Giovacchini v. Teich.

• Decision Date: 16 March 1943
• Docket Number: 138/218.
• Citation: 30 A.2d 815
• Parties: DI GIOVACCHINI v. TEICH.
• Court: New Jersey Court of Chancery

30 A.2d 815

DI GIOVACCHINI

v.TEICH.

138/218.

Court of Chancery of New Jersey.

March 16, 1943.

Mortgage foreclosure suit by Elena Di Giovacchini, individually and as executrix under the last will and testament of Giampietro Di Giovacchini, deceased, against Arthur Teich.

Decree in accordance with opinion.

1. In the absence of circumstances productive of a different implication, it is ordinarily resolved that where the mortgagor or owner of the mortgaged premises obtains fire insurance on the improvements under a policy containing the usual clause making any loss due him payable to the mortgagee as his interest may appear, the proceeds of such insurance, when received by the mortgagee, constitute a payment pro tanto in reduction or in extinguishment of the mortgage debt.

2. An assignee of a mortgage given to secure a non-negotiable instrument, acquires it subject to all defenses to the bond or other instrument evidencing the indebtedness, regardless of the absence of actual or constructive notice of equities and defenses thereto.

3. A revival or renewal of a mortgage once paid is in respect of its lost priority tantamount to the execution of a new mortgage and the creation of a new encumbrance. The contractual power to revive it cannot be exercised to the prejudice of others whose rights were acquired prior to such revival.

4. An assignee of a mortgage is under a duty to inquire of the mortgagor or owner of the equity of redemption before taking an assignment of the bond and mortgage. Circumstances, however, may demand as a matter of prudence, a much broader range of inquiry.

5. Held: In accord with settled principles of law and upon considerations of justice and equity, the lien of the mortgage held by the defendant should be subordinated to the lien of complainant's mortgage.

Constantine Donato, of Trenton, for complainant.

Frank I. Casey and Martin P. Devlin, both of Trenton, for defendant.

JAYNE, Vice Chancellor.

The endeaver of the complainant in the prosecution of this cause is to foreclose her mortgage with an adjudication of its superiority over the mortgage encumbrance acquired by the defendant. The involvement emanates from the following procession of events.

On May 20, 1913, a bond and accompanying mortgage encumbering the premises situate in the Township of Ewing, Mercer County, were executed and delivered by the owners, Sallie and Peter Van Fleet, to the Standard Fire Insurance Company to evidence and secure an indebtedness of $2,200. On December 1, 1919, the mortgaged premises were conveyed to Luigi Garzio and his brother, Raffaele Garzio, who thereupon assumed and agreed to pay the mortgage debt. A partition suit accomplished a sale of the property on June 30, 1928, to Luigi Garzio in fee but subject to the mortgage. It is reasonably inferred that Luigi Garzio required funds to enable him to acquire the sole ownership of the property, and he obtained a loan of $2,000 from his friends, Giampietro Di Giovacchini and his wife, Elena Di Giovacchini. To shelter his friends against loss, Luigi Garzio and Palma Garzio, then his wife, executed a bond and mortgage dated July 2, 1928, acknowledged on August 11, 1928, and recorded on January 18, 1933, overlaying the same premises and conditioned upon the payment of this loan. The former mortgage is now held by the defendant; the latter by the complainant. On March 29, 1929, Palma Garzio died, which is an occurrence of some conjectural significance in the study of subsequent events. On December 4, 1930, Luigi married his present wife, Rose.

In March, 1933, Luigi Garzio was convicted of a relatively serious statutory misdemeanor and sentenced to serve a lengthy term of imprisonment. He prosecuted an appeal from his conviction (State v. Garzio, 113 N.J.L. 349, 175 A. 98) and thereby incurred financial obligations to the official stenographer for the transcript of the proceedings at his trial and to his attorney for professional services. His wife returned to New York City. On June 5, 1933, the dwelling house and its contents situate on the mortgaged premises were totally destroyed by fire. There were then in effect two policies of insurance against the loss of the building by fire. The one appertaining exclusively to the dwelling in the amount of $4,000 had been issued by the Standard Fire Insurance Company, the holder of the first mortgage, embodying the conventional clause making any loss payable to the company itself as mortgagee. The additional policy providing insurance of $2,000 on the dwelling and $2,000 on the household furnishings was issued by the Hartford Fire Insurance Company. Neither policy embraced any provision for the protection of the holders of the second mortgage, despite the covenant of the mortgagors to insure the building for the collateral security of their junior lien.

