Fort Lee Sav. and Loan Ass'n v. LiButti

• Decision Date: 30 June 1969
• Citation: 254 A.2d 804,106 N.J.Super. 211
• Parties: FORT LEE SAVINGS & LOAN ASSOCIATION, a New Jersey Corporation, Plaintiff, v. Joseph R. LIBUTTI, a/k/a Joseph R. LiButti, Jr. and Joanne LiButti,a/k/a Joan LiButti, his wife, Defendants, and Mitchell, Hutchins & Co., Inc., a Delaware Corporation, Defendant-Appellant, and Joseph LiButti and Edith LiButti, his wife, Joseph DeSiervo and ViolaDeSiervo, his wife, People Trust Co. of Bergen County, a Corporation of NewJersey, Horizon House Management Corp., a New Jersey Corporation, and AllenCarpet Shops,Incorporated, a New Jersey Corporation, Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 211

106 N.J.Super. 211

254 A.2d 804

FORT LEE SAVINGS & LOAN ASSOCIATION, a New Jersey Corporation, Plaintiff, v. Joseph R. LIBUTTI, a/k/a Joseph R. LiButti, Jr. and Joanne LiButti,a/k/a Joan LiButti, his wife, Defendants and Mitchell, Hutchins & Co., Inc., a Delaware Corporation Defendant-Appellant and Joseph LiButti and Edith LiButti, his wife, Joseph DeSiervo and ViolaDeSiervo, his wife, People Trust Co. of Bergen County, a Corporation of NewJersey, Horizon House Management Corp., a New Jersey Corporation, and AllenCarpet Shops,Incorporated, a New Jersey Corporation, Defendants-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued May 26, 1969.

Decided June 30, 1969.

Richard B. Goldsmith, Wayne, for appellant (Williams, Gardner, Caliri, Miller & Otley, Wayne, attorneys).

Respondents did not file a brief.

Before Judges GOLDMANN, KOLOVSKY and CARTON.

PER CURIAM.

On December 3, 1964 defendants Joseph R. LiButti and Joanne LiButti, husband and wife, executed a purchase money bond and mortgage to secure a loan of $42,000 at 6%. They defaulted in installment payments and, following a foreclosure judgment entered July 17, 1967, the property was ordered sold. The sale resulted in a surplus of $18,440.12, which was deposited with the court.

The LiButtis were tenants by the entirety of the property in question. Defendant Mitchell, Hutchins & Co., Inc., had recovered a judgment on April 27, 1964 in the amount of $5,570.49 and costs against Joseph LiButti--this prior to the execution of the bond and mortgage mentioned. Mitchell, Hutchins applied to the court for payment of its judgment out of the surplus. That application was eventually denied on the basis of Servis v. Dorn, 76 N.J.Eq. 241, 76 A. 246 (Ch.1909), and the decision of this court in Dorf v. Tuscarora Pipe Line Co., Ltd., 48 N.J.Super. 26 (1957) (Dictum, at page 32, 136 A.2d 778).

In Servis Vice-Chancellor (later Chancellor) Walker held (76 N.J.Eq. at page 243, 76 A. at page 246) that surplus money arising from a foreclosure sale of real property held by the entirety 'stands in the place of the land itself in respect to liens thereon or vested rights therein.' The holding of that case has withstood the test of time. See Morris v. Glaser, 106 N.J.Eq. 585, 592, 151 A. 766 (Ch.1930), affirmed o.b. 110 N.J.Eq. 661, 160 A. 578 (E. & A.1932); Vineland S. & L. Ass'n v. Felmey, 12 N.J.Super. 384, 392, 79 A.2d 714 (Ch.Div.1951); Danes v. Smith, 30 N.J.Super. 292, 301--302, 104 A.2d 455 (App.Div.1954). See also, 4 Pomeroy, Equity Jurisprudence (5th ed. 1941), § 1167, p. 495; 7 N.J.Practice (Clapp, Wills and Administration) (3d ed. 1962), § 1781, p. 521, and Annotation, 'Estate by entirety in personal property,' 64 A.L.R.2d 8, 60 (1959).

We agree with the Chancery Division judge that Mitchell, Hutchins is not presently entitled to satisfaction of its judgment out of the principal of the surplus monies. The principal will be held under the control of the court to await severance of the estate by the death of Joseph or Joanne LiButti, 'when it will or will not become available * * * accordingly as the judgment debtor (Joseph) survives or dies before the other tenant by entirety (Joanne).' Servis v. Dorn, above, 76 N.J.Eq. at page 245, 76 A. at page 247.

Affirmed.

CARTON, J.A.D. (dissenting).

