Nicholas v. Hofmann

• Decision Date: 24 March 2017
• Docket Number: No. 2567 EDA 2015,2567 EDA 2015
• Citation: 158 A.3d 675
• Parties: John T. NICHOLAS and Brett Strothers, t/a Nicholas and 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.
• Court: Pennsylvania Superior Court

158 A.3d 675

John T. NICHOLAS and Brett Strothers, t/a Nicholas and 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

Superior Court of Pennsylvania.

Argued August 31, 2016

FILED MARCH 24, 2017

Richard L. Vanderslice, Philadelphia, for appellants.

Paul A. R. Steward, Wynnwood, for appellees.

BEFORE: BOWES, J., OTT, J., and SOLANO, J.

OPINION BY SOLANO, J.:

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. 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 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

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

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 1^ST, 2012. Interest only shall be due on this mortgage until the due date of December 1^st, 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:

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.

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

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...