Fid. Union Trust Co. v. Ritz Holding Co.

• Decision Date: 09 September 1939
• Citation: 126 N.J.Eq. 148,8 A.2d 235
• Parties: FIDELITY UNION TRUST CO. v. RITZ HOLDING CO. et al.
• Court: New Jersey Court of Chancery

8 A.2d 235

126 N.J.Eq. 148

FIDELITY UNION TRUST CO.

v. RITZ HOLDING CO. et al.

Court of Chancery of New Jersey.

Sept. 9, 1939.

[Copyrighted material omitted.]

Syllabus by the Court.

1. References to masters are made for the convenience of the court and litigants, and a master's report is but a recommendation, merely advisory to, and not conclusive upon, this court.

2. Where, upon the coming in of the master's report, it appears to be more convenient to disregard the report and consider the issues de novo, the court will do so, notwithstanding there is evidence to support it, and especially so where errors appear on its face.

3. A master may not substitute his own knowledge or opinion for evidence; nor is his report entitled to the weight of a verdict of a jury, however much support it may find in the proofs.

4. In determining "fair value" for the purpose of credit upon a deficiency claim arising out of a mortgage foreclosure suit, the mortgaged premises being a large apartment house or other so-called "investment property," it is proper to consider the rental history of the premises during prosperous as well as lean years. The elements or factors to be considered by the court in a proceeding seeking such credit are income yield and capitalization thereof, reproduction or replacement value, neighborhood conditions and trend, potential value, appropriateness of location, and any other factor which may have any bearing upon value. But of these several elements income yield is the most important where this particular type of property is concerned.

5. "Fair value" for the purpose of credit upon a mortgage deficiency claim, where investment property is concerned, is that sum which the mortgagee purchaser ought, under all the circumstances, reasonably expect to realize from the acquired premises either by way of sale in the near future or upon the basis of a permanent investment.

6. A bid of $525,000 for property having a fair value of $600,000 is not so inadequate, under the circumstances of this case, as will shock the conscience of the court, and sale accordingly confirmed.

7. No infallible rule can be laid down indicating the allowable spread between bid and fair value which will result in confirmation of sale. Each case must be governed by its own circumstances.

Foreclosure proceeding by the Fidelity Union Trust Company, trustee, against the Ritz Holding Company and others. On exceptions to a master's report pursuant to an order of reference on a petition for credit of the fair value of the mortgaged premises on a deficiency claim filed after objections to confirmation of the foreclosure sale.

Decree in accordance with opinion.

Hood, Lafferty & Campbell, of Newark (Charles Danzig, of Newark), for complainant-exceptant.

Leber & Ruback and Meyer E. Ruback, all of Newark, for defendants Ritz Holding Co. and Michael Hollander.

McCarter & English and Arthur F. Egner, all of Newark, for defendant Abram H. Puder.

BERRY, Vice Chancellor.

This matter comes before the court upon exceptions to a master's report pursuant to an order of reference on a petition for credit of the fair value of the mortgaged premises on a deficiency claim filed after objections to confirmation of the foreclosure sale.

The amount due upon the complainant's decree on October 22, 1936, the date of the sale, was $785,760.30. The amount of complainant's bid, for which the property was struck off to it at the sheriff's sale, was $472,654.54. Prior tax liens, as reporter by the master, amounted to $52,244.74, making the total purchase price at the sheriff's sale $524,899.28 (Young v. Weber, 117 N.J.Eq. 242, 175 A. 273) and leaving an apparent deficiency of $260,861.02. The original mortgage to The Fidelity Union Title and Mortgage Guaranty Company, placed in 1923, was in the amount of $600,000. This had been reduced to $510,000 in 1930, when, upon the completion of the commercial building located on the premises, the loan was increased to $650,000 and a new mortgage in that amount was executed.

Objections to the confirmation of the sale and a petition for credit of the fair value of the mortgaged premises upon the deficiency claim were filed by the defendants pursuant to the doctrine and practice of Federal Title & Mortgage Guaranty Co. v. Lowenstein, 113 N.J.Eq. 200, 166 A. 538; Young v. Weber, supra, and kindred cases. In due course, the matter was referred to the Hon. Alonzo Church, as Special Master in Chancery, but he died after the taking of considerable testimony and before its completion and report. By consent of counsel the matter was re-referred to another Special Master, who, after taking voluminous testimony and proofs, reported the mortgaged premises to have had a fair value of $850,000 on the day of the sale, apportioned as follows: Land, $125,000; apartment house and commercial building, $717,500; one family dwelling house, $7,000; and garage, $500; and that delinquent taxes as of that date amounted to $52,244.74.

