Natovitz v. Bay Head Realty Co.

59 A.2d 423, 142 N.J. Eq. 456, 1948 N.J. LEXIS 664

Opinions

The opinion of the court was delivered by

Heher, J.

There are cross-appeals here. The challenged decree vacates, as in fraud of the complainant creditor of the grantor, two several deeds of conveyance of lands made by the defendant Bay Head Eealty Co. to defendants Guy E. Lister and Florence Lister, his wife, and to defendant Michael H. Liebmann, and sustains, as supported by “good and valuable consideration,” a third such deed made by the same grantor to the defendant Borough of Point Pleasant. . The deeds to the Listers and Liebmann were found to be “voluntary and without the support of an adequate valuable consideration and fraudulent” as to the complainant creditor, and made when the grantor was insolvent. The Listers and Liebmann appeal from the provisions of the decree setting aside their respective deeds of conveyance; and complainant appeals from the dismissal of the bill of complaint as to the Borough of Point Pleasant.

On January 12th, 1946, complainant recovered a judgment in the Supreme Court against the defendant Bay Head Eealty Co. for $30,476.75, as the deficiency arising from the 'foreclosure in the Ocean Circuit Court of a mortgage made by that corporation to complainant’s assignors in the principal sum of $20,000, covering a tract of land in Point Pleasant. The deed to the Listers bears date November 29th, 1945, and was recorded on the ensuing December 22d; the deed to Liebmann was dated December 27th, 1945, and was recorded the following day; and the deed to the Borough of Point Pleasant was dated January 2d, 1946, and was recorded on January 10th following. Guy R. Lister was the principal stockholder of the grantor corporation, and at the time of these conveyances he was the secretary of the corporation and his brother Albert E. was the president, and as such they executed the conveyances on behalf of the corporation.

The amount due under the decree for sale entered in the foreclosure proceeding was $29,868.60, with interest, and taxed costs in the sum of $453.42. Pursuant to a writ of execution issued thereon, the sheriff sold the mortgaged lands at public vendue to complainant for $300; and the judgment at law is for the deficiency thus arising.

The insistence is that complainant purchased the mortgage later foreclosed for “a nominal consideration” and the mortgaged lands acquired by complainant in the foreclosure proceedings were “worth considerably in excess .of the amount due on the mortgage and many times more than the paltry sum which complainant had apparently paid to acquire” the mortgage, and Chancery may intervene “in behalf of an aggrieved debtor, by refusing to allow a prayer for affirmative relief, in a case such as this, where the granting of such affirmative relief would result in the complainant’s obtaining satisfaction of his debt two or three times, and thus pillage the estate of the mortgagor.” The case of Bourgeois v. Risley Real Estate Co., 82 N. J. Eq. 211, is cited. But the principle of that case is not apposite here.

First, barring an overriding equity, the want of consideration for the assignment of a mortgage is generally not a defense open to one not a party to the assignment. The mortgagor cannot defeat foreclosure or reduce the quantum of his obligation by showing a want of consideration for the assignment, either total or partial. Donnington v. Meeker, 11 N. J. Eq. 362.

Second, the relationship between the maker of a bond and mortgage and the mortgagee, and their privies, is grounded in contract, as supplemented by R. S. 2:65 —1 et seq.j and it is of the very essence of this relationship that the decree in foreclosure and the order confirming the sale of the mortgaged lands made pursuant thereto are res judicata of the value of the lands thus sold and of the quantum of the deficiency upon the obligation for which the mortgage stood as security, except that in an action at law upon a bond so secured made subsequent to March 39th, 1933, credit is'allowable for the fair market value of the mortgaged premises at the time of the sale thereof in the foreclosure proceeding, if the defendant shall file an answer disputing the amount of the deficiency and such value shall be proved by evidence or fixed by appraisers appointed by the parties. B. S. 2:65-3. The principle is embedded in our jurisprudence. It controls courts of equitable jurisdiction as well as courts of law.

