Jarecki v. Manville Bakery

• Decision Date: 07 February 1950
• Docket Number: Nos. C--2132,F--1995,s. C--2132
• Citation: 7 N.J.Super. 387,71 A.2d 228
• Parties: JARECKI v. MANVILLE BAKERY, Inc. MANVILLE BAKERY, Inc. v. KESSMAN et al.
• Court: New Jersey Superior Court

Page 387

7 N.J.Super. 387

71 A.2d 228

JARECKI v. MANVILLE BAKERY, Inc.

MANVILLE BAKERY, Inc. v. KESSMAN et al.

Nos. C--2132, F--1995.

Superior Court of New Jersey, Chancery Division.

Feb. 7, 1950.

Cy Mittleman, Somerville, for plaintiff Harry Jarecki.

John E. Toolan, Perth Amboy, for Manville Bakery, Inc.

Blumberg & Rosenberg, Manville, for defendants Simon and Sherman.

JAYNE, J.S.C.

Expedition has been achieved by the hearing of the two above-entitled actions simultaneously.

Briefly explained, the plaintiff Harry Jarecki had obtained on August 8, 1949, a final judgment in the Law Division of this court against Julius Kessman and Tillie Kessman and immediately caused a levy to be made on certain goods and chattels of the judgment debtors which appeared of record to be encumbered by a chattel mortgage dated July 15, 1948, held by Manville Bakery, Incorporated.

On August 15, 1949, the plaintiff Jarecki, as such judgment creditor instituted in this division his present action to nullify the validity of the chattel mortgage in respect to its apparent priority as a lien superior to that of his judgment and diligent levy.

Also on August 15, 1949, the chattel mortgagee Manville Bakery, Incorporated, filed its complaint to foreclose its mortgage, making defendants therein not only the mortgagors but also the holders of another chattel mortgage alleged to be subordinate to its mortgage.

The paramount issue pertains to the validity of the chattel mortgage of Manville Bakery, Incorporated, in its relation to the lien of the judgment creditor. Specifically the truthfulness and sufficiency of the affidavit annexed to the instrument is the point upon which the attack is concentrated.

The affidavit is not unique. It reads:

'Joseph Onka, Sr., being duly sworn on his oath deposes and says: That he is the President of the Manville Bakery, Incorporated, the mortgagee in the foregoing mortgage named, and has knowledge of the true consideration of said mortgage; that the true consideration of said mortgage is the sum of $17,000. loaned this day by the Manville Bakery Incorporated to Julius Kessman and Tillie Kessman, the mortgagors named in the foregoing mortgage.

'That for said loan so made by the Manville Bakery Incorporated to the said Julius Kessman and Tillie Kessman the said Julius Kessman and Tillie Kessman executed and delivered simultaneously herewith to the said Manville Bakery Incorporated 68 negotiable promissory notes in writing, all dated this day, all bearing interest at the rate of 6% Per annum, all payable at the Manville National Bank, Manville, New Jersey, all of said notes being in the sum of $250. each, the first of which notes is payable one month from the date hereof, and the others are payable consecutively monthly thereafter until fully paid.

'Deponent further says that there is due and to grow due on said mortgage the sum of $17,000. with interest on each note as above set forth from the date hereof at the rate of six per cent per annum as and when each of said notes become due.'

Although there was prior legislation in this state concerning chattel mortgages, P.L.1864, p. 493, it appears to have been in the year 1878 that a supplement was enacted declaring that 'Every mortgage, not accompanied by an immediate delivery and followed by an actual and continued change of possession of the things mortgaged, is void as against the creditors of the mortgagor and subsequent purchasers and mortgagees in good faith, unless the mortgage or a true copy thereof, having annexed thereto an affidavit or affirmation made and subscribed by the holders of the mortgage, or their agents, stating the consideration of said mortgage, and as near as possible the amount due and to grow due thereon, is filed as directed in the next section.'

A statute of 1820 relating to the entry of judgments on bond and warrant of attorney obliged the plaintiff, his attorney or agent to submit an affidavit stating 'the true consideration of said bond or obligation.' Woodward v. Cook, 6 N.J.L. 160 (Sup.Ct.); Latham v. Lawrence, 11 N.J.L. 322 (Sup.Ct.) It seems evident that the requirement of a like affidavit disclosing the true consideration of the debt secured by a chattel mortgage was designed to accomplish a similar object. Ehler v. Turner, 35 N.J.Eq. 68 (Ch.) Subsequent legislation of interest may be found in P.L.1881, p. 226, P.L.1885, p. 318, P.L.1902, p. 487, P.L.1928, p. 131, R.S. 46:28-5, N.J.S.A.; vide, Bracken v. Smith, 39 N.J.Eq. 169 (Ch.)

As early as 1882 Vice Chancellor Van Fleet remarked in Ehler v. Turner, supra, accommodating to the case the language of Chief Justice Ewing: 'The design of the statute was to prevent the filing of fraudulent chattel mortgages, of chattel mortgages having no real, actual, honest foundation, but intended to create fictitious liens to defeat honest creditors and to cover and protect the property of knavish debtors; and the one measure whereby this design was to be effected, was to require, upon the conscience of the creditor, a statement of the true consideration of the mortgage.'