To this report 126 exceptions have been filed by the complainant, in which practically every finding of the master is challenged and numerous issues respecting the admission or rejection of evidence are raised. While there is much in the master's report that is of value to the Court, and there is some evidence to support his every finding, there are so many apparent errors in his conclusions of law and fact and in the application of the equitable principles which must govern matters of this kind, and the exceptions are so numerous, that I have decided to lay aside the report and consider the issues raised on objections to confirmation practically de novo. This is, in effect, granting the complainant's motion to set aside the master's report in toto, and I shall consider the evidence submitted before the master as though no report had been made. This procedure is, I think, justified by the circumstances, and the court is not obliged to accept a master's report as a matter of course, however much support it may find in the evidence. References to masters are made for the convenience of the court and litigants, and a master's report "is but a recommendation, merely advisory to, and not conclusive upon, this court". Oliver v. Autographic Register Company, 126 N.J.Eq. 18, 7 A.2d 797, 798. And where, upon the coming in of the master's report, it appears to be more convenient to disregard the report and consider the issues de novo, the court will do so, notwithstanding there is evidence to support it, and especially so, where errors appear on its face. Holmes v. Holmes, 18 N.J.Eq. 141; MacDonnell v. Vitille, 111 N.J.Eq. 502, 508, 162 A. 738; Bank of America National Association v. La Reine Hotel Corporation, 108 N.J.Eq. 567, 156 A. 28. Of course, the master's authority rises no higher than its source and the court may determine value itself without a reference, or in spite of such reference. Fidelity Union Trust Company v. Pasternack, 123 N.J.Eq. 181, 196 A. 469.

It seems to me that the report shows on its face that the master erred in several main particulars, as follows:—

1. He relied upon his own knowledge and ability as a judge of property values.

2. He relied too much upon replacement or reproduction value as a factor in fixing fair value.

3. He relied strongly upon the 1930 appraisal of The Fidelity Union Title and Mortgage Guaranty Company, the original mortgagee, which was not evidential.

4. He relied too much upon future or potential value as an element of fair value.

5. He gave too little weight to capitalization of income.

6. He misconceived the meaning of "fair value" as between the parties, giving greater importance to the protection of the mortgagor than to the mortgagee.

7. He relied too much upon theory and prophecy, and too little upon fact and reality.

For these reasons I have laid aside the report, read the entire record of approximately 2,400 pages of testimony, examined all of the numerous exhibits, and read and considered the voluminous briefs of counsel, both those submitted to the master and those submitted upon the exceptions to his report.

It is argued by counsel for the defendants that on the authority of Chasey v. Broadway Holding Company, 114 N.J. Eq. 74, 168 A. 221, the court is obliged to confirm the master's report where there is any evidence to support it, and especially where the master is himself qualified to pass upon real estate values in the neighborhood of the mortgaged premises, and that the master's own opinion has the force and quality of testimony. But the argument is unsound and is not supported by the cited case, nor by any other reported case of which I have knowledge. Nor did the court there approve of the master's appraising the property on the basis of his own knowledge of real estate values. What the court said in that case was that the master's familiarity with property values better enabled him to choose between experts, appraise their testimony at its true value, select that expert opinion which was most reliable and adopt it as his own. If the rule were as contended by counsel for defendants, there would be no need for the taking of any testimony or the submission of any evidence before the master on references of this kind,—the court would merely ask for a master's opinion and adopt it as controlling. But that is not the rule. Long Dock Company v. State Board of Assessors, 86 N.J.L. 592-597, 92 A. 439; United New Jersey Railroad & Canal Company et als. v. State Board of Taxes and Assessment, 100 N.J.L. 131, 125 A. 335. It is also argued that the master's report has the weight of a verdict of a jury. The law is to the contrary. See Holmes v. Holmes, supra; MacDonnell v. Vitille, supra.

Nor, in the instant case, was the master selected, as is suggested by counsel for defendants, because of his peculiar knowledge touching real estate values—although the court had and still has complete confidence in the master's ability and integrity.

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