This was the established rule in equity even before the adoption of chapter 170 of the laws of 1880 (P. L., p. 255), now B. S. 2:65-1, barring the entry of a personal deficiency decree in the foreclosure proceeding. The value fixed by the foreclosure sale was conclusive. It was the rule that in determining the amount of the decree for such personal deficiency, the sum for which the mortgaged premises were sold “must, so long as the sale stands, be taken, as between the parties -to the suit, as a conclusive test” of their value. Snyder v. Blair, 33 N. J. Eq. 208. In that case it was said by Vice-Chancellor Van Fleet that, while this principle was implicit in the then existing Chancery Act (Revision of 1877 p. 118 § 78), empowering the Chancellor to enter a decree for a personal deficiency in the foreclosure proceeding, measured -by the excess of the mortgage debt “above the net proceeds of sale,” it had judicial sanction long prior to the adoption of any statute upon the subject and “must be considered so firmly settled as to be beyond alteration by the courts.” Pointing out that “the pledge is sold” by the court’s “authority and under its process,” and the court therefore “is really the vendor,” the Vice-Chancellor continued: “If the pledge is sold for a sum greater than is required to pay the liens to which it is subject, the surplus is paid to the pledgor; if for less than the amount due to the pledgee, it is the duty of the court, according to the well-established practice, to award him a decree for the deficiency. The price, however, realized at the sale, whether it be more or less than is required to pay the pledgor’s debt, is the only known legal standard of value.' The court cannot sell the pledge to the pledgee for one price, and make title to him for that price, and then, in adjusting the amount' remaining due to him from his debtor, compel him to pay a much larger price. If such a thing could be done, it would amount to this: the court would nullify the sale so far as it affected the interests of the vendor, but compel the vendee to keep his part of the bargain, and to pay for the property a price he never agreed or consented to give. This court has no such power. * * * It is also true that a creditor who holds a pledge as security for his debt cannot have both his debt and the pledge. If a mortgagee, after obtaining a decree of strict foreclosure and taking possession, proceeds to collect his debt, the decree of foreclosure is ipso facto opened, and the debtor let in to redeem. * * * But when the pledge is converted into money by judicial sale, even if the creditor is the purchaser, it is not true that he has both debt and pledge. In that case the pledge is sold to pay the debt; the debt is satisfied to the extent of the money realized, but no further; the interest of both pledgee and pledgor passes by the sale, and the purchaser stands in the right of a new title, founded upon the rights of both.”

And in the case of Bohde v. Lawless, 33 N. J. Eq. 412, where the circumstances were akin to those of the case under review, Chancellor Eunyon, applying the same principle, ruled that it was no objection to the enforcement of the complainant mortgagees’ right to set aside a voluntary conveyance of lands, made to defeat their personal decree for a deficiency on a foreclosure in excess of. $5,000, that the mortgaged premises were bought by the complainants at the foreclosure sale at much less than their actual value, where there was no showing of fraud or inequity on complainants’ part. In setting aside the conveyance, the Chancellor declared: “On the hearing it was insisted that the fact that the complainants were the purchasers of the mortgaged premises at the sale under the foreclosure, for $500, while the property was and is worth a large sum beyond that amount (perhaps enough to cover the entire amount of the deficiency), is of itself enough to induce this court to refuse to aid the complainants in enforcing payment of the deficiency. But it is quite evident that that consideration cannot avail the defendants. The complainants are before the court seeking payment of a lawful demand, and they have been guilty of no fraudulent or inequitable conduct to debar them from the aid of equity.”

The current statute modifies but does not annul this basic principle. It provides that no decree for a personal deficiency shall be rendered in the foreclosure proceeding; and that where both a bond and mortgage have been given for the same debt, there shall be, first, a foreclosure of the mortgage, and, second, an action on the bond for .the deficiency, “if, at the sale in foreclosure proceeding, the mortgaged premises do not bring an amount sufficient to satisfy the debt, interest and costs,” the action to be commenced within three months from the date of the confirmation of the sale of the mortgaged premises, “in which action judgment shall be rendered and execution issued only for the balance due on the debt and interest and costs of the action.” Sections 2:65-1, 2:65-2. The decree for sale and the order confirming sale are still conclusive of the quantum of the deficiency, except that credit may be had for the fair market value of the mortgaged premises in the foreclosure proceeding itself and also in the action at law for the deficiency if the bond was made after March 29th, 1933. Murray v. Pearce, 95 N. J. Law 104; Mutual Savings Fund Harmonia v. Gunne, 110 N. J. Law 41; United States Life Insurance and Trust Co. v. Vandegrift, 51 N. J. Eq. 400; Vanderbilt v. Brunton Piano Co., 111 N. J. Law 596; Montclair Savings Bank v. Sylvester, 122 N. J. Eq. 518; Henderson v. Weber, 131 N. J. Law 299; appeal dismissed, 322 U. S. 713; 64 S. Ct. 1270; 88 L. Ed. 1555. And the recoveiy of a judgment for a deficiency on the bond serves to “open the foreclosure and sale of the premises,” and to invest the judgment debtor with the right of redemption by the payment of “the full amount of money for which the decree was granted,” with interest and costs and the purchaser’s “reasonable expenses” for taxes, assessments, and prior liens, necessary repairs, and interest thereon, less such income as may be derived from possession of the premises. Section 2:65~1.