For an indefinite period, possibly stretching into the distant future, the challenged order removes from the reach of the judgment creditor the husband's share of that fund which in justice ought to be applied against his valid indebtedness. Inasmuch as the ultimate ownership of the proceeds of sale is made to depend upon the hazard of survivorship inherent in tenancies by the entirety, that order compounds the injustice by making any expectation of recovery highly fanciful. It establishes an exception to the salutary rule that tenancies by the entirety may not exist in personal property and by means of a fiction extends in new form a type of tenancy whose value has been widely questioned even so far as it applies to real property. Furthermore, it imposes upon the court system an unwarranted burden of administering the funds and supervising their investment until such time as one of the spouses dies. ¹

At the time of the foreclosure of the mortgage resulting in the $18,000 'surplus,' the LiButti property was encumbered by other mortgages totaling $48,000 and by four other judgment liens in the amount of $8,000. The existence of this imposing lien indebtedness against the property eliminated for all practical purposes any reversionary interest either the husband or wife may have had in that surplus. These circumstances underscore the inherent injustice and the utter unreality of the entry of an order which consigns the funds to the legal and economic limbo of 'await (ing) the severance of the estate (by the entirety) by the death of Joseph and Joan C. LiButti.'

The majority has concluded that the doctrine of Stare decisis compels this result. In doing so it adverts to the pronouncement of Vice-Chancellor Walker in Servis v. Dorn, 76 N.J.Eq. 241, 76 A. 246 (Ch.Div.1909), that surplus money arising from a foreclosure sale of real property held by the entirety 'stands in the place of the land itself in respect to liens upon or vested rights therein.'

The philosophy behind this general statement, as it applies to a variety of situations where real property has been converted to personalty, is set forth in Morris v. Glaser, 106 N.J.Eq. 585, 151 A. 766 (Ch.Div.1930), affirmed o.b. 110 N.J.Eq. 661, 160 A. 578 (E. & A. 1932):

'* * * The proceeds retain the character of real estate for the purposes of succession. Oberly v. Lerch, 18 N.J.Eq. 346. The theory upon which such surplus proceeds are held to be land is that the surplus usually arises because more land is sold than is necessary, in one case, to pay the debts of decedent; in another (foreclosure), than is necessary to satisfy the mortgage debt; and in partition, because the land is impossible of division and for practical purposes it has been converted into money. But in each case the money stands for the land, and the rights therein are determined as though the court were dealing with the land itself. Upon an application for distribution of such surplus moneys, the division amongst those entitled is, in effect, an equitable partition of the land for which the money stands. The excess, though in the form of money, remains, as before, impressed with the character of the land. Cooke v. Dealey, 22 Beav. 196. Such money passes by succession on 'the principle that money impressed with the character of land remains such until it is accepted as money by its Absolute owner of sufficient capacity to make such election.' Oberly v. Lerch, Supra. * * * ' (at pp. 592--593, 151 A. at p. 771)

The generality that the surplus money stands in the place of the land itself, although acceptable as a general proposition, does not provide a valid foundation for the conclusion reached in Servis.

Granted that surplus monies may in a sense be said to stand in the place, that is, replace the real property. Granted too that there is a valid reason for making a distribution of the surplus as between the former owners on the basis of their respective rights in the real property as they existed at the time their interests in the real property ceased and for preserving the order of priorities of the creditors who obtained liens on the property.

A far different thing it is to say that the proceeds of the mortgage foreclosure sale are for all purposes to be treated as real property and cannot be distributed and must be held in abeyance out of the reach of creditors until the marriage terminates. Such a conclusion rests upon the pure fiction that somehow the tenancy by the entirety which exists in the real property is born anew and becomes infused into the proceeds of sale and that that unique status, with all its ancient incidents, abides in the proceeds for the indefinite future.

The estate by the entirety has been described as a 'remnent of other times' which rests upon the 'fiction of a oneness of husband and wife.' See dissenting opinion of Chief Justice Weintraub in King v. Greene, 30 N.J. 395, 413, 153 A.2d 49, 60, 75 A.L.R.2d 1153 (1959). The social purpose of the tenancy by the entirety seems to be to solidify the marital status by encouraging and protecting home ownership and to protect and insulate the institution of marriage from the onslaught of creditors. Upon death of one of the spouses, it assures the survivor, normally the wife, possession of a home free and clear of the individual indebtedness of the other.

But whatever social purpose this tenancy was designed to serve in the interest of married parties and whatever the reasons for its continued existence in this State, there is no justifiable basis for extending it to the personal property which replaces it. To indulge in the further fiction necessary to achieve such a result serves no useful purpose and acts to frustrate justice. Furthermore, it...