Herbert v. Corby

• Decision Date: 16 February 1940
• Docket Number: Nos. 15, 18.,s. 15, 18.
• Citation: 124 N.J.L. 249,11 A.2d 240
• Parties: HERBERT v. CORBY et al.
• Court: New Jersey Supreme Court

11 A.2d 240

124 N.J.L. 249

HERBERT

v. CORBY et al.

Nos. 15, 18.

Supreme Court of New Jersey.

Feb. 16, 1940.

Appeal from Circuit Court, Essex County.

Action by May C. Herbert, executrix of the estate of Ellen A. Herbert, deceased, against Emily Corby and another to recover a deficiency after foreclosure sale. From a judgment in favor of the plaintiff, the named defendant appeals.

Judgment affirmed.

Argued October term, 1939, before BROGAN, C J., and DONGES and PORTER, JJ.

Howe & Davis, of Orange (Edward L. Davis, of Orange, of counsel), for plaintiffappellee.

Alfred J. Grosso, of Orange, for defendant-appellant.

BROGAN, Chief Justice.

The precise question in this case is whether a law court has jurisdiction to entertain a suit by a plaintiff-mortgagee against an assuming grantee of plaintiff's mortgagor for a deficiency after foreclosure sale. It will be helpful to state the pertinent facts briefly as taken from the pleadings.

The complaint alleges that on June 8, 1926, Kelly, one of the defendants (the mortgagor), gave the usual bond and a mortgage to secure the payment of $8,000 on June 8, 1927, with interest payable semi-annually. Kelly conveyed the mortgaged premises to Emily Corby, the other defendant (appellant here), who assumed the mortgage and promised to pay it. The mortgage was foreclosed and, after final decree fixing the amount of the debt, the lands and premises were sold. A sum insufficient to clear the debt was realized. The sale was confirmed. The deficiency amounted to $2,965.84.

The agreement between Kelly, the grantor, and Corby, the assuming grantee, is pleaded in detail. The allegation is that therein it was provided that Emily Corby took "the property subject to and assuming a first mortgage," in the amount of $8,000 and that subsequently Kelly conveyed the premises to Mrs. Corby and that in making payment to Kelly the said Emily Corby "deducted from the purchase price the sum of $8,000.00," being the amount of the mortgage and "as a matter of law assumed payment thereof and is under a legal duty to pay the same as part of the consideration in said deed expressed."

On motion, the answer filed for Mrs. Corby was challenged. The learned trial judge struck out the answer and judgment for the amount of the deficiency was entered against her. The plaintiff's affidavits in support of the motion to strike out the answer had annexed to them the contract of sale. No answering affidavit was presented by the defendant.

The question that is here argued is concerned with the jurisdiction of the law court to entertain the suit. The appellant claims a want of jurisdiction. That question was not raised in the court below. It may be raised here. Jurisdiction goes to the source of the court's authority and if there was none the judgment is a nullity.

There are two schools of thought on the question before us. One holds that where an assuming grantee makes a promise direct to his grantor (the mortgagor) that he will pay the debt, the mortgagee is a party beneficially interested and is entitled to sue the promising grantee at law in his own name as though the grantee made the promise to him direct. This is upon the theory that the liability arises directly out of contract and not on the equitable doctrine of subrogation. In equity the covenant of the assuming grantee is treated as one for the indemnification of the mortgagor.

The other view arises out of an exclusively equitable conception of the relationship of the parties and the reasoning proceeds upon the theory that the assuming grantee's liability to the mortgagee arises by the mechanics of subrogation which entitles the mortgagee (since the mortgagor becomes surety under these circumstances) to all the security which the mortgagor has out of the assumption of the debt by the grantee, and thus equity entitles the mortgagee to recover on the agreement between the mortgagor and the grantee.

The first school of thought holds to what Professor Pomeroy calls an American doctrine. Our state has been classed by the textwriters as an adherent to the second school of thought. See Pomeroy's EquityJurisprudence, 4th Ed., Sec. 1206, 1207, and notes under each section.

We have found no case, and counsel for the parties here have pointed to none, where our court of last resort has passed on this precise question. True, there are statements in some of the cases to which attention will be called which indicate that the suit for deficiency, after foreclosure sale, by a mortgagee against an assuming grantee does not lie; or perhaps it is more accurate to say that the cases indicate that the mortgagee's remedy for deficiency against an assuming grantee is equitable in its nature and that equity is the exclusive forum if the mortgagee would be made whole. We do not, however, consider these cases controlling of the issue before us since the statements are, in the main, dicta; and indeed not a few of the authorities on which appellant relies seems to be in accord with the view which we entertain, that is, that jurisdiction exists at law.

The continued adherence of our judicial pronouncements to what we have referred to as the second school of thought emerges from the two scholarly opinions in the same case, one by Vice-Chancellor Van Fleet in the case of Crowell v. Currier, 27 N.J.Eq. 152, 154, and the other by Justice Depue on an appeal from the decree in that case, sub-nomine, Crowell v. Hospital of St. Barnabas, 27 N.J.Eq. 650. The decree was affirmed. On the point of that case that interests us, the Vice-Chancellor, among other things, said that the remedy of the mortgagee is purely equitable; that he had no remedy at law, citing and indeed relying upon Klapworth v. Dressier, 13 N.J.Eq. 62, 78 Am.Dec. 69; the opinion in that case, at page 66, says that the complainant (mortgagee) had no remedy whatever at law. The question there was whether the assuming grantee was liable to the mortgagee for a deficiency. The parties were in the Court of Chancery. With proper respect for the opinion in that case we none the less have the view that the question of whether the assuming grantee might sue at law was not in the case and that the pronouncement just mentioned was dicta. The case proceeded upon the theory, relying upon unimpeachable authority, that a creditor, i. e., mortgagee, is entitled to the benefit of all collateral obligations for the payment of the debt, which a person standing in the situation of surety for others has received for his indemnity and to relieve him or his property from liability for such payment. This, of course, is a very ancient equitable principle recognized from earliest days, and is still the law of this state. But adverting again to the opinion of the Court of Chancery, in the case of Crowell v. Currier, supra, it may not be amiss to point out that the learned Vice-Chancellor, in commenting upon the New York rule as expressed at that time in the case of Burr v. Beers, 24 N.Y. 178, 80 Am.Dec. 327 (which held that an action at law lies under these...