Cambridge Acceptance Corporation v. American National Motor Inns, Inc Oxford Finance Companies, Inc v. Tamburri

Decision Date12 July 1967
Docket NumberR-W,Nos. F--41--65,L--1481,s. F--41--65
PartiesPage 183 96 N.J.Super. 183 232 A.2d 692 CAMBRIDGE ACCEPTANCE CORPORATION, Plaintiff, v. AMERICAN NATIONAL MOTOR INNS, INC., Leo Hockstein and Sylvia Hockstein, Harold S. Okin, Trustee, Kenneth E. Knotts and Franklin Industries, Inc. (ay Furniture Co. Division), The Daily Journal Division of Mid-Atlantic Newspapers, Inc., F.K.M. Advertising Co., Inc., Welch Jensen and Susanna E. Jensen and Knickerbocker Maintenance Corp., Defendants. The OXFORD FINANCE COMPANIES, INC., Plaintiff, v. William J. TAMBURRI and Chicago Title Insurance Company, Defendants. Superior Court of New Jersey, Chancery and Law Divisions
CourtNew Jersey Superior Court

W. Richard Kahn, Morristown, for Cambridge Acceptance Corp. (Jeffers & Dillon, Morristown, attorneys).

Herman J. Ziegler, East Orange, for The Oxford Finance Companies, Inc.

Robert Silver, Newark, for Leo and Sylvia Hockstein (Martin Simon, Newark, attorney).

Robert C. Thomson, Jr., Westfield, for Kenneth E. Knotts (Nichols, Thomson & Peek, Westfield, attorneys).

John A. Willette, East Orange, for William J. Tamburri (Williams & Willette, East Orange, attorneys).

Peter L. Berkley, Newark, for Chicago Title Ins. Co. (Riker, Danzig, Scherer & Brown, Newark, attorneys).

FRITZ, J.S.C.

This is a Chancery action for foreclosure of a mortgage on real estate consolidated with a law action for damages involving the same transactions. The foreclosure phase appears to involve questions of first impression in New Jersey.

I--The Chancery Action

In October 1963 Leo Hockstein was the owner of a parcel of vacant land of about 1 1/2 acres in Denville Township. During that month he contracted with Associated Realty Company (hereafter Associated) by means of a written instrument which ostensibly gave Associated 'exclusive authority to sell the property' but which, it is clear from interlineations, obviously looked toward a lease. This contract had written into it as an 'additional provision(s)' the following: 'The lessor will subordinate to 75% Of appraised value of land and building by a recognized financial institution granting both construction and permanent mortgages.'

On April 15, 1964 Associated wrote Hockstein advising him of the offer of American National Motor Inns, Inc. (hereafter American) to lease the property. On April 28, 1964 Hockstein and American entered into a written agreement of lease. The term of the lease was for 65 years 'commencing on the (a blank here was not filled in) day of April, 1964.' Rent of $666.66 per month was not to commence until 'the first day of the fifth month after the issuance of' building permits for which provision was also made in the lease, the expressed intention of the lessee being the construction of a motel upon the land.

This lease was prepared by American. It was on its printed form, with blanks provided only for the date, the name of the lessor, the location and the description of the property, the term of the lease and the rental amount.

It required American, at its own expense, to 'commence construction and with due diligence complete for use and occupancy a motel fully paid for and free from all liens excepting only the mortgages referred to in Paragraph 6 hereof.' It contemplated 52 'rentable motel units.' It is not without significance that these were to revert to the ownership of the landlord at the termination of the lease.

The lease dealt with the matter of American's right to mortgage the premises, In extenso and in express terms. The following appeared:

'6. LANDLORD acknowledges that TENANT will require financing to construct the above mentioned motel and by reason thereof, LANDLORD agrees that TENANT shall have the right during the term of the Lease to place mortgages on all of any portion of the Demised Premises as security for loans. Such mortgages shall provide for repayment no later than twenty-five (25) years from the date of completion of the motel. TENANT shall make all interest and principal payments required under such mortgages. This Lease is hereby made subordinate to all future mortgages, including those referred to in Paragraphs 8 and 17 of this Lease, without the necessity of any further acts, provided the aggregate amount of such mortgages does not exceed Fifty-Five Hundred Dollars ($5,500.00) per motel unit, the number of motel units to be computed as provided in Paragraph 3 of this Lease. However, as further assurance in this connection LANDLORD shall execute promptly upon TENANT'S request any agreement in form requested by TENANT evidencing such subordination. LANDLORD shall perform any act or acts required by the lenders to whom such mortgages are given or to the title insurance company insuring the same in order to consummate such loans. LANDLORD agrees that if it shall fail to perform such act or acts within seven (7) days after request by TENANT, LANDLORD shall be liable for all damages and expenses sustained by TENANT and incurred in consequence of such delay.

