Kessler v. Tarrats

Decision Date18 April 1983
Citation191 N.J.Super. 273,466 A.2d 581
PartiesSheldon KESSLER, Plaintiff, v. Daniel TARRATS et als., Defendants.
CourtNew Jersey Superior Court

Richard J. Savino, Paterson, for plaintiff (Grabow & Verp, Paterson, attorneys).

Howard B. Epstein, Deputy Atty. Gen., for defendant and counterclaimant State of N.J., Dept. of Environmental Protection (Irwin I. Kimmelman, Atty. Gen., attorney).

Ralph L. DeLuccia, Jr., Paterson, for defendant and crossclaimant City of Paterson (Ralph L. DeLuccia, Jr., Corp. Counsel, attorney).

DWYER, J.S.C.

Plaintiff Sheldon Kessler (Kessler) assignee of a purchase money mortgage given to 190--16th Avenue Corporation on December 21, 1976, instituted this action to foreclose the mortgage on May 25, 1982.

By motion for summary judgment the Administrator of the New Jersey Spill Compensation Fund, N.J.S.A. 58:10-23.11j and q (Administrator) and N.J.S.A. 58:10-23.11i (Fund), seeks a judgment that the lien filed on July 27, 1982 and obtained under N.J.S.A. 58:10-23.11f(f) for the cost of clearing the subject premises of toxic waste is a first paramount lien over the lien of the City of Paterson (Paterson) for real estate taxes under N.J.S.A. 54:5-9, the lien of Kessler's mortgage and all other liens listed in footnote 1. Paterson moves for judgment that its lien is paramount to that of the Administrator in respect to the taxes reflected in a tax sale certificate recorded on February 4, 1981 as well as subsequent taxes. Kessler concedes that the lien of Paterson for taxes is paramount to the lien of his mortgage, but asserts that the priority of the lien of the Administrator as to his mortgage is invalid on the grounds that as applied to that mortgage N.J.S.A. 58:10-23.11f(f) is unconstitutional in that:

1. Said statute impairs the contract rights arising from the mortgage recorded before the relevant statute was enacted, contrary to U.S. Const., Art. I, § 10 and N.J. Const. (1947), Art. I, par. 1;

2. Said statute denies him of due process of law because no notice to the prior lien interests is required and unnecessarily inflicts an "oppressive and harsh consequence" to the holder of the mortgage, contrary to the requirements of U.S. Const., Amend. XIV and N.J. Const. (1947), Art. I, par. 1;

3. Said statute will effectively take Kessler's property without just compensation, contrary to U.S. Const., Amend. V and N.J. Const. (1947), Art. I, par. 20.

Based on examination of the documents in the title history and a supplemental affidavit of Kessler after the briefs were filed, Administrator urged in a reply brief that Kessler should be barred from attacking the constitutionality of the statute since he took his assignment of the mortgage after the statute was in effect, after the clean-up operation by the Department of Environmental Protection authorized by N.J.S.A. 58:10-23.11f (D.E.P.) was under way, and for the purpose of discharging the debt obligations of himself and his wife as the only partners in Carshel Realty (Carshel), a partnership, which was the original mortgagor. Kessler responded that there was no extinguishment of the mortgage because he did not own the fee of the real estate when he took the assignment. Further, he had a claim against Foam Craft, Inc. which was the grantee of Carshel and accepted a deed which recited that Foam Craft, Inc. took subject to and assumed the payment of said mortgage. At oral argument counsel for Kessler represented that Foam Craft, Inc. is a viable corporation. 1 By deed dated December 1, 1979 and making no reference to the mortgage, Foam Craft, Inc. conveyed to Daniel Tarrats.

The first question is whether Kessler has a contract right which is subject to protection afforded by the relevant constitutional provisions. The deed from Carshel to Foam Craft, Inc., dated April 22, 1977, in relevant part provided:

Subject to an existing mortgage of record from the grantor to 190--16th Avenue Corporation dated December 21, 1976 recorded December 21, 1976 in Book U-72, page 109 which mortgage is being assumed by the grantee herein.

N.J.S.A. 46:9-7.1 states:

Whenever real estate situate in this State shall be sold and conveyed subject to any existing mortgage or is at the time of any such sale or conveyance subject to an existing mortgage, the purchaser shall not be deemed to have assumed the debt secured by such existing mortgage and the payment thereof by reason of the amount of any such mortgage being deducted from the purchase price or by being taken into consideration in adjusting the purchase price, nor for any other reason, unless the purchaser shall have assