Flemington Nat. Bank v. Jones

• Decision Date: 08 August 1892
• Citation: 50 N.J.E. 244,24 A. 928
• Parties: FLEMINGTON NAT. BANK v. JONES et al.
• Court: New Jersey Court of Chancery

24 A. 928

50 N.J.E. 244

FLEMINGTON NAT. BANK

v. JONES et al.

Court of Chancery of New Jersey.

Aug. 8, 1892.

(Syllabus by the Court.)

Bill by the Flemington National Bank against John L. Jones, George A. Rea, and others to foreclose certain mortgages. Judgment for complainant.

John A. Bullock and H. A. Fluck, for complainant.

H. B. Herr and John N. Voorhees, for defendant Rea.

PITNEY, V. C. The complainant asks for the foreclosure of two several mortgages covering the same premises, executed by Jones to one Dunham to secure him as indorser for Jones upon certain promissory notes made by Jones, and discounted by complainant for him. These notes not being paid at maturity, and Dunham, the indorser and mortgagee, having died insolvent, his executors handed the mortgages to the complainant, who now claims to be subrogated to the rights of Dunham, on the ground that, as principal creditor, he is entitled in equity to any and all collateral given by the principal debtor to his surety. The right of the complainant in this respect was not seriously disputed at the hearing, and is beyond question. Dix. Subr. pp. 135, 136; Klapworth v. Dressier, 13 N. J. Eq. 62; Crowell v. Hospital, 27 N. J. Eq. 650, at page 655. Besides, the mere delivery of the mortgage, under the circumstances, amounted to an assignment in equity.

Complainant's mortgages are first in date and order of registration. The defendant Rea holds the third mortgage upon the same premises. He admits the execution and delivery of complainant's mortgages, and the amount due from Jones to complainant on the notes secured by them, and that both were registered before his mortgage was executed, but claims that the first of complainant's mortgages should not have priority over his mortgage, because Dunham, the mortgagee, withheld it from the record for a period of 11 years, during which time Rea's indebtedness was incurred. This first mortgage was dated December 7, 1880, and was recorded on the 30th of November, 1891. It was given to indemnify Dunham against his indorsement of a promissory note of that date for $4,000, made by Jones, or any note given in renewal of the same indorsed by Dunham. The note thus secured was not paid at maturity, but was renewed from time to time, and partial payments made on it, until the 4th of September, 1891. when it assumed the shape of a promissory note made by Jones to the order of and indorsed by Dunham for $3,400, at three months, which was protested for nonpayment. Mr. Rea's case is set out in his cross bill thus: In March, 1884, between the date of the mortgage in question and its registry, he and Dunham and three others became surety for Jones on his bond to the ordinary in the penal sum of $50,000, conditioned for the faithful performance of his duties as guardlan of one Stryker, an infant, and when (inferentially in 1891) Stryker attained his majority Jones was found to be indebted to him in the sum of over $8,000, and, failing to pay it, Rea and one other of the sureties, being the only ones who were solvent, were obliged to pay, and did pay, each one half of the amount due to Stryker; whereupon Jones executed a mortgage upon the premises covered by complainant's mortgages to Rea and the other solvent surety, to secure them the moneys so paid by them, which mortgage was dated December 21, 1891, three weeks after the registry of complainant's mortgage. After this preliminary the crossbill continues thus: "And this defendant, in further answering, says that he had no knowledge of the mortgage of four thousand dollars made by said John L. Jones and wife to said Clarkson C. Dunham, or of the indebtedness it was made to secure, at the time he became surety for said Jones upon said bond to the ordinary; that this defendant at that time believed said John L. Jones was solvent, and his property clear and unincumbered, and on that account signed said bond as surety; and this defendant has been informed, and charges the same to be true, that the said John L. Jones was president of the Fleinington National Bank, the complainant, and the said Clarkson C. Dunham cashier of said bank, and also a brother-in-law of said John L. Jones, from the time said mortgage was made until a short time before the death of the said Clarkson C. Dunham, and said Dunham did not place said mortgages upon record or disclose their existence, for the purpose of inducing this defendant and others to believe said Jones to be solvent, and to conceal his true financial condition, and this defendant insists that the said Clarkson C. Dunham and the said complainant had full knowledge that said Jones was unable to pay his debts from the time said mortgage was given, and fraudulently concealed its existence to help said Jones' credit, who during that time was engaged in the settlement of numerous trusts, and needed security upon the bonds it was necessary to give. And this defendant says that he has been informed and believes it to be true that, at the time each of the mortgages held by the complainant were given by the said defendant John L. Jones to the said Clarkson C. Dunham to secure the payment of the notes mentioned in the bill of complaint, the said Clarkson C. Dunham and wife also executed a mortgage to said Jones to secure said Jones on account of notes he was indorsing for said Dunham, and it was expressly agreed between said Jones and said Dunham that neither of said mortgages should be recorded unless the said Dunham should give notice thereof to said Jones previous to placing them upon the records. And this defendant further shows that neither of the mortgages of the complainant was placed upon record during the lifetime of the said Dunham, and charges that said agreement was made between the said John L. Jones and Clarkson C. Dunham for the purpose of deceiving this defendant and others as to the true condition of said Jones financially."

