matter of fact Harry A. Butterweck the grantor of the messuage to Ida Diefenderfer and obligee and mortgagee of the purchase money is hopelessly insolvent; he made an assignment for the benefit of creditors under the Act of Penna. and afterwards by proceedings adversely he was declared an involuntary bankrupt under the Statures of the United States.

DISCUSSION AND CONCLUSIONS OF THE LEGAL ASPECT OF THE CASE UNDER THE

FINDINGS OF FACTS.

It is apparent from the facts of this case that one of two innocent parties must suffer loss. Both relied upon the integrity of Harry A. Butterweck. After the assignment of the mortgage by him to Monroe Knauss, Harry A. Butterweck the mortgagor received the interest and part of the principal of the mortgage from the mortgagees and paid it over to Monroe Knauss, the assignee. Then after the mortgage was assigned by Monroe Knauss to Emma Wilson, the interest and part of the principal was paid to Harry A. Butterweck, the mortgagee, by the mortgagors and by him paid to Emma Wilson, the assignee of the mortgage; one payment of interest and a payment of one hundred and twenty-five dollars was retained by Harry A. Butterweck and not paid over to the assignee.

Applying the precedents of the law as the court finds them from the decisions of the appellate courts, the court has arrived at the conclusion that the defendants are entitled to have the judgment opened and that they should be permitted to defend.

If Harry A. Butterweck was still the holder of the judgment the conclusion arrived at by the court would be clearly correct. It appears from the depositions that the grantee of the messuage conveyed by deed by Harry A. Butterweck to her that she paid a full consideration for the property and that it was to be free and clear of encumbrances. Butterweck assured the grantee that the property was clear and if anything would come afterwards, she should see him about it. Harry A. Butterweck must have known, at the time he said this, that he had given a mortgage to David S. Berk for twenty-five hundred dollars, and which was on record and a lien on the property and unpaid. Clearly, under the law as the

courts have declared it, the grantee could set off the damages sustained by her for breach of the special warranty against the claim by Harry A. Butterweck against her on the purchase money judgment and mortgage held by him against her. But whether she can do so against the assignees of her judgment and mortgage to Harry A. Butterweck raises the question for decision on the matter of the rule to open the judgment now before the court.

The court takes it as a fact that the several assignees of the judgment and mortgage paid full consideration for the same. In the assignment of Harry A. Butterweck to Monroe Knauss the consideration in the assignment is set forth as the consideration and payment of the sum of seventeen hundred dollars. In the assignment of the judgment and mortgage by Monroe Knauss to Emma Wilson the consideration is set out as the consideration and payment of the sum of sixteen hundred and sixteen 87-100 dollars.

The courts have decided that an assignee of a judgment and mortgage does not stand in the same position as the assignee or holder of a negotiable instrument, assigned or turned over before maturity and for a valuable consideration. That the assignee of a non-negotiable instrument takes it subject to the equities existing between the original parties. That in order that the assignee may not be damnified as to such equities existing between the original parties, it is the duty of the assignee to make inquiries from the obligor. He can fortify himself against loss by insisting upon a declaration of no set off by the debtor or obligor against the creditor on the instrument assigned; such a declaration has been declared an estoppel in law.

On the different propositions of law, by which the court arrived at the conclusion to open this judgment, the court will cite the following.

The 3rd and 5th Sections of the act of April 1, 1909. P. L. 91 of Pa., in relation to the construction of the words and covenants in a deed for the transmission of title to real estate provide as follows:

"Section 3. The words 'grant and convey' or either one of said words, in any deed hereafter executed, shall be adjudged an express covenant to the grantee, his heirs and assigns: to wit: That the grantor was seized of

an indefeasible estate in fee simple in the property conveyed, freed from encumbrances done or suffered from the grantor, as also quiet enjoyment against the grantor, his heirs and assigns, unless limited by expres words contained in such deeds."

"Section 5. A covenant by the grantor or grantors in any deed, that he, they or it will warrant specially the property hereby conveyed' shall have the same effect as if the grantor or grantors had convenanted that he or they, his or their heirs and personal representatives or successors, will forever warrant and defend the said property, and every part thereof, unto the said grantee, his heirs, personal representatives and assigns, against the lawful claims and demands of the grantor or grantors, and all persons claiming or to claim by, through or under him or them."

