In re Leppert

• Decision Date: 16 October 1952
• Docket Number: No. B-276-52.,B-276-52.
• Citation: 107 F. Supp. 911
• Parties: In re LEPPERT.
• Court: U.S. District Court — District of New Jersey

107 F. Supp. 911

In re LEPPERT.

No. B-276-52.

United States District Court D. New Jersey.

October 16, 1952.

Leo Neiwirth, Newark, N. J., for receiver.

Nathan Ravin, Newark, N. J., for chattel mortgagee.

MODARELLI, District Judge.

This matter came to be heard on Petition for Review filed pursuant to Section 39, sub. c of the Bankruptcy Act, 11 U.S.C. A. § 67, sub. c. The petition was filed by a creditor of the bankrupt from an order of the Referee declaring the chattel mortgage held by petitioner, the Morgan Company, null, void, and invalid as a lien against funds in the hands of the receiver or trustee.

The Referee states in his Certificate of Review, "The testimony * * * clearly shows that the portion of the mortgage representing the difference between $2,560.00 and $3,200.00 to wit: $640.00 actually was a bonus (while) * * * the affidavit of consideration states that said difference of $640.00 represents a `service charge' * * *. A bonus is not a service charge and therefore, the affidavit of consideration does not actually set forth the true consideration as required by N.J.S.A. 46:28-5 * * *."

The Referee's finding that the $640 charge was a bonus is amply supported by the record. The transcript of the testimony of the bankrupt and of Morris Goldsmith, a partner of the mortgagee company, shows that the parties to the mortgage transaction understood that sum to be a bonus. The mortgagor was not misled.

The narrow question of law presented is, therefore: If the affidavit of consideration of a chattel mortgage states the sum of money actually received by the mortgagor and states the total sum which must be repaid to the mortgagee, is the affidavit defective if the difference is called a "service charge," when the parties to the transaction understood that the difference was, in fact, a bonus.

The applicable statute, N.J.S.A. 46:28-5, reads:

"Every mortgage * * * intended to operate as a mortgage of goods and chattels * * * shall be absolutely void as against the creditors of the mortgagor * * * unless the mortgage, (has) annexed thereto an affidavit * * * stating the consideration of such mortgage * * *."

The affidavit of consideration recites:

"The sum of $3,200.00 of which sum $2,560.00 has this day actually been loaned and advanced to the mortgagors herein, the balance representing service charge in connection with the making of said loan * * * and deponent further says there is due and to grow due on said mortgage the sum of $3,200.00 besides lawful interest thereon from the 19th of September, 1951."

The receiver cites as the mainstay of his argument the case of De Yoe v. Harper Brothers, Inc., E. & A.1937, 121 N.J.Eq. 599, 191 A. 851, 853. In that case, as in the present case, the affidavit of consideration recited the amount of money actually received by the mortgagor and the amount of money he was to repay. It is argued that that affidavit of consideration was declared defective because it did not recite that a bonus was agreed upon, whereas, in fact, part of the consideration represented bonus monies. But it must be pointed out that this was not the sole and compelling basis of that opinion. Noteworthy is the fact that the special master questioned the credibility of the claimant's witnesses. One witness "`contradicted herself quite a number of times on points of importance and materiality which would tend to prove or disprove the truthfulness of the affidavits to the chattel mortgages.'" It was brought out also that the president of the mortgage company had signed the affidavit under a statement that disbursements had been made for appraisal, credit investigation, searching and drawing and recording the mortgage. He admitted at the hearing that at the time he signed the affidavit none of these disbursements had been made. No such untruthful testimony or blatant falsehood appears in the present case.

The receiver cites also the case of Jarecki v. Manville Bakery, Inc., 1950, 7 N.J.Super. 387, 71 A.2d 228, 229. But there the affidavit recited that the money had been "loaned this day", whereas, in fact, a large portion of the money was not given to the mortgagor until three months later. Secondly, there was manifest an "intention to make an installment loan contingent upon future enhancements in the value of the mortgaged property".

As in the Jarecki case, so with other cases cited by the receiver, there were substantial reasons why the affidavits of consideration were declared invalid by the courts. Atzingen v. Ottolino, Ch.1938, 124 N.J.Eq. 510, 2 A.2d 652. (The affidavit of consideration falsely represented that certain shares of stock passed as consideration when, in fact, they did not pass until shortly before the hearing of the cause, eleven months later.) Bigel v. Brandtjen & Kluge, Inc., Ch.1941, 129 N.J.Eq. 537, 20 A.2d 320. (The affidavit falsely stated that the money secured was the consideration for the sale of five items listed, whereas, in fact, the money was the consideration for one item alone.) McCullough v. McCrea, 3 Cir., 1923, 287 F. 342, 345. (The affidavit falsely stated the amount of money actually received by the mortgagor. The amount of the bonus was "deliberately and intentionally concealed.") Sickinger v. Zimel, 1950, 8 N.J.Super. 455, 73 A.2d 281, affirmed 1951, 6 N.J. 149, 77 A.2d 905. (The affidavit falsely stated that $9,000 had been advanced to the mortgagor, whereas only $8,100 had been advanced.)

Before the turn of the century, affidavits of consideration were held to such technical niceties as to cause attorneys to approach the...