Canter v. Canter , 238 Pa. Super. 347 ( 1976 )

Opinion by

Cercone, J.,

This appeal arises from the lower court’s denial of appellants’ petition to open three judgments based upon judgment notes executed in favor of their son, Norman, for $5,000 each. Although Norman was nominally the respondent to the petition to open, in fact his trustee in bankruptcy was the substituted plaintiff on the judgments. The facts giving rise to this appeal, based upon the pleadings and the depositions of appellants, Morton and Sylvia Canter, are as follows:

In May or June of 1970, the business of Morton and Sylvia Canter, Canterbury Fabrics, Inc., was insolvent and apparently headed for bankruptcy. The Canters were also personally liable for some $34,000 to $44,000 of the business debts. At that time they backdated and executed simultaneously the three judgment notes in question in favor of their son, Norman. These notes bore no provision for attorney’s collection fees, and the provisions for interest were stricken. Each note (dated October 15, 1965, November 2, 1966, and December 23, 1968, respectively) was formally witnessed by a different employee of Canterbury Fabrics. On July 14, 1970, appellants placed Canterbury Fabrics, Inc. in a Chapter 11 proceeding in bankruptcy. On August 3, 1970, the judgment notes were entered, by confession, with the Pro-thonotary of Bucks County by Sylvia Canter, who signed her son’s name to the praecipes and affidavits of nonmilitary service. In September of 1970, Canterbury Fabrics, Inc. was adjudicated a bankrupt. The debts of the business for which the Canters were also liable have not been discharged, and the judgments based upon the notes from them to their son have remained on record.

In October of 1971, Norman Canter, the son, also filed a voluntary petition in personal bankruptcy; and, on May 9, 1973, a suggestion was entered in the instant actions noting the appointment of a trustee for the bankrupt estate of Norman Canter and notifying appellants of the trustee’s appearance in the instant cases. On July 16, 1973, appellants filed their petition to open the judgments, almost three years after they were originally filed with the prothonotary. Although the trustee’s answer alleged several grounds for denying the motion to open (including laches and “unclean hands”), the court below rested its decision upon the fact that appellants’ petition and motions to open were not timely filed given the circumstances of this case.¹

It is apparently conceded by all that the $15,000, the amount of the three notes given to their son, upon which the judgments rest, was never received by Morton and Sylvia Canter, so that their propounded defense, “failure of consideration,” is sound from that standpoint. However, the trustee contended before the lower court (apparently persuasively, from the tenor of the lower court’s opinion) that the transaction involving the judgment notes was an attempt by the Canters to defraud the creditors of their business to whom they were also personally liable.

The Canters’ incredible explanation was that the transaction was carried out at the behest of their son, who allegedly was acting on their behalf in negotiations with an anonymous lender. This anonymous person indicated a willingness to loan the Canters $15,000 (ostensibly interest free) if they complied with certain of his requests, which included the preparation, backdating and recording of the notes on behalf of their son. The Canters further claimed that the deal fell through when it was learned that their existing creditors would only agree to postpone the collection of their debts if they were indemnified by any new investor. Since, the Canters allege, the anonymous lender was not willing to make the loan on those conditions, the money was not forthcoming. Thereafter they allege that their son tore up the notes in his possession, and they believed nothing further remained to be done to absolve them of their obligation under the notes. Believing that, they failed to have the judgments removed from the record.

In order to succeed in opening a judgment by confession, it is necessary to act promptly and allege a meritorious defense. Cheltenham Nat’l. Bank v. Snelling, 230 Pa. Superior Ct. 498, 504 (1974); Ritchey v. Mars, 227 Pa. Superior Ct. 33 (1974). Furthermore, petitions to open judgments lie within the equitable powers of the court. Wenger v. Ziegler, 424 Pa. 268 (1967) ; Kilgallen v. Kutna, 226 Pa. Superior Ct. 323 (1973); Bucks County Bank & Trust Co. v. De Groot, 226 Pa. Superior Ct. 419 (1973). Hence, the determination of the hearing court may not be reversed on appeal unless a clear abuse of discretion is shown. Ritchey v. Mars, supra.

