Camden Trust Co. v. Handle, 123/345.

• Citation: 21 A.2d 354,130 N.J.Eq. 125
• Decision Date: 31 July 1941
• Docket Number: 123/345.
• Parties: CAMDEN TRUST CO. v. HANDLE et al.
• Court: New Jersey Court of Chancery

21 A.2d 354
130 N.J.Eq. 125

CAMDEN TRUST CO.
v.
HANDLE et al.

123/345.

Court of Chancery of New Jersey.

July 31, 1941.

21 A.2d 355

Syllabus by the Court.

1. A mortgagor in possession owes a duty to the mortgagee not to impair the security of the mortgage.

2. Equity, having jurisdiction of a bill for foreclosure, may award damages for waste committed by a purchaser from the mortgagor, whereby the security was rendered inadequate. Jurisdiction is retained in order to do complete justice.

3. A mortgage being a mere security for a debt, the mortgagor in possession is, in equity, the owner of the estate, and may exercise all rights of ownership, even to the extent of committing waste; but he may not commit or suffer such waste as will diminish the mortgagee's security and render it insufficient.

4. By R.S. 2:79-1 and 2, N.J.S.A. 2:79-1, 2:79-2, which are essentially re-enactments of the Statutes of Marlbridge (52 Hen. 111, ch. 23) and Gloucester (C Edw. I, ch. 5), a tenant for life or for years is liable in damages to the reversioner or landlord for both voluntary and permissive waste, and such liability has maintained in this state since 1795, at least.

5. What constitutes waste as between a mortgagor and a mortgagee is ordinarily to be determined by the same considerations as apply to the question of waste between tenant and remainderman or reversioner. The mortgagor in this respect stands to the mortgagee as a tenant to the landlord or a tenant for life to a reversioner.

6. A mortgagor in possession, or his grantee who takes subject to the mortgage, is liable in damages to a mortgagee for permissive waste which diminishes the mortgagee's security, and renders it insufficient.

7. It is the duty of a mortgagor to pay taxes and municipal liens and to keep down prior encumbrances. There can be no distinction between the duty to pay taxes and the duty to make repairs. Failure to do either constitutes permissive waste.

8. The measure of damages for waste is the diminution in the value of the mortgage security; that is, the difference between the value of the premises after the commission of the waste and the value in the absence of such waste. The damage is the amount the mortgaged premises would have sold for at foreclosure sale, had the waste not been suffered or committed, in excess of what they actually sold for.

Suit in equity by the Camden Trust Company, trustee, against Morris Handle and his wife and others, to foreclose a real and chattel mortgage, and to recover damages for waste.

Decree in accordance with opinion.

See, also, 126 NJ.Eq. 214, 8 A.2d 313.

Edward C. Waddington and Frank A. Mathews, Jr., both of Camden, for complainant.

Starr, Summerill & Lloyd, S. Lewis Davis, and Joseph J. Summerill, Jr., all of Camden, and Benjamin Krcsch, of Philadelphia, Pa., for defendant Warner Bros. Theatres, Inc.

BERRY, Vice Chancellor.

The bill of complaint filed herein sought the foreclosure of a real estate and chattel mortgage for $125,000, given by the defendant Morris Handle and his wife to the Camden Safe Deposit and Trust Company, the complainant's predecessor trustee. The mortgage was dated February 20, 1930, covered premises located on Broadway, Camden, New Jersey, known as the Towers Theatre, and was given to secure the payment of bonds in an amount equal to the mortgage. The bill alleged default in the payment of interest due on these bonds on September 1, 1938, and in the payment of taxes for the year 1938. Drawn in two counts, it prays, first, for the foreclosure of the mortgage and second, for a decree for damages for waste alleged to have been committed or suffered by the defendant Warner Brothers Theatres, Inc., which corporation purchased the Towers Theatre from the mortgagor in May, 1930. The defaults in the mortgage as alleged in the bill were not denied, and the foreclosure of the mortgage, insofar as it affected the realty, was not contested. However, the validity of the mortgage as a chattel mortgage was challenged by the defendant Warner Brothers Theatres, Inc., and by a decree of this court advised by the late Vice Chancellor Davis on April 24, 1938, the issues on the complainant's bill of complaint were separated as follows:

1. The amount due on the mortgage insofar as it affected the real estate.

2. The validity of the mortgage as a chattel mortgage.

3. The question of waste.

Subsequent proceedings resulted in a decree of foreclosure dated May 4, 1939, adjudging

21 A.2d 356

the sum of $101,391.32, plus interest and costs, to be due on complainant's mortgage. Pursuant to that decree, the mortgaged real estate was sold by the Sheriff of Camden County on June 30, 1939, for the sum of $64,000, subject to delinquent taxes amounting to $7,458.04, the purchaser being a stranger to these proceedings. The admitted deficiency as of the date of the sheriff's sale was $40,893.31. Subsequently, the complainant filed another bill in this court to recover that deficiency from the defendant Warner Brothers, Inc., but, on motion to strike, the bill was dismissed by Vice Chancellor Sooy on the ground that since this defendant had not assumed the mortgage debt when it purchased the mortgaged premises, it could not be held liable for the resulting deficiency. Tomlinson v. Warner Brothers Theatres, Inc., 126 N.J.Eq. 485, 9 A.2d 774.

