Humble Oil & Refining Co. v. Doerr

• Citation: 303 A.2d 898,123 N.J.Super. 530
• Parties: HUMBLE OIL & REFINING COMPANY, a Delaware Corporation, Plaintiff, v. Josephine Venice Rokita DOERR (also known as Josephine Venice and as Josephine Venice Rokita) et al., Defendants.
• Decision Date: 11 April 1973
• Court: Superior Court of New Jersey

Page 530

123 N.J.Super. 530

303 A.2d 898

HUMBLE OIL & REFINING COMPANY, a Delaware Corporation, Plaintiff, v. Josephine Venice Rokita DOERR (also known as Josephine Venice and as Josephine Venice Rokita) et al., Defendants.

Superior Court of New Jersey Chancery Division.

April 11, 1973.

Arnold M. Smith, Paterson, for plaintiff.

Aldan O. Markson, Kenilworth, for defendant Josephine Venice Rokita Doerr (Pollack & Markson, Kenilworth, attorneys).

John M. Mackenzie, Elizabeth, for defendant The National State Bank, Elizabeth, N.J. (Mackenzie, Welt & Dreier, Elizabeth, attorneys).

ACKERMAN, J.S.C.

The ancient doctrine that a mortgagor's equity of redemption may not be 'clogged' has rarely been involved in litigation in this state. This case involves a novel application of the doctrine and, so far as research by counsel and the court has disclosed, there are no precedents directly in point. The specific point involved is whether the doctrine, which bars a mortgagee from clogging the mortgagor's equity of redemption and prohibits him from taking an option to purchase the property from the mortgagor as a part of the original mortgage transaction, also bars the mortgagor's guarantor from taking such option. In the circumstances of this case it is the conclusion of the court that it does.

I

Certain of the factual issues were hotly contested, including those relating to the value of the property at the time of the option, the alleged ignorance of the optionors as to the existence and meaning of the option, and whether or not there were fraudulent misrepresentations and concealment in the obtaining of the option. However, the case does not really turn upon the resolution of these issues and the result is the same regardless of how they are determined. The basic facts are as follows.

Defendant Josephine Venice Rokita Doerr (hereinafter referred to as 'Josephine') is the owner of a piece of real property located on the northeast corner of Boulevard and Michigan Avenue in Kenilworth. The parties agree that it is now one of the choice locations for a gasoline service station in Union County. The property was acquired in about 1944 by Pat Venice, Josephine's first husband. He intended to erect a service station thereon but died in 1947 without having carried his plans into effect, and Josephine succeeded to the sole ownership of the premises as well as to other parcels of real estate in Kenilworth. A few years thereafter Josephine's family, and in particular her brother Sal Amoroso, erected a three-bay service station on the property and operated same, apparently making 'rent' payments from the income of the business to Josephine. In connection with the initial construction of the station the property was mortgaged to the Union County Trust Company, which granted a $12,000 loan for ten years at 5% Interest in 1952 to Josephine, her brother and his wife.

In 1953 Josephine remarried. Her second husband, Victor W. Rokita (hereinafter 'Victor'), took over the management of the service station. In 1958 he took steps to add three bays to the garage in order to expand the facilities for performing automotive repair work. He went to the Union County Trust Company, which already held the mortgage on the premises, to arrange for additional financing, and that bank apparently agreed to advance approximately $20,000 secured by a first mortgage on the land and building. These plans came to the attention of plaintiff Humble Oil & Refining Company (then Esso Standard Oil Company and hereinafter referred to as 'Humble'), whose products were sold at the station. John Alden, the Humble representative who serviced Victor's account, approached Victor and told him that Humble could get him better terms-- $35,000, rather than $20,000, at a lesser interest rate and for a longer term. Alden discussed the matter and negotiated first with Victor alone and then with both Victor and Josephine. These favorable terms were to be obtained by leasing the station to Humble at a rental equal to the amount to be paid each month by Victor and Josephine on the new mortgage, which would be granted by The National State Bank, Elizabeth, N.J., and by having Victor and Josephine assign the Humble rental payments to the bank as additional security. Humble would then lease back to them at the same rental and they would continue to operate the service station. (This arrangement is referred to as a 'two-party' lease. See Point IV, Infra.)

