Before BIGGS, Chief Judge, KALODNER, Circuit Judge, and STEWART, District Judge.
The plaintiff, Berkshire Land Company, a Pennsylvania corporation, by its complaint filed May 13, 1949, against the defendant, Federal Security Company, a Delaware corporation, seeks to have satisfied of record a mortgage which became due September 19, 1916 and an adjudication that the debt for which the mortgage was security has been paid. The amount of the mortgage was $200,000 and jurisdiction is based upon diversity of citizenship. The complaint was dismissed with prejudice and Berkshire has appealed.*fn1
It is not disputed that the mortgage became due on the date stated or that it still stands as a lien of record against certain undivided interests in coal rights in Greene County, Pennsylvania, now owned by Berkshire.*fn2 Federal is the assignee of the mortgage under an assignment dated May 1, 1922 and recorded May 10, 1922. The mortgage was executed on September 19, 1914 by Thompson, Berkshire's predecessor in ownership to the coal. The mortgage by its terms became due and payable two years after the date of execution.
Berkshire bases its demand for satisfaction of the mortgage on the presumption of payment which arises in Pennsylvania when twenty years have passed since the due date of a bond or specialty. The principle involved was well expressed by the Supreme Court of Pennsylvania in Gregory v. Commonwealth, 121 Pa. 611, 621-622, 15 A. 452, 453, as follows: "All debts excepted out of the statute of limitations, unclaimed and unrecognized for 20 years, in the absence of sufficient explanatory evidence, are presumed to have been paid. This presumption is an artificial and arbitrary rule of the law, derived by analogy from the English statute of limitations. It originated in equity, but was afterwards engrafted into the common law, and has since been steadily maintained. It is not, like the statute of limitations, a bar to an action on the original contract, therefore, a new promise is not necessary to sustain the suit. Any competent evidence, which tends to show that the debt is in fact unpaid, is admissible for that purpose." The substance of the rule was well put by Mr. Justice Brown in Fidelity Title and Trust Company v. Chapman, 226 Pa. 312, 314, 75 A. 428, 429, when he said, "This presumption, in the nature of a receipt written by the hand of time, may, however, be overcome by affirmative proof that the debt as a matter of fact has not been paid * * *".
Here, Berkshire bases its case on two alternative positions: (1) the prima facie presumption of payment has not been rebutted, and (2) the debt has been paid. To this attack Federal interposes two defenses: (1) that the presumption of payment is not here applicable because the presumption may serve as a shield but not as a weapon of attack, and (2) that it, Federal, has carried the burden of proof required to rebut the presumption of payment. It should be noted that if Federal has proved the fact of nonpayment not only is the presumption rebutted but also Berkshire's claim for relief based on payment must fall.
At to the first defense asserted by Federal, namely that the presumption of payment is not applicable because it cannot serve as a weapon of attack, it must be conceded, on analogy to the statute of limitations, that the argument carries some weight and there are Pennsylvania cases which support Federal's position. See Louchbaum's Estate, 7 Pa.Dist.R. 100 (Orphans' Court, Franklin County, 1897) and Sprowles' Estate, 15 Pa.Dist. & Co. 440 (Orphans' Court, Philadelphia County, 1931).*fn3 But it has been repeatedly stated by the Supreme Court of Pennsylvania that the legal presumption of payment after 20 years, in the case of a bond or specialty, does nothing more than shift the burden of proof. See, for example, the opening sentence in the opinion in Re Devereux's Estate, 184 Pa. 429, 39 A. 225.The question is one of fact in a suit to quiet title. Such is really the nature of the litigation at bar. The "shield not sword" doctrine should not be applied where the question is really one of the weight of the evidence.
We are not bound by the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, or that of Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477, to apply the doctrine laid down in the two Orphans' Court cases referred to in the preceding paragraph under the circumstances of the case at bar. See Sunbeam Corp. v. Civil Service Employees' Coop. Ass'n, 3 Cir., 187 F.2d 768, 771-772. The Orphans' Courts of the several Pennsylvania Counties are not common law courts but tribunals of limited jurisdiction. See In re Brereton's Estate, 355 Pa. 45, 55, 48 A.2d 868, 873. Orphans' Courts are of a grade and rank like unto the Courts of Common Pleas of Pennsylvania. In re Hohein's Estate, 265 Pa. 14, 18, 108 A. 173, 174. A single Orphans' Court decision can be dis regarded by another Orphans' Court of the Commonwealth of Pennsylvania and we conclude, therefore, that the two decisions of Orphans' Courts of the Commonwealth cited above, decisions widely separated as they are in time and space, also are not binding upon United States courts in the Commonwealth. See King v. Order of United Commercial Travelers of America, 333 U.S. 153, 68 S. Ct. 488, 92 L. Ed. 608. Accordingly we conclude that the first defense interposed by Federal falls.
Is the second defense asserted by Federal valid? When Berkshire proved the existence of a mortgage unsatisfied or record and payment due in 1916 it made out a prima facie case. See Reed v. Reed, 46 Pa. 239, 242-243, and Gregory v. Commonwealth, supra, 121 Pa. at page 622, 15 A. at pages 453-454. The burden of proof thereby was shifted to Federal and the question then became whether or not Federal carried the burden of proof required to rebut the presumption of payment. To answer this question requires an examination into the nature of the proof necessary under Pennsylvania law to overcome the presumption of payment, and an analysis of the testimony offered by the parties.