This must needs be so, for otherwise the judgment at law recovered pursuant to the statute in the enforcement of the contract of the parties would be subject to nullification by the judgment debtor’s fraud. The judgment is not subject to review in equity. The judgment creditor here was not guilty of fraud in the recovery of the judgment; and there is no occasion for equitable intervention for accident or mistake. Equity may not indulge in arbitrary action. The statute and the contract are binding alike upon courts of law and' equity. Goerke-Kirch Co. v. Goerke-Kirch Holding Co., 118 N. J. Eq. 1.

The case of Bourgeois v. Risley Real Estate Co., supra, is not in point. There equitable interposition was directed to the satisfaction of a judgment recovered at law; here, it is the judgment itself that is under attack. It would be a plain perversion of principle to hold that this judgment, valid and enforceable at law, is unenforceable in equity under the principle that he who seeks equity must do equity. The maxim simply obliges the party seeking equitable relief to do what is required by conscience and good faith. It demands the enforcement of the equities of the adversary party. It applies only where the principles of equity may thereby be served. But courts of equitable cognizance may not create new substantive rights under the guise of doing equity. The equities which the moving party may be required to concede must exist in fact and be cognizable in law. The party seeking relief is not required to sacrifice his own rights. Equity may not, under this principle, alter the contract of the parties, but must enforce it according to its terms. Cityco Realty Co. v. Slaysman, 160 Md. 357; 153 Atl. Rep. 278; 30 C. J. S. 461 et seq. Vide Minzesheimer v. Doolittle, 60 N. J. Eq. 394. Complainant has not been guilty of unlawful or inequitable conduct which precludes enforcement of the judgment in equity by the measure here invoked. It would be anomalous to hold that one could in conscience and good faith recover a judgment at law or decree in equity for a personal deficiency (as on an assumption agreement), and yet could not have relief in equity against a fraudulent attempt to defeat its enforcement. The acceptance of the view here advanced would overturn the law of mortgages and the foreclosure of mortgages and nullify the statute. There is also a maxim that equity follows the law; and equity and courts of law alike are bound by legislative regulation of the rights of the parties, not to mention the obligation of the contract.

Here, the mortgagor could have had credit for the fair market value of the mortgage security in the foreclosure proceeding, if it had chosen to exercise the right. Vanderbilt v. Brunton Piano Co., supra; Federal Title and Mortgage Guaranty Co. v. Lowenstein, 113 N. J. Eq. 200; Fruzynski v. Jablonski, 117 N. J. Eq. 117; Broadman v. Colonial Building-Loan Association, 118 N. J. Eq. 275; Harvester Building and Loan v. Kaufherr, 121 N. J. Eq. 327; affirmed, 122 N. J. Eq. 373; Henderson v. Weber, supra. The failure to make timely application for this relief is attributed simply to “ignorance or dispair/’ and is not excused. There can be no doubt of the power of the Circuit Court to grant such relief. In the foreclosure of mortgages and the sale of the mortgaged lands, the Circuit Courts are invested with “the same jurisdiction and powers as the Court of Chancery has in like cases;” and the statute provides the same procedure as in Chancery in like proceedings. R. 8. 8:65^35. There can be no doubt as to the constitutional sufficiency of this legislation. Article IY, section YII, paragraph 10 of the Constitution of 1844, as amended, empowered the legislature .to vest in the Circuit Courts or Courts of Common Pleas “Chancery powers, so far as relates to the foreclosure of mortgages and sale of mortgaged premises.” Vide Miller v. Bond and Mortgage Guaranty Co., 121 N. J. Eq. 197.