The Vice Chancellor added: 'Simply affirming under oath that the consideration of a mortgage is the sum for which it is given, without disclosing how the debt on which it is founded arose or was incurred * * * cannot, in my judgment, be regarded as either a literal or substantial compliance with the statute, but should be regarded as an evasion of it.'

In Graham Button Co. v. Spielmann, 50 N.J.Eq. 120, 24 A. 571, (Ch.) affirmed 50 N.J.Eq. 796, 27 A. 1033, the same Vice Chancellor explains 50 N.J.Eq. on page 129, 24 A. on page 574; 'To invalidate a chattel mortgage executed in disregard of the requirements of the statute, the person assailing its validity is not required to show, in addition to such fact, that it was executed to defraud creditors. The statute requires nothing of that kind, but, on the contrary, expressly declares that, if the statutory requirements have not been observed in its execution, it shall for that reason, and that reason alone, be treated as void as against creditors. The fault which renders it void as against creditors is not fraud, but the failure of the mortgagee to perform a duty which the statute imposes upon him.' Dunham v. Cramer, 63 N.J.Eq. 151, 51 A. 1011 (Ch.1902).

Prior to 1903 the statutory sufficiency of the affidavit was judicially regarded as a highly technical requirement. Since the decisions in Metropolitan Store & Saloon Fixture Co. v. Albrecht, 70 N.J.L. 149, 56 A. 237 (Sup.1903) and American Soda Fountain Co. v. Stolzenbach, 75 N.J.L. 721, 68 A. 1078, 16 L.R.A.,N.S., 703, 127 Am.St.Rep. 822 (E. & A. 1908), it has been uniformly held that in the absence of fraud, chattel mortgages should be sustained whenever there is an honest and substantial compliance with the statute. Howell v. Stone & Downey, 75 N.J.Eq. 289, 71 A. 914 (E. & A. 1909); Simpson v. Anderson, 75 N.J.Eq. 581, 73 A. 493 (E. & A. 1909); Breit v. Solferino, 77 N.J.L. 436, 72 A. 79 (Sup.1909); Lippincott v Shivers, 86 N.J.Eq. 59, 97 A. 269 (Ch.1916); Bruck v. Credit Corp., 3 N.J. 401, 70 A.2d 496.

And so in the absence of fraud a chattel mortgage will not be invalidated merely because the affidavit of the mortgagee has been artlessly composed. Cf. McDonald v. H. B. McDonald Const. Co., Inc., 117 N.J.Eq. 181, 175 A. 87 (Ch.1934). If it refers to matters set forth in the mortgage, such matters are regarded as incorporated in the affidavit. Fletcher v. Bonnet, 51 N.J.Eq. 615, 28 A. 601 (E. & A.); Metropolitan Store & Saloon Fixture Co. v. Albrecht, 70 N.J.L. 149, 56 A. 237 (Sup.1903); Shupe v. Taggart, 93 N.J.L. 123, 107 A. 50 (Sup.1919).

The change in the judicial attitude regarding the affidavit in declaring that an honest and substantial compliance with the statute was sufficient has not modified or relaxed the established requirement that the affidavit, however honestly made, must truthfully state the consideration. Hunt v. Ludwig, 93 N.J.Eq. 314, 116 A. 699 (Ch.1922), affirmed 94 N.J.Eq. 158, 118 A. 839 (E. & A. 1922); Felin v. Arrow Motor Machine Co., 96 N.J.Eq. 44, 124 A. 448 (Ch.1924); Finkel v. Famous Lunch Room Co., 100 N.J.Eq. 85, 135 A. 51 (Ch.1926); Sherman v. Union County, &c., Co., 108 N.J.Eq. 477, 155 A. 615 (Ch.1931); Moore v. Preiss Trading Corp., 119 N.J.Eq. 366, 182 A. 824 (Ch.1936); affirmed 120 N.J.Eq. 214, 184 A. 521 (E. & A. 1936); DeYoe v. Harper Brothers, Inc., 121 N.J.Eq. 599, 191 A. 851 (E. & A. 1937).

Moreover the consideration must be completely revealed. Lion Shoe Co. v. Price, 108 N.J.Eq. 553, 155 A. 775 (Ch.1931); Atzingen v. Ottolino, 124 N.J.Eq. 510, 2 A.2d 652 (Ch.1938).

The circumstances constituting the transaction in the present case are indubitable and decisive. It will suffice to relate them concisely.

The mortgagors, Mr. and Mrs. Kessman, were conducting a bakery in Manville, New Jersey. On November 9, 1946, they executed and delivered to Frank Simon, Beckie Simon, Hyman Simon, Rose Simon, Samuel Sherman, and Sylvia Sherman a chattel mortgage encumbering their machinery, trade fixtures, and stock of merchandise to secure an indebtedness of $81,477.36, of which there is now due the sum of $40,000 with accumulated interest from November 9, 1946 at six per centum. The mortgage was promptly recorded and its validity is not impugned. On July 15, 1947, the chattels as well as the premises were damaged by fire. The Kessmans thereafter, with the acquiescence of the mortgagees, undertook with the proceeds of the insurance to replace the machinery and stock thus injured or destroyed and to repair the demised premises. The contemplated restoration necessitated an expenditure in excess of the insurance moneys available for the purpose, and consequently they resolved to apply for a loan from Manville Bakery, Incorporated.

The negotiations to obtain a loan of $17,000 from Manville Bakery, Incorporated, to be secured by a first lien on the restored...