Relegating the details of the settlement, the fact is creditably established that pursuant to the terms of the policies, the Standard Fire Insurance Company, the insurer and the mortgagee, received out of the proceeds of the insurance, the sum of $2,317.03 which was the precise sum then due for principal and interest upon its mortgage.

An excerpt taken from the report of the adjuster to the Hartford Company is illuminating:

‘Yesterday the writer visited Trenton with your draft for $2,345.25 in settlement of claim under the above numbered policy by fire of June 6, 1933 and also delivered draft of the Standard Fire Insurance Company for $1,862.67.

‘These drafts you will recall were made payable to Luigi Garzio, Standard Fire Insurance Company of New Jersey, H. R. Barry and Meyer M. Semel, Attorney.

‘We had the assured endorse your draft, also Mr. Barry and Mr. Semel. This draft was turned over to Mr. Owen J. Prior, President of the Standard Fire Insurance Company in extinguishment of the Garzio mortgage, which totals $2,317.03.’

Nevertheless, at the request of Mrs. Garzio, the Standard Fire Insurance Company did not endorse or otherwise authorize the satisfaction and cancellation of its mortgage but assigned the bond and mortgage under date of December 27, 1933, to Rose Garzio, the wife of the insured. The company, however, was cautious. It excluded from its assignment any covenant of the amount, if any, remaining due and owing upon the bond and mortgage. This assignment was recorded on October 5, 1934.

It is also made known that on April 4, 1934, Luigi Garzio, then in prison, executed a deed fashioned to convey the mortgaged premises to Giampietro Di Giovacchini and his wife. Although her name appears therein as a grantor, Rose Garzio never executed the deed and it has remained unrecorded and in the possession of the complainant. Giampietro Di Giovacchini died testate on April 9, 1938, nominating his wife, the complainant, as the executrix and designating her the sole beneficiary of his estate.

A sale of the mortgaged premises for delinquent taxes supervened and a tax sale certificate was issued by the Township of Ewing to one Joseph Bash. In sequence came the institution of a proceeding on January 15, 1939, by the County of Mercer to acquire a portion of the mortgaged premises by condemnation. On April 25, 1939, the county petitioned for leave to deposit the amount of the award in this court, and significantly this petition contains an allegation that according to the information of the petitioner, the lands had been conveyed by Luigi Garzio to one Giampietro Di Giovacchini by an unrecorded deed in the possession of Helen (Elena) Di Giovacchini, wife of Giampietro.

This narrative of the course of events may be concluded with the revelation that the defendant acquired the tax certificate from Bash on March 29, 1940, and his demand upon Mr. and Mrs. Garzio to redeem the property from the tax liens originated negotiations which ripened into the transaction of January 10, 1941, in which Rose Garzio upon receipt of $1,225 from the defendant assigned to him the bond and mortgage previously transferred to her by the Standard Fire Insurance Company and for an additional $25. Luigi Garzio and Rose granted and conveyed to the defendant their estates in the mortgaged premises. Amid the circumstances here recited, which mortgage is equitably entitled to precedence?

In the policies, Luigi Garzio was the sole designated insured and in the absence of other evidence, it is presumed that he procured the insurance. Selray Investment Co. v. Massimino, 110 N.J.Eq. 300, 160 A. 323. Cf. Leyden v. Lawrence, 79 N.J.Eq. 113, 115, 81 A. 121, affirmed 80 N.J.Eq. 550, 85 A. 1134.

In the absence of circumstances productive of a different implication, it is ordinarily resolved that where the mortgagor or owner obtains insurance on the mortgaged property under a policy containing the usual clause making any loss due him payable to the mortgagee as his interest may appear, the proceeds of such insurance, when received by the mortgagee, constitute a payment pro tanto in reduction or extinguishment of the mortgage debt. Pearman v. Gould, 42 N.J.Eq. 4, 5 A. 811.

Here, moreover, the drafts in payment of the fire loss were made payable to the insured who was the owner of the equity of redemption and to the first mortgagee and to the attorney and official reporter who were his creditors. The insured voluntarily endorsed the drafts and from the proceeds of one, the first mortgagee withdrew a sum equivalent to the principal and interest then due and owing on the bond. This, the assignee Rose Garzio, acknowledges to be true. This payment by Luigi Garzio in all the circumstances disclosed by the evidence operated to satisfy the delinquent obligation of the bond and to extinguish the accessory mortgage lien.

Ostensibly, Rose Garzio possessed no valid claim against the insurance companies under the terms of the policies. The only contracts of insurance assented to by the companies...