The evidence is clear and convincing that all three conveyances to the Listers and Liebmann and the Borough of Point Pleasant were made with intent to hinder, delay and defraud complainant in the enforcement of his judgment, within the intendment of R. S. 85:8-1 et seq. and R. 8. 14:11/.-8. And there is no doubt whatever that the grantor was then insolvent; and that the Listers participated in the fraudulent intent. As to Liebmann and the Borough, the evidence in each case-establishes that the value of the lands conveyed was greatfy in excess of the grantor’s antecedent indebtedness to the grantee, the ostensible and sole consideration for the transfer ; and it is the rule that in the case of a voluntary conveyance, or one which is found to be voluntary as to the excess over proper consideration, the participation of the grantee in the fraudulent intent is not essential to void the transfer. Hersh v. Levinson Bros., Inc., 117 N. J. Eq. 131. Liebmann’s claim was grounded in a second mortgage covering the lands thus conveyed to him: and there was a clause in the deed providing that the mortgage should not merge in the title thereby conveyed; and this, in itself, tends to negative a purchase of the equity of redemption, and to suggest a transfer of the legal title for some ulterior purpose which gave rise to doubt as to the validity of the title by deed. Burne v. Partridge, 61 N. J. Eq. 434. The conveyance to Liebmann was Lister’s idea; and the circumstances indicate that the plan was all but consummated without Liebmann’s knowledge. Liebmann acquiesced in the transfer when the subject was broached, but the conclusion is inescapable that he considered the conveyance not as a satisfaction of his mortgage, but as a device to place the title in him for some purpose not related to the service of his own interest. Thereafter, Lister collected the rents, made- the repairs, and managed the property. Liebmann explains that this was done because of his continuing confidence in Lister. Assuming a valid mortgage indebtedness, the conveyance was voluntary to the extent that the value of the property exceeded the mortgage debt. It is clear that the design was to salvage this excess value, and thus to defraud complainant. We make no determination as to the validity of Liebmann’s mortgage or the amount due thereon. We do not credit the explanation that the conveyance was made to the Borough to avoid the costs of tax foreclosure proceedings. We are not persuaded that the suggestion of a foreclosure of the tax sale certificates at that particular time was pure coincidence. The certificates were ten years old; and nothing had occurred to give rise to the need for foreclosure. On the contrary, the current taxes were then being paid, and the arrears liquidated as lots were sold. The mayor of the municipality and its attorney knew of the pendency of the deficiency suit when the conveyance was negotiated, and the deed delivered. The evidence demonstrates that the fair value of the lands conveyed is far in excess of the amount of the tax liens and interest. It is a significant circumstance that there was a refusal of complainant’s tender to the borough of payment of the tax liens in full. It results that all three conveyances should be set aside, saving to Liebmann and the borough such liens as they, respectively, may otherwise have upon the lands conveyed.

Prior to the making of the decree under review, complainant caused an execution to be issued upon his judgment at law, and he purchased the lands at the sale held thereunder for the nominal sum of $100; and he complains that there was error in the Chancellor’s refusal to adjudge that he is now the owner of the lands in virtue of the deed of conveyance made pursuant to the sale held under the execution. The case of Swift & Co. v. First National Bank of Hightstown, 114 N. J. Eq. 417, is cited.

The decree adjudged that .the deeds are “fraudulent, null and void and of no effect as against the judgment recovered.” The statute determines the rights of the parties. It renders void a deed made in fraud of creditors; and the decree so declares. But we are clear that the sale under the execution issued on the judgment at law was made under unfavorable conditions, due primarily to doubt as to the title to be conveyed and the number and location of the lots to be sold; and, since the insistence is that the fair value of the lands thus sold exceeds the quantum of the judgment, we are of the view that the relief afforded should be conditioned upon a resale of the lands in the execution of the judgment.

The decree is affirmed as to the Listers and Liebmann, and reversed as to the Borough of Point Pleasant, all with costs; and the cause is remanded for further proceedings in conformity with this opinion.