This act was merely declaratory as the law then existed under the decisions of the court. In the case of Knepper v. Kurtz, 58 Pa. 480, Sharswood J. delivering the opinion of the court says:

"It is urged also that the words 'grant, bargain and sell' constitute an implied covenant, not only against encumbrances done and suffered by the grantor, but by all who have preceded him in the title. A dictum by Judge Duncan to this effect in Funk v. Voneida, 11 S. & R. 111, is relied on. No such question arose in that case, which was that of a mortgage by the grantor himself. The provision of the act of May 28th, 1715, Sec. 6, 1 Smith's L. 95, is that those words 'shall be adjudged an express covenant that the grantor was seized of an indefeasible estate in fee simple, freed from encumbrances done or suffered from the grantor,' 'The meaning,' says Tilghman C. J., 'is not clearly expressed, but I take it to be a covenant that the grantor had done no act, nor created any encumbrance whereby the estate granted by him might be defeated; that the estate was indefeasible as to any act of the grantor:' Lesee of Gratz v. Ewalt, 2 Binn. 95; Whitehill v. Gotwalt, 3 Penna. R. 313; Seitzinger v. Weaver, 1 Rawle 377. The expression of Judge Duncan in all probability was a mere Lapsus pennae, writing 'grantor or those under whom he claims,' instead of 'grantor or those claiming under him." "

The case of Knepper v. Kurtz supra also decides an

important matter. The court decided in the case that covenant on a general warranty cannot be maintained unless the party is evicted. It notes an exception however in the case of an unpaid purchase money mortgage and where the action on the covenant is on a special warranty and a covenant against encumbrances. Judge King in the opinion of the court below states the law on this question as follows:

"We must next inquire whether the action can be maintained on the covenant of general warranty.

Outside of the legal profession, this covenant is regarded a panacea for every defect that can be alleged against the title of the grantor, and scriveners, especially in the rural districts, rarely think of the necessity for any other. It was, doubtless, supposed in this, that the insertion of the covenant in the deed fully met the requirements of the articles of agreement, providing that the land should be conveyed clear of encumbrances. There is, however, a very broad distnction between a covenant of general warranty, and a covenant against encumbrances. In the latter, where encumbrances exist, the covenant is broken as soon as entered into; while in the former, the covenant is broken only by an eviction."

The next question, can the defendant set off the damages sustained by her for the breach of warranty of Harry A. Butterweck against encumbrances against the claim of the judgment by the assignee? The courts have decided this in the affirmative. The set off is limited however as against the original obligee or mortgagee and not as set off by the defendant against either of the assignee or assignees through whose hand as holder the instrument passed.

In the case of Earnest v. Haskins, 100 Pa. 551 Trunkey J. states the law as follows:

"At the outset the court charged that the assignee of a mortgage is within the protection of the recording acts; that the evidence shows that Hoskins was a bona fide purchasor for the value of the mortgages, without notice of any defence, and is protected against all fraud, usury and everything which existed at the dates of the assignments, and which would have avoided the mortgages in the hands of the mortgagee; and that the defendants are estopped from setting up any defence

against Hoskins which existed before the confessions of judgement. This ruling is entirely novel. It is in the teeth of the decisions. The mortgagee is a lien creditor, a holder of a security for money. He has some advantages over judgment creditors, by virtue of the recording acts, but the mortgagor may avail any legal or equitable defence against the debt. The assignee takes subject to all defences, unless he inquire of the mortgagor and is told that there are none: Muchener v. Cavender, 38 Pa. St. 336. "That the assignee of the mortgage, unless the mortgagor had estopped himself from taking the defence, held it subject to all the equities with which it was affected in the hands of the assignor, is a principle too familiar and well settled to need the citation of decisions to sustain it: 'Ashton's Appeal, 73 Pa. St. 153."

See also the opinion of Justice Trunkey in case of Lane v. Smith 103 Pa. 415.

In the case of Reineman v. Robb 98 Pa. 474 Paxson J. enunciates the law as follows:

"The Pittsburgh Bank for Savings, the equitable plaintiff below, purchased the mortgage in controversy from A. S. Bell, who was assignee of the mortgagee, without inquiry of the mortgagor, and without obtaining from him a certificate that he had no defence to the mortgage. In thus taking the mortgage without inquiring the bank took the risk of the defence by the mortgagor. This principle has been so frequently ruled that it is needless to cite the cases. It is equally well settled, however, that the assignee of a mortgage takes it subject only to the equities between the mortgagor and the mortgagee, and not to equities between the mortgagor and a prior assignee of the mortgage: Blair v. Mathiott, 10 Wright 262; Downey v. Tharp, 13 P. F. Smith 322."

In the case of Theyker v. Howe Machine Co. 109 Pa. 95, Gordon J. says:

"There is however, this second reason for sustaining the exceptions of the plaintiffs in error. The assignee of a specialty takes it subject to the equities of the obligor, and the rule holds good as well in the case of a mortgage as of any other sealed instrument: Matt v. Clark 9 Barr, 399; Twitchell v. McMurtie 27 P. F. S., 383.

In the absence of a certificate of no set off it is the business of the assignee of a mortgage to make inquiries