The most recent full exposition of the law applicable to the case at bar appears in the opinion of Mr. Justice Horace Stern in In re Grenet's Estate, 332 Pa. 111, 113-114, 2 A.2d 707, 707-708. Mr. Justice Stern stated: "The presumption of payment arising from lapse of time does not work an extinguishment of the debt, nor, unlike the bar of the statute of limitations, does it require a new promise or its equivalent to revive it. It is a presumption merely of fact, and amounts to nothing more than a rule of evidence which reverses the ordinary burden of proof and makes it incumbent upon the creditor to prove, by preponderance of the evidence, that the debt was not actually paid. This burden may be met by direct testimony as to non-payment, or by proof of circumstances tending to negative the likelihood of the claim having been satisfied and explaining the delay of the creditor in attempting to enforce it, - for example, that there existed a relationship between the parties which would account for the failure of the creditor to insist upon collection, that the debtor's financial condition was such as would have prevented his paying the debt, that the bond, note or other instrument upon which the claim rested remained at all times in the creditor's possession, that the creditor had died and, no administrator being appointed, there was no one to whom payment legally could have been made. These and similar circumstances, while not, singly or collectively, conclusive, are admissible in evidence for the purpose of rebutting the presumption of payment." This view was reiterated with approval by the same court only last year in In re Snyder's Estate, 368 Pa. 393, 396-397, 84 A.2d 318, 320-321.
It will be noted that alternative methods of rebutting the presumption of payment are specified: "direct testimony as to non-payment," or "proof of circumstances tending to negative the likelihood of the claim having been satisfied" accompanied by some explanation of the creditor's failure to enforce his claim. These alternatives have long been part of the Pennsylvania law dealing with this presumption, Reed v. Reed, supra, 46 Pa. at page 242, and we understand them to mean that an explanation of the creditor's delay in enforcing his claim is required only when no direct evidence of nonpayment is available.*fn4 Direct evidence of nonpayment renders such an explanation, with its resulting inference of nonpayment, unnecessary. This view is fortified when we remember that the issue in these cases is payment, not the negligence of the creditor in failing to collect his debt promptly. See Chesapeake & Delaware Canal Co. v. United States, 3 Cir., 240 F. 903, 908, affirmed 250 U.S. 123, 39 S. Ct. 407, 63 L. Ed. 889. Tardiness is sufficiently penalized, and the debtor's burden in opposing a stale claim sufficiently eased, by the imposition upon the creditor of the task of proving nonpayment by a preponderance of the evidence.
We must therefore review the testimony to determine whether the defendant here has sustained, under one or both of the above alternatives, the burden of proving nonpayment. Since the judgment of the court below, the trier of facts, was for Federal, every permissible inference from the testimony must be taken in Federal's favor. Thompson, the mortgagor and first owner of the coal,*fn5 gave the mortgage to Stone in September 1914 to cover a number of past and prospective obligations in Stone's favor. Thompson then was president of the First National Bank of Uniontown, Pennsylvania. Stone was a vice-president, a director and stockholder of the Citizens Title and Trust Company, also of Uniontown. Thompson and his bank were then in financial difficulties and Stone was interested in Thompson's financial welfare for obligations of the First National Bank of Uniontown were held by Stone and the latter feared a run on the bank. Stone and Bortz were in a partnership, W. A. Stone & Co., which owned and operated coal properties. Stone and Bortz also owned controlling interests in Prospect Coal and Coke Company which had bought coal lands from Thompson and on which mortgages given by Thompson were then outstanding. Stone had endorsed notes of Thompson and of the First National Bank. We think it is clear that Stone took the 1914 mortgage, the subject of the present litigation, as security.
Early in 1915 the First National Bank failed and in 1917 Thompson was adjudicated a bankrupt. Throughout this period Thompson was in great financial difficulties and various holders of notes given by him demanded partial assignments of the mortgage with which we are concerned as well as Stone's endorsements of Thompson's notes. Some of Thompson's creditors demanded new notes which were supplied by W. A. Stone & Co. That partnership paid off such notes as had been endorsed by Stone as they matured and also the new notes given by W. A. Stone & Co. as they also fell due. Stone in turn received reassignments of those "portions"*fn6 of the mortgage which he had assigned as security. In 1922 Stone again held the whole mortgage interest.
The record contains no evidence as to whether Thompson was discharged of his debts or whether any disposition was made of the mortgage obligation in the bankruptcy proceedings.*fn7 It is undisputed that in 1922 Stone was pressing for some kind of settlement of the obligations which Thompson owed him and W. A. Stone & Co. A meeting was held in Thompson's office in order to discuss his liabilities. Bortz, testifying by deposition, stated that he was at this meeting and that during the course of it Thompson paid to Stone or to W. A. Stone & Co., or both of them, the full amount of the indebtedness secured by the mortgage. But on cross-examination this testimony was almost demolished.*fn8 Moreover, Bortz was only positive that Thompson delivered a check and that Stone delivered the mortgage in exchange. He had no clear conception as to what was the extent of Thompson's then existing obligations to Stone but he was of the opinion that Thompson was indebted to W. A. Stone & Co. to the extent of about $50,000. He did not know the amount of the check which he said was delivered, who was the ...