Egner v. Egner

• Decision Date: 27 January 1982
• Citation: 443 A.2d 1104,183 N.J.Super. 326
• Parties: Argero P. EGNER, Plaintiff, v. Charles W. EGNER, II, and Betty Jane Egner, Defendants.
• Court: New Jersey Superior Court

Page 326

183 N.J.Super. 326

443 A.2d 1104

Argero P. EGNER, Plaintiff, v. Charles W. EGNER, II, and Betty Jane Egner, Defendants.

Superior Court of New Jersey, Chancery Division Somerset County.

Decided Jan. 27, 1982.

Gordon C. Strauss, Princeton, for plaintiff (Strauss, Wills, O'Neill & Voorhees, Princeton, attorneys).

George W. Fisher, Jr., Princeton, for defendants (Mason, Griffin & Pierson, Princeton, attorneys).

On Motion

DREIER, J. S. C.

The novel issue raised in this case is whether a "due on transfer" clause in a mortgage instrument is triggered by the transfer of the mortgaged property by operation of law, or, more specifically, by its devolution by devise or descent. ¹ The issue is presented in the context of plaintiff's claim for exoneration of the mortgage on real property in which she has inherited an interest.

In 1975 Charles F. Egner, Jr. borrowed $200,000, secured by a ten-year mortgage on a parcel of commercial real estate. The mortgage instrument contained a standard "due on transfer" clause, providing for acceleration of the entire debt at the option of the mortgagee should the property be transferred or conveyed by the mortgagor without the mortgagee's consent.

In 1978 Mr. Egner died testate, devising the encumbered property in equal one-third shares to plaintiff, his widow, and to defendants, his two children, as tenants in common. The will also named the defendants executors and directed them to pay as soon as conveniently possible "any debts due at my death."

In support of her claim for exoneration of the mortgage, plaintiff makes an original argument: Under the will, title to the property was transferred automatically upon her husband's death. Such a transfer triggers the acceleration clause of the mortgage, thereby transforming what had been a term loan into a demand obligation. The entire amount of the mortgage debt therefore came due at testator's death and under the terms of the will must be promptly paid by the executors out of the residue of the estate. Defendants, as executors and residuary beneficiaries, have moved to dismiss or, in the alternative, for partial summary judgment as to that portion of the complaint which seeks exoneration of the mortgage.

It is settled law that title to real property vests in the heir or devisee automatically and immediately upon the death of the owner. See N.J.S.A. 3A:2A-2; In re Widenmeyer Estate, 70 N.J. 458, 360 A.2d 396 (1976); Montclair Nat'l Bank & Trust Co. v. Seton Hall College of Medicine & Dentistry, 96 N.J.Super. 428, 233 A.2d 195 (App.Div.1967); Ratti v. Ratti, 6 N.J.Super. 352, 71 A.2d 381 (App.Div.1950); McTamney v. McTamney, 138 N.J.Eq. 28, 46 A.2d 444 (Ch.1946). Thus a change of ownership of the property in question occurred by operation of law at the instant of Charles F. Egner's death. Does such an automatic conveyance of title trigger the "due on transfer" clause of the mortgage, thereby allowing the mortgagee to elect to accelerate the full amount of the debt? This court holds that it does not. ²

At first glance, it would appear that N.J.S.A. 3A:26-1 disposes of the matter. The statute provides:

When property subject to a mortgage or security interest descends to an heir or passes to a devisee, such heir or devisee shall not be entitled to have such mortgage or security interest discharged out of any other property of the ancestor or testator, but such property so descending or passing to him shall be primarily liable for the mortgage or secured debt, unless the will of the testator shall expressly or impliedly direct that the mortgage or security interest be otherwise paid. (Emphasis supplied)

Plaintiff, however, argues that the exception set out in the final clause of the statute applies here, since the terms of the will expressly direct the executors to pay any debts due at the testator's death. ³ But this argument presupposes that the mortgage may be accelerated, and therefore comes due, when the encumbered property passes to the heirs by operation of law-a proposition which this court rejects as contrary to the general intention and usual expectations not only of mortgagors and mortgagees, but of testators and their devisees as well. ⁴

The mortgage in the instant case contained the now-common "due on transfer" clause, which stated: "The entire indebtedness secured hereby shall, at the option of the mortgagee, without notice to any party, become and be due and payable immediately in the event that the premises be sold, transferred, or conveyed by mortgagor ... without the written consent of the mortgagee ...." Such provisions are generally upheld as valid and legitimate terms of the mortgage contract, which "serve to protect justifiable interests of the mortgagee in maintaining his security free from impairment by a change in possession of the mortgaged property, and reducing the risk of a change in interest rates." Annotation, 69 A.L.R.3d 713, 725 (1976). See, also, Fidelity Land Develop. Corp. v. Rieder & Sons, 151 N.J.Super. 502, 508, 377 A.2d 691 (App.Div.1977); Century Federal S. & L. Ass'n of Bridgeton v. Van Glahn, 144 N.J.Super. 48, 364 A.2d 558 (Ch.Div.1976); Shalit v. Investors S. & L. Ass'n, 101 N.J.Super. 283, 244 A.2d 151 (Law Div. 1968).

The mortgage instrument, however, also contained another commonly included clause, which provided: "This mortgage shall enure to and bind the heirs, legatees, devisees, administrators, executors, successors and assigns of the parties hereto." When this provision is considered in conjunction with the "due on transfer" clause, it becomes clear that acceleration of the mortgage debt was not intended to occur when the mortgaged property passes to devisee or descends to an heir. By its own terms the mortgage instrument contemplated such a devolution of the property and must therefore be construed as exempting such devolution from the scope of the "due on transfer" clause.

The distinction made here is essentially one between voluntary lifetime transfers by the mortgagor and involuntary transfers occurring by operation of law. The former are manifestly intended by the parties to the mortgage to be subject to the strictures of the "due on transfer" clause, see Fidelity Land Development, Century Fed'l S. & L. and Shalit, all supra ; the latter are exempt when the mortgage instrument itself clearly contemplates passage of the property by devise or descent. ⁵ Further support for this proposition may be found by analogy to leasehold estates. A lease is not terminated by the death of the lessee, absent some unambiguous indication that such termination is intended. Rather, the interest of the lessee passes to his or her administrator or executor, who is obligated to continue to make rental payments. Gross v. Peskin, 101 N.J.Super. 468, 244 A.2d 692 (App.Div.1...