Gilbert v. Pennington Trap Rock Co.

• Decision Date: 08 November 1944
• Docket Number: 143/13.
• Citation: 39 A.2d 647
• Parties: GILBERT v. PENNINGTON TRAP ROCK CO. et al.
• Court: New Jersey Court of Chancery

39 A.2d 647

GILBERT

v.PENNINGTON TRAP ROCK CO. et al.

143/13.

Court of Chancery of New Jersey.

Nov. 8, 1944.

Suit by Linus R. Gilbert against the Pennington Trap Rock Company and others to foreclose a mortgage.

Decree advised in accordance with opinion.

1. Equity follows the law, but not slavishly nor always.

2. Where instruments are executed simultaneously and in respect to the same transaction, and they contain reciprocal references to each other, the terms of one are qualified by applicable provisions of the other.

3. Ordinarily, a demand upon the mortgagor to perform the broken covenant or condition need not be made by the mortgagee before instituting suit to foreclose because of such default.

4. Stipulations commonly incorporated in bonds and mortgages which accord the mortgagee the option to accelerate the maturity of the debt in the event of a stated delinquency in the payment of interest or taxes, although occasionally spoken of as forfeiture clauses, have been regarded as legitimate contractual stipulations for a period of credit on condition, and they have been uniformly sustained in equity, unless the default to which they refer has been attributable to the conduct of the mortgagee.

5. The filing of a bill is not strictly the ‘beginning’ or the ‘commencement’ of a suit in Chancery. A suit in rem is regarded as begun upon the filing of the bill plus at least the effective issuance of subpoena.

6. The principles of equity are and should be sufficiently flexible to enable courts to determine from all the circumstances of each particular case whether or not the advantage sought by the litigant is unconscionable.

7. The alleged default in the payment of taxes which under the terms of the mortgage would accelerate the payment of the principal, held, under the circumstances, to have been neutralized by the mortgagor's payment of the delinquent taxes.

Samuel Koestler, of Elizabeth (Melvin J. Koestler, of Elizabeth, of counsel), for complainant.

Katzenbach, Gildea & Rudner, of Trenton (George Gildea, of Trenton, appearing), for Pennington Trap Rock Co.

Donald Reid Bryant, of Trenton, for Raymond L. Woolsey.

Scammell, Knight & Reese, of Trenton, for First Nat. Bank of Pennington, N. J.

JAYNE, Vice Chancellor.

It is an inherent proclivity of this court to decline to lend its aid toward the attainment of a result that would be inequitable or unconscionable. Equity follows the law, but not slavishly nor always. 13 Halsbury, Laws of England, p. 68. Despite the restoration of his security, the complainant declines to relent and insists upon the right to foreclose his mortgage.

On February 20, 1940, a bond and mortgage were executed and delivered by Pennington Trap Rock Company to the complainant to evidence and secure the payment of $122,000. By the terms of the instruments the mortgagor obligated itself to make monthly payments of $1,333.33 commencing on March 20, 1940, and continuing for a period of five years. Thereafter, the balance of the principal is to be reduced and extinguished by monthly payments of $666.67. The indebtedness carries an interest charge also payable monthly of four and one-half percent on the unpaid portion of the debt.

It is observed that the mortgagor has made to the complainant fifty monthly payments of $1,333.33 amounting in the aggregate to $66,666.50, thus reducing the mortgage debt to $55,333.50. The mortgagor is not delinquent in respect of the payment of principal or interest.

On April 15, 1944, taxes assessed against the mortgaged premises remained unpaid. Specifically, they comprised a balance of $156.56 for the year 1942, the sum of $1,967.68 for the year 1943, and $491.92 for the first quarter of 1944, totaling with interest the sum of $2,735.87.

The bond contained the usual so-called interest and tax default clause:

‘And it is hereby expressly agreed, that should any default be made in the payment of the said interest, installment of principal, or of any part thereof, on any day whereon the same is made payable as above expressed, or should any tax, assessment, water rent or other municipal or governmental rate, charge, imposition or lien be hereafter imposed or acquired upon the premises described in the mortgage accompanying this bond, and become due and payable, and should the said interest or installment of principal remain unpaid and in arrear for the space of thirty days, or said tax, assessment, water rent or other municipal or governmental rate, charge, imposition or lien, or any or either of them, remain unpaid and in arrear for the space of sixty days, then and from thenceforth, that is to say, after the lapse or expiration of either of the said periods, as the case may be, the aforesaid principal sum of One Hundred and Twenty-Two Thousand Dollars ($122,000.00) or the unpaid balance thereof with all arrearage of interest thereon, shall, at the option of the said Obligee, his legal representatives or assigns, become and be due and payable immediately thereafter, although the period first above limited for the payment thereof may not then have expired, anything hereinbefore contained to the contrary thereof in anywise notwithstanding, and the said Obligee may at his option, pay such tax, assessment, or water rent in arrear, and the amount so paid shall be added to and become part of the principal sum secured by the said mortgage and by this Bond, and shall be payable on demand with interest at six per centum per annum.’