8. TENANT shall have the right at any time before payment in full of the mortgages referred to in Paragraph 6 above to refinance the principal balance remaining due on such mortgages provided that the maturity dates of any new mortgages shall not be more than twenty-five (25) years from the date of completion of the motel. Such refinancing shall be at TENANT'S sole expense. LANDLORD shall upon request by TENANT perform any of the acts required of LANDLORD pursuant to Paragraph 6 to consummate the original mortgages.

17. If TENANT exercises its option under Pragraph 6 of this Lease, TENANT may subject the Demised Premises to a construction loan mortgage covering such buildings or improvements or to a consolidated mortgage covering both new and existing buildings and improvements. Any new or consolidated mortgage shall be payable within twenty-five (25) years from the date of the new loan or on or before the fifth year immediately prior to the end of the term of this Lease, whichever is sooner. LANDLORD shall in such event perform all of the acts required under Paragraphs 6 and 8 in connection with the original financing.

21. Wherever in this Lease the word mortgage is used, it shall be deemed to include a 'Deed of Trust' where the use of the latter is customary or desired in the state or area in which the Demised Premises are located, and shall also be deemed to include interim mortgages during construction and permanent mortgages after completion of the motel.

22. LANDLORD agrees that the mortgages on the Demised Premises referred to in Paragraphs 6, 8 and 17 of this Lease shall upon recordation be first liens on the Demised Premises, subject only to liens for current property taxes and special assessments. * * *.'

The lease was recorded in the office of the Morris County Clerk on August 5, 1964.

On a date in June 1964, which does not appear, Hockstein executed a 'Subordination Agreement' reading as follows:

'THIS INDENTURE made and entered into this day of June 1964, between LEO HOCKSTEIN of 35 E. Lincoln Street, Verona, New Jersey, hereinafter referred to as 'Owner' and AMERICAN NATIONAL MOTOR INNS, INC. a corporation originating and existing under the laws of the State of New Jersey hereinafter referred to as 'Mortgagor' and FIRST NATIONAL CREDIT CORPORATION, a New Jersey Corporation of 60 Park Place, Newark, New Jersey hereinafter referred to as 'Mortgagee'.

WITNESSETH:

WHEREAS the owner is the fee holder of certain lands and premises situated in Tax Block 128A, Lot 2, in the Township of Denville, County of Morris and State of New Jersey, which premises are more particularly described in a certain lease dated April 28, 1964 between owner as Landlord and AMERICAN NATIONAL MOTOR INNS, INC. as Tenant.

WHEREAS said AMERICAN NATIONAL MOTOR INNS, INC. is in the process of erecting and constructing on the aforementioned leased premises a fifty-eight (58) room motel with Gate House and other appurtenances; and

WHEREAS FIRST NATIONAL CREDIT CORPORATION Has agreed to advance construction monies to assist in the erection and construction of the aforementioned motel building, gage house and other appurtenances and AMERICAN NATIONAL MOTOR INNS, INC. has agreed to execute and deliver its mortgage As security for the construction loan to which mortgage this agreement shall be attached and form a part.

NOW THEREFORE, in consideration of the sum of One ($1.00) Dollar and other valuable consideration, owner hereby subordinates its fee title to the premises described In the aforementioned lease and mortgage to the lien of said mortgage in the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) to the end that said mortgage shall be a first and paramount lien on the premises therein described. It is expressly understood and agreed that this subordination shall apply only to owner's interest in and to aforementioned premises and shall in no wise be construed so as to subject owner to any personal liability whatsoever for the indebtedness secured by the mortgage or of any act or acts required to be performed by the Mortgagor under said mortgage. * * *.' (Emphasis supplied)

On June 18, 1964, on application of American, the board of adjustment of Denville Township recommended to the township committee the granting of certain variances required to permit the construction of American's motel.

It appears that American had arranged with First National Credit Corporation (hereafter First National) for certain financing in connection with this venture. First National was in the business of real estate financing through loans historically declined by banks. It had done business with American before in connection with motel construction, for a period of at least two years. Generally, its loans to American were for a six-month period and were for the purpose of construction and completion of the motels. Over the years First National had financed about 1 1/2 million dollars of American's motel construction. As many as eight motels may have been involved,...

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