This pleading is under oath, as required by the bill, but so much as is pleaded by way of cross bill cannot be considered as proven by the oath of the defendant, for two reasons: First, it is new matter, not responsive to the allegations of the bill, (Beckhaus v. Ladner, 48 N. J. Eq. 152, 21 Atl. Rep. 724, and cases cited at page 163, 48 N. J. Eq., and page 728,21 Atl. Rep.;) and, second,it is not matter about which the defendant is shown to have had any personal knowledge, but is mere allegation in the bill which the defendant therein (the complainant) is called upon to answer. Complainant by its replication denies the material allegations of the cross bill with regard to the object and purpose of withholding the mortgage from record. Rea died before the case was brought to a hearing.

At the hearing it appeared that Jones and Dunham were brothers-in-law, and one was president and the other cashier of the complainant. Jones was sworn, and testified, subject to objection seasonably made by complainant, as to a conversation with Dunham at the time of giving the mortgage in question. The objection to the competency of this evidence was not well taken. Dunham's personal representatives are not parties to the suit, although they are directly interested in the event, and therefore the case is not within the provisions of the statute of February 25, 1880, (Supp. Revision, p. 287.) If they had been made parties, the objection to Jones giving evidence of conversations between him and Dunham would have been serious. Jones swears that when the mortgage was executed and delivered the understanding between Dunham and himself was "that he was not to place it on record without notice to me, "and that the knowledge of its existence "was to remain between him and me,"—"we were to say nothing about it;" that neither himself, nor, so far as he knew, Dunham, ever told any one of its existence. When asked whether any reason was assigned between Dunham and himself for keeping the mortgage from the record, and its existence secret, he answered: "I suggested to Mr. Dunham that, as I was president of the bank, it would perhaps injure my credit." He further stated that the reason why he desired notice of putting the mortgage on record was that he might have the opportunity to arrange to pay the note without having it go upon the record at all. He was asked if at the date of the mortgage, in 1880, he was able to pay his debts, and answered, "I think it was doubtful." He further testified that he openly acknowledged his insolvency, and resigned the presidency of the bank, December 2, 1891, five days after Dunham's death, and two days after the recording of the mortgage. He said that up to that time he had not supposed he was in such financial condition. "I was not aware I was in the financial condition I was,—not so badly insolvent. Didn't realize it." He further testified that he was doubtful, in 1880, whether he was solvent, and that he had gone behind, and his financial condition had deteriorated between 1880 and 1891, and that, so far as he knew, his credit was good, and that during that time he told no one whatever, and intimated to no one, that he was unable to pay all he owed. There is no proof that Dunham had any knowledge or suspicion, up to the moment of his death, that Jones was pecuniarily insolvent. He joined with Rea and others as sureties on the bond to the ordinary. There is no proof that Rea joined as surety on this bond on the strength of Jones' real estate being unincumbered. On the contrary, it appears that he made no search or inquiry on the subject. There is no proof as to the character of the business in which Jones was engaged,—whether what is called "hazardous" or not. In fact, there is no proof that he was engaged in any business whatever, except that of performing his duties as president of the bank. There is no proof that he ever acted as executor, administrator, guardian, or in any other fiduciary capacity, except on the occasion referred to. It was proven that Dunham gave Jones a mortgage under date...