The parties also chose to embody in the mortgage an article entitled ‘Article Two. Events of Default and Remedies Thereon.’ The pertinent part of section 1 of that article reads:

‘As provided in the Bond, the indebtedness of the Borrower to the Mortgagee shall immediately become due and payable without notice or demand upon the occurrence of any of certain events therein specified. As further provided in the Bond, the Mortgagee is authorized to declare all or any part of such indebtedness immediately due and payable upon the happening of certain other events therein specified. Specifically (without limitation), the Mortgagee may declare the principal of the Bond and of all such indebtedness to be immediately due and payable * * * (c) upon default in payment of any tax, assessment, charge or lien when the same shall be due, and continuing for 30 days after notice given by the Mortgagee to the Borrower, except that such default shall be cured if the Borrower shall duly, if and as prescribed by law, give or file a bond or undertaking to discharge the lien of any such tax, assessment or charge, or other lien, as provided in Section 2 of Article One hereof.’

Where such instruments as a bond and mortgage are executed simultaneously and in respect to the same transaction, and they contain reciprocal references to each other, the terms of one are qualified by applicable provisions of the other. Security Trust & Safe Deposit Co. v. New Jersey Paper Board etc., Co., 57 N.J.Eq. 603, 42 A. 746; Burack v. Mayers, 121 N.J.Eq. 135, 187 A. 767, affirmed 122 N.J.Eq. 5, 191 A. 841.

It is acknowledged that the complainant did not communicate any notice to the mortgagor of the default in the payment of the taxes pursuant to terms of the clause in the mortgage, nor did he apprise the mortgagor of his intention to institute the present suit to foreclose the mortgage.

Ordinarily, a demand upon the mortgagor to perform the broken covenant or condition need not be made by the mortgagee before instituting suit to foreclose in reliance upon the right conferred by the condition. Brown v. Royal Battery Corp., 131 N.J.Eq. 345, 25 A.2d 203; 41 C.J. 877, sec. 1085.

To determine whether the present complainant was obliged to give notice of the default and pursue the provisions of the clause in the mortgage manifestly requires a construction of the relative clauses and pertinent terms of the associated instruments. Such an undertaking seems unnecessary, for in the factual circumstances my decision of this case may well rest upon an equitable footing.

Stipulations commonly incorporated in bonds and mortgages which accord the mortgagee the option to accelerate the maturity of the debt in the event of a stated delinquency in the payment of interest or taxes, although occasionally spoken of as forfeiture clauses, have not been considered diabolic or iniquitous, nor have they been associated with that class of unseemly penalties and forfeitures which courts of equity decline to enforce. They have been regarded as legitimate contractual stipulations for a period of credit on condition, and they have been uniformly sustained in equity, unless the default to which they refer has been attributable to the conduct of the mortgagee. Baldwin v. Van Vorst, 10 N.J.Eq. 577; DeGroot v. McCotter, 19 N.J.Eq. 531; Spring v. Fisk, 21 N.J.Eq. 175; Ackens v. Winston, 22 N.J.Eq. 444; Voorhis v. Murphy, 26 N.J.Eq. 434; Industrial Land Development Co. v. Post, 55 N.J.Eq. 559, 37 A. 892; Arkenburgh v. Lakeside Residence Ass'n, 56 N.J.Eq. 102, 38 A. 297; Security Trust & Safe Deposit Co. v. New Jersey Paper Board, etc., Co., supra; Bergman v. Fortescue, 74 N.J.Eq. 266, 69 A. 474; Roche v. Hiss, 84 N.J.Eq. 242, 93 A. 804; Davis v. Salem County Mutual Fire Insurance Co., 85 N.J.Eq. 324, 328, 96 A. 391; Newark Trunk Co. v. Clark, 94 N.J.Eq. 79, 118 A. 263; Bodner v. Rotman, 95 N.J.Eq. 510, 123 A. 529; Scharff v. Annattee Realty Co., 96 N.J.Eq. 225, 124 A. 702; Garfinkle v. Hickey, 96 N.J.Eq. 720, 126 A. 428; Weiner v. Cullens, 97 N.J.Eq. 523, 128 A. 176; Derechinsky v. Epstein, 98 N.J.Eq. 79, 130 A. 720, affirmed 99 N.J.Eq. 447, 131 A. 922; K. S. S. Realty Co. v. Ostroff, 100 N.J.Eq. 128, 135 A. 869, affirmed 101 N.J.Eq. 771, 138 A. 921; Berla v. M. & L. Holding Co., 105 N.J.Eq. 592, 149 A. 64, affirmed 107 N.J.Eq. 598, 154 A. 629; Marneil Realty Corp. v. Twin Brook Realty Corp., 119 N.J.Eq. 205, 181 A. 882; 1 Pom.Eq.Jur., 5th Ed., 216, sec. 439.

In confirming the legal vitality of such...