Thereafter Vice Chancellor Davis held complainant's mortgage invalid as a chattel mortgage because of formal defects in its execution.

The third issue, involving the question of waste, remained undisposed of at the time of Vice Chancellor Davis' death, and the proofs touching this issue were taken before me. The waste for which complainant seeks to hold Warner Brothers Theatres, Inc., hereinafter referred to as the "defendant" liable, is charged in substance in the bill as follows:

a. By closing the theatre shortly after it bought it and keeping it closed, thereby preventing its being used as a theatre, and destroying the value of the land and the rentals, income, profits, etc, of the mortgaged premises.

b. By removal of the marquee and the fire escapes, and by neglect and refusal to repair the building, as a result of which plaster fell from the walls and water came in through the roof ruining all the interior decorations, carpets, draperies, floorings, etc, and caused all the metal work to become rusted, and all the woodwork, especially the balcony and roof supports, to become rotten.

c. By removing from the theatre certain personal property covered by the chattel mortgage and permitting the remainder to become ruined by water and dampness.

d. By failing to pay taxes as they accrued and by permitting an accumulation of such taxes in the sum of $4,368.80 at the date of the filing of the bill.

e. By neglecting and refusing to repair the building, the roof and the walls, so that the entire building, its equipment and fixtures, became completely worthless and of no value as security for the mortgage.

The following defenses were interposed by this defendant's answer:

1. Denial of the waste alleged.

2. Denial of any liability to pay taxes.

3. That complainant's mortgage was void as to fixtures and equipment therein mentioned.

4. That the fire escapes and the marquee were removed from the building because they were in a hazardous and dangerous condition.

5. That defendant has made necessary repairs, and that if the premises were not worth the amount of complainant's mortgage at the time of the sheriff's sale, that fact was due to reasonable wear and tear and a depressed real estate market, and other causes beyond defendant's control, and not because of any waste or act committed or permitted by defendant.

In view of this court's previous determination that the mortgage, insofar as it affected the chattels, was invalid for defects in execution, the question of the removal or damage to personal property need not be considered.

During the course of the final hearing 1 ruled that there was no obligation upon the defendant to keep the mortgaged premises in operation as a theatre, the mortgage itself being silent on this point and there being no evidence that the defendant had assumed any such obligation. In view of the conclusion touching the defendant's liability for waste at which I have arrived, this ruling need not be further considered, although such nonuse might be considered as a species of ill husbandry which, according to respectable authority, constitutes actionable waste. 67 C.J. 616, par. 12; 27 R. C.L. 1015, par. 5. And see Oklahoma Farm Mortgage Company v. Cesar, 1936, 178 Okl. 451, 62 P.2d 1269 and First Trust Joint Stock Land Bank v. Abkes et al, 1938, 224 Iowa 877. 278 N.W. 183.

As counsel for complainant has stated in his reply brief, complainant's action for waste against the defendant is not based upon any covenants in the mortgage, but depends entirely on the fact that the mortgagor or his grantee owed a duty to the complainant mortgagee not to impair the security of the mortgage; and that the defendant's failure to repair the premises, to pay taxes thereon, and the removal of said

21 A.2d 357

fixtures constituted such an impairment of the complainant's mortgage security as to amount to actionable waste. The primary question for determination is, therefore, whether or not the defendant, as the mortgagor's grantee, owed such duty to the complainant; and if so, to what extent it has violated that duty. That the defendant did owe such a duty to the mortgagee is, I think, readily deducible from all the authorities, otherwise the right of a mortgagee to enjoin waste by a mortgagor would not be so universally recognized. Capner v. Flemington Mining Company, 3 N.J.Eq. 467; Coggill v. Millburn Land Company, 25 N.J.Eq. 87; Fidelity Trust Company v. Hoboken & Manhattan Railroad Company, 71 N.J.Eq. 14, 63 A. 273; Emmons v. Hinderer, 24 NJ.Eq. 39; Jackson v. Turrell, 39 N.J.L. 329; Schalk v. Kingsley, 42 N. J.L. 32; Lodge, Realty Mortgages in New...