Procedure governing foreclosure actions were
drafted by our Supreme Court and adopted in 1949, but they have a
statutory basis dating back to 1705. See Kenneth E. Gray, Definition;
Conformity to Civil Action, in 15 West’s Pennsylvania Practice, § 2:1
(Thomson Reuters, 3d ed., Dec. 2016 Update). Thus, despite its current
embodiment in the Rules, the procedure in connection with the foreclosure
of mortgages has been held to be “purely statutory,” so that its
requirements must be stringently followed. Peoples Nat’l Bank of
Lebanon v. Noble, 487 A.2d 912, 915 (Pa. Super. 1985).
Mortgage foreclosure in Pennsylvania is strictly an in rem or “de terris”
proceeding. Its purpose is solely to effect a judicial sale of the mortgaged
property. U.S. Bank, N.A. v. Pautenis, 118 A.3d 386, 394 (Pa. Super.
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32
The deed stated that Conrad Jr. was selling his 50% interest in the
property to N&S, but the Will of Conrad Sr. devised only a 49% interest in
the real property to his namesake. Trial Ct. Op. at 16-17.
33
Conrad Sr.’s Will was still in probate when Conrad Jr. executed the deed
selling his interest in the property to N&S for $5,000. Trial Ct. Op. at 17.
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2015). The holder of a mortgage note can decide whether to file a
foreclosure action or to file an in personam assumpsit action on the note,
but the actions are not usually combined. Levitt v. Patrick, 976 A.2d 581,
591 (Pa. Super. 2009); accord US Bank N.A. v. Mallory, 982 A.2d 986,
992 n.3 (Pa. Super. 2009).34
Rule of Civil Procedure 1148, which governs which counterclaims are
permissible in a mortgage foreclosure action, states:
A defendant may plead a counterclaim which arises from the
same transaction or occurrence or series of transactions or
occurrences from which the plaintiff’s cause of action arose.
We have held that this rule is to be interpreted narrowly, and only
counterclaims that are “part of or incident to the creation of the mortgage
relationship itself” are to be permitted. Cunningham v. McWilliams, 714
A.2d 1054, 1057 (Pa. Super. 1998), appeal denied, 734 A.2d 861 (Pa.
1999). Therefore, Rule 1148 “does not permit a counterclaim arising from a
contract related to the mortgage, such as a contract for sale of real
property.” Id.; accord Green Tree, 909 A.2d at 814. Nor does it permit
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34
Some exceptions exist. “[J]udgment in the mortgage foreclosure can be
both in rem and in personam, provided that the mortgagor waives any
objection to the inclusion of the assumpsit action for a personal judgment in
the mortgage foreclosure proceeding.” Insilco Corp. v. Rayburn, 543 A.2d
120, 123 (Pa. Super. 1988). Also, a lender may petition the court to fix fair
market value of real property following sale in a mortgage foreclosure
execution proceeding, as mandated by the Deficiency Judgments Act. Home
Sav. & Loan Co. of Youngstown, Ohio v. Irongate Ventures, LLC, 19
A.3d 1074, 1079 (Pa. Super.), appeal denied, 27 A.3d 225 (Pa. 2011).
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counterclaims where the facts giving rise to the counterclaims occur after
the creation of the mortgage and after the mortgagors were in default. First
Wisconsin Trust Co. v. Strausser, 653 A.2d 688, 695 (Pa. Super. 1995).
“Thus, in Pennsylvania, the scope of a foreclosure action is limited to
the subject of the foreclosure, i.e., disposition of property subject to any
affirmative defenses to foreclosure or counterclaims arising from the
execution of the instrument(s) memorializing the debt and the security
interest in the mortgaged property.” Rearick v. Elderton State Bank, 97
A.3d 374, 383 (Pa. Super. 2014). While Rule 1148 does not govern
affirmative defenses listed as New Matter, such defenses must be more than
a restatement or continuation of an impermissible counterclaim. Chrysler
First Bus. Credit Corp. v. Gourniak, 601 A.2d 338, 342 (Pa. Super.
1992).
In contrast to a mortgage foreclosure action, an action to quiet title is
generally brought by a possessor of land against another who has some
claim or interest in the land. Pa.R.Civ.P. 1061(b). An action brought
pursuant to Civil Rule 1061(b)(3) is aimed “to compel an adverse party to
file, record, cancel, surrender or satisfy of record, or admit the validity,
invalidity or discharge of, any document, obligation or deed affecting any
right, lien, title or interest in land.” A resolution in favor of the plaintiff bars
the defendant forever from “asserting any right, lien, title or interest in the
land inconsistent with the interest or claim of the plaintiff set forth in the
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complaint. . . .” Pa.R.Civ.P. 1066(b)(1). Because of the strict rules governing
mortgage foreclosure, an action to quiet title is permissibly joined to a
foreclosure action only where the action to quiet title is based on the validity
of the mortgage itself. See, e.g., Meara v. Hewitt, 314 A.2d 263, 264 (Pa.
1974).
Here, N&S filed to foreclose on a mortgage. 35 Defendants filed a
counterclaim to quiet title that raised, among other concerns, the validity of
the January 25, 2012 deed. Trial Ct. Op. at 2; Answer to Second Amended
Complaint with Counterclaim to Quiet Title and Affirmative Defenses. The
counterclaim cited Pa.R.C.P. 1061(b)(3). Id. The trial court ruled that both
the mortgage and deed were void, and quieted title in favor of Defendants.36
We agree with N&S that the trial court erred in considering the validity
of the deed and quieting title to the property. The trial court was tasked only
with determining whether the foreclosure action would lie, and, if so,
effecting a judicial sale of the foreclosed property. Pautenis, 118 A.3d at
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35
Defendants do not allege on appeal that this is not an in rem mortgage
foreclosure action; also, during the trial, Defendants themselves argued that
this action was limited to an in rem mortgage foreclosure, N.T. 147, 203.
36
The second paragraph of the trial court’s July 14, 2015 order declares the
mortgage void and canceled; the fifth paragraph of the order declares that
the deed dated January 25, 2012, is void and canceled; the sixth paragraph
quiets title in favor of Defendants; the seventh paragraph declares
Defendants Drew M. Hofmann and Conrad G. Hofmann as the “legal owners”
of the property; and the third and sixth paragraphs both bar N&S and N&S’
successors and assigns forever from asserting any right, lien, mortgage,
title, or interest in the property. Order, 7/14/15.
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394. Any permissible counterclaim by Defendants to quiet title must have
been based upon the mortgage documents and their execution, not a
subsequent deed. Rearick, 97 A.3d at 383. The January 25, 2012 deed was
executed over a year after creation of the mortgage; it does not involve the
same parties as the mortgage, does not mention the mortgage, and does
not affect the legitimacy of the mortgage. Therefore, the deed could in no
way be considered “part of or incident to the creation of the mortgage
relationship itself.” Cunningham, 714 A.2d at 1057. We therefore hold that
the trial court erred in opining on the validity of the January 25, 2012 deed,
and in quieting title.
We recognize that the trial court’s grounds for voiding the deed pertain
to flaws in that document that may seem obvious — so much so that at one
or more points in these proceedings they were acknowledged by N&S.
Declining to permit the trial court to address these flaws in this proceeding
under these circumstances therefore may seem wasteful and inefficient. But
the Rules of Procedure are clear, and N&S properly preserved its objection
under the rules throughout this case. We therefore are constrained to vacate
the trial court’s decision regarding the deed and title.
Because the trial court misconstrued the law, we vacate the judgment
below, vacate the order denying N&S’s post-trial motion, and remand for
further proceedings.
Jurisdiction relinquished.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/24/2017
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