In the instant case, we are not persuaded that the court abused its discretion when it found that the appellants had failed to act promptly in waiting nearly three years before filing their petition to open. Although appellants cite cases where the granting of motions to open judgments were affirmed on appeal, despite delays of more than three years,² those cases differ markedly on their facts, and certainly involve situations more likely to appeal to the conscience of the court. In any event, those cases do not stand for the proposition that had the lower court therein refused to open judgment, its decision would have been reversed on appeal. But see Funds for Business Growth, Inc. v. Maraldo, 443 Pa. 281 (1971).

In this case, the judgments were entered upon praecipe by Sylvia Canter, with the consent of her husband, and at the behest of her son. The judgment notes were prepared in favor of their son, and without consideration, at a time when the Canters’ business was insolvent and on the brink of bankruptcy. Any one of these circumstances alone would presumptively indicate a fraudulent conveyance to preserve their property from execution by their creditors. See 10 Standard Pennsylvania Practice §§235-37 (Rev. ed. 1963), and the cases cited therein. Together, they virtually compel that conclusion, especially in light of the Canters’ backdating the notes and their patently incredible explanation of the reasons for their so doing. It has long been established that, when such indications of fraud appear, the parties to the fraud are not entitled to relief inter se. Dillen v. Dillen, 221 Pa. 435 (1908) ; Blystone v. Blystone, 51 Pa. 373 (1865). Furthermore, “[a] long delay after knowledge of all the facts casts doubt upon the good faith of the defense and gives weight and probability to the evidence adduced to rebut it.” 7 Standard Pennsylvania Practice §79 (Rev. ed. 1961). In this context, and coupled with the fact that creditors of the bankrupt, Norman Canter, may also have been misled by the existence of $15,000 worth of judgments in his favor, we cannot find that the lower court abused its discretion in refusing to open these judgments after three years.³

Order is affirmed.

1 . In determining whether the delay preceding the motion to open judgment is excessive, the court should consider all the circumstances of the case. See Steigleman v. Sciotto, 388 Pa. 113 (1957); O’Connor v. Flick, 271 Pa. 249 (1921).

2 . Jamestown Banking Co. v. Conneaut Lake Dock & Dredge Co., 339 Pa. 26 (1940); Cronauer v. Bayer, 140 Pa. Superior Ct. 91 (1940).

3 . We do not conceive that the decision in this case necessarily affects the priorities of the creditors of Norman Canter vis a vis the creditors of Morton and Sylvia Canter with respect to the property of the latter. The decision in this case does not rest upon whether the judgments are “voidable”, but rather on whether they are now voidable by the Canters. Of course, Judge Spaeth’s concern for the remedies of the defrauded creditors of the elder Canters is shared by all of us. Nevertheless, a variety of factors militate against our reaching the result Judge Spaeth suggests.

First, those arguments were not raised in this appeal, so that our raising them as grounds for reversing the order of the lower court would be wholly sua sponte. Creating grounds or theories for reversal of the lower court is a power we do not possess. See Wiegand v. Wiegand, 461 Pa. 482 (1975). Certainly, we should not hold that the lower court abused its discretion in failing to consider issues and parties not before it on a motion to open. In resolving the motion to open the court needed only to ask whether the petition was timely filed and whether it set forth a meritorious defense. In addition to those questions Judge Spaeth would require tile court to ask whether there are parties not of record who may be adversely affected by the denial of the motion to open. For failing to consider that question Judge Spaeth would hold that the lower court abused its discretion.

Second, it behooved Morton and Sylvia Canter to implead their general creditors, or at least notify them of the pending litigation. Their failure to do so may now mean that they will not only have to pay the $15,000 in judgment notes, but also pay their general creditors — in a sense, they will be the victims of a double recovery. By notifying their general creditors they might have avoided that result.

Third, assuming the Canters’ assets are insufficient to cover both sets of debts, the real issue would become the priorities of the various creditors. Rather than attempt to resolve a complex question like that, sua sponte, on a motion to open, the better result is to require the general creditors of Morton and Sylvia Canter to sue on their debts, presumably forcing the Canters into bankruptcy. ■ Then, the trustees of Norman Canter and Morton and Sylvia Canter may do battle over priorities. In that proceeding the precise issue which disturbs Judge Spaeth will be the focus of the litigation. That court at least will have the benefit of an adequate record and the briefs and arguments of counsel.