Court Opinion

ID: 9483021
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:07:56.132589+00
Date Added: 2024-06-11T17:49:21.666947
License: Public Domain

ROTH, Circuit Judge,
dissenting:
I disagree with the majority’s conclusion in Section III C of its opinion that the loss here may be covered by Insuring Agreement E. First of all, I do not agree that the security for Jefferson’s mortgage had value on December 16, 1988, the day of the loan closing. Under Pennsylvania law, the Royal Bank purchase money mortgage would have had priority over other liens from the time it was delivered to the mortgagee, if it was recorded within ten days after its date; otherwise, it would have priority from the time it was left for record. 42 Pa.C.S.A. § 8141(1). Because of the priority of Royal Bank’s mortgage until December 25, 1988, ten days after it was executed, Jefferson’s mortgage was not a valid lien on 1708 Locust Street during this period. For this reason, I find the cases of Reliance Ins. Col. v. Capital Bancshares, 685 F.Supp. 148 (N.D.Tex.1988), aff'd 912 F.2d 756 (5th Cir.1990), Liberty National Bank v. Aetna Life & Casualty Co., 568 F.Supp. 860 (D.N.J.1983) and American Banking Corp. v. Flota Mercante Grancolombiana, S.A., 752 F.Supp. 83 (S.D.N.Y.1990), aff'd on other *1286grounds, 925 F.2d 603 (2d Cir.1991), to be on point.
A further problem with the majority’s analysis of the cause of the loss lies in the necessary interaction under the language of the policy between the Section 2(e) Loan Exclusion Clause and the Insuring Agreement E provision for loss resulting from forgery. Under the policy, most losses resulting from non-payment of a loan obtained through fraud or false pretenses are not covered. Worthlessness of the security provided for a loan is not a basis for coverage under any of the policy sections. Only if Jefferson’s loss resulted directly from its having in good faith extended credit on the faith of a mortgage that bore a forged signature would the Insuring Agreement E exception come into play. As the courts concluded in the cases cited above, Reliance Ins. Col. v. Capital Bancshares, Liberty National Bank v. Aetna Life & Casualty Co., and American Banking Corp. v. Flota Mercante Grancolombiana, S.A., I also conclude as a matter of law that the bank extended credit on the faith of the value of the security and that the authenticity of the notary’s signature was of minimal, if any, significance, in .Jefferson’s decision to make the loan. Similarly, the loss was caused by the worthlessness of that security and not by the bank’s inability to record a mortgage which the bank itself never presented for recording.
If someone, not the owner of the property at 1708 Locust Street, had forged the owner’s name as mortgagor, Section E would clearly cover the loss. Credit would have been extended on the faith of that signature, which was forged. However, we must conclude that the express limitation of the language of Insuring Agreement E should not be extended to a fraudulent scheme such as the present one where the validity or not of the notary's signature was in effect immaterial to the success of the scheme and where the loss would have been caused by the worthlessness of the security, whether or not the notary’s signature was valid.
The mortgagor is the person who can bind the property with the lien; the notary cannot — she can do no more than verify the signature of the mortgagor. If we consider then a case in which the property has value, the mortgagee needs to have the mortgage signed by a person having a legal interest in the property; if the owner’s signature is a forgery, the mortgagee gets no interest in the valuable security. I interpret the policy language in Insuring Agreement E to protect against such a risk; namely, where someone other than the person having legal right to encumber the property forges that person’s signature.
The majority questions whether the bank would have made the loan without a valid notary signature on the mortgage. I agree that it would not have, but I don’t find that the lack of a signature was the cause of the loss. The act of notarization is such a simple, ministerial function that, if Sandra Stevenson were to have been discovered to be an imposter, another notary could have been found immediately. Any notary public could have performed Sandra Stevenson’s function.
If, on the other hand, the security had no value, it really didn’t matter who signed the mortgage — whether it was the actual owner, as in this case, or a forger. The mortgagee would get no valuable security because the security was worthless.
I realize that Pennsylvania law concerning the necessity of a notarization to record a mortgage adds an additional factor to this case which is not present in the cases cited above. Nevertheless, I don’t find that the forged notary signature proximately caused the loss here (even if under other fact situations it might have). The security here was worthless when the mortgage was executed. It was worthless when the fraud was uncovered. Moreover, there was no effort by Jefferson to record the mortgage during the brief period of time when the mortgage might have attached Jefferson’s priority lien to the Locust Street property.1 Therefore, the sce*1287nario never arose under which Jefferson’s loss could have resulted from the lack of a valid notarization.
For the above reasons, I conclude that the loss did not result directly from the forged notary’s signature; it resulted directly from the worthlessness of the security. I, therefore, respectfully dissent. Under the circumstances of this case, I would affirm the decision of the district court.

. Because of the other loans, which Shapiro obtained between December 16, 1988, and January 27, '1989, using the Locust Street property as security, it would appear that there would have *1287been other periods during this interval when one or another of the subsequent loans would have had priority over the Jefferson lien, pursuant to 42 Pa.C.S.A. § 8141(1), and would also during at least a portion of this time have made the Jefferson lien worthless.