As the result of the negotiations it was agreed that the financing arranged by Humble would be accepted, and a lease was entered into between Victor and Josephine, as lessors, and Humble, as lessee, under date of September 5, 1958, for a 15-year term commencing on September 1, 1959 (approximately one year later) and ending on September 1, 1974, at a rental to be paid by Humble of $272.30 a month, the exact amount required to be paid each month to The National State Bank by Victor and Josephine under the contemplated mortgage. This lease, entitled 'Lease to Company,' was written on a printed Humble form bearing the legend 'Lessor Built S.S.,' which was drafted by Humble for use as the standard lease form to be utilized in instances where Humble leased premises with stations already built thereon or being constructed thereon by owner-lessors. The provisions of this form were obviously designed to be fully protective of Humble's interest as lessee.

The provision of the lease which is directly involved here is that which granted a purchase option to Humble. The option provision recites that the lessors, 'in consideration of this lease,' grant to Humble the option to purchase the property for the sum of $150,000 'at any time' during the term of the lease. The price is to be paid on transfer of good and marketable title by the lessors by warranty deed free and clear of all encumbrances, and requires that title should be closed and deed delivered on the 30th day after the exercise of the option, unless extended by mutual agreement.

On May 29, 1959 Victor and Josephine entered into a $35,000 construction mortgage with The National State Bank and formally assigned their interest in the Humble lease to the bank. Thereafter the additional three bays were apparently constructed and on January 12, 1960, the 15-year permanent mortgage loan for $35,000 was entered into. The new mortgage provided that, in addition to the monthly payments of $272.30, the Rokitas were required to deposit with the bank monthly payments equal to one-twelfth of annual estimated taxes. It also required maintenance of insurance and contained the customary provision that if the mortgagors did not make tax and insurance payments, the mortgagee could make them and add such amounts to the indebtedness of the mortgagors. A new note agreement was also entered into on January 12, 1960 between the bank and the Rokitas which contained a formal assignment to the bank of the Humble lease. This agreement provided that as 'collateral security' the Rokitas assigned their interest in the Humble lease to the bank, and they agreed that the bank should collect the 'rents, issues and profits accruing out of the premises' demised to Humble until repaid the full sum of $35,000 plus interest, and further, until the bank had been repaid all sums paid by it pursuant to the loan agreement and mortgage 'and not repaid to it out of the rents derived from said premises.' By the note agreement, as well as the mortgage, the Rokitas agreed to pay to the bank monthly a sum equal to one-twelfth of taxes. The note agreement expressly provided that if Humble should fail to pay any installment of rent provided for in the lease, or the Rokitas should default in performance of any of their obligations contained in the note, mortgage Or lease, and the default continued for ten days, the bank at its option could demand immediate payment of the entire unpaid mortgage balance. The net result of this agreement was that a default by Humble or a failure by the Rokitas to comply with any of the conditions of the Lease could constitute a mortgage loan default by the Rokitas.

By an agreement dated January 12, 1960, the same date on which the permanent mortgage papers were signed for the bank, a supplement to the Humble lease was signed by the Rokitas and witnessed by the attorney for the bank, modifying the lease so that the original term thereof commenced on February 1, 1960. This supplement ratified and confirmed all other terms of the lease.

On January 18, 1960 a lease was entered into between Humble, as lessee, and Victor Rokita, trading as Mayfair Esso Servicenter, whereby Humble leased the premises to Victor for a monthly rental of $272.30 a month, the same amount which Humble was required to pay to Josephine and Victor under the lease to Humble and the same amount which Josephine and Victor were obliged to pay each month to the bank. This lease was for a period of one year and thereafter from year to year unless cancelled by 30 days' notice directed to the end of a yearly renewal period. The lease was written on a printed Humble form, and, like the other Humble lease form, was obviously designed to fully protect Humble's interests. It required the lessee to pay all taxes, provided general indemnity to Humble arising from injuries or accidents on the premises, and provided that Humble could terminate the lease and re-enter the premises without formal demand in the event that any rent was unpaid or default made in any other covenant of the lease.

Thereafter Victor encountered personal difficulties which affected his management of the service station and his relationship with his wife. Josephine divorced him in 1965. On December 16, 1961 his lease with Humble was cancelled by mutual consent and on the same day Humble leased the premises to Mayfair Servicenter, Inc., of which Salvatore Amoroso, Josephine's brother, was president. This lease was on the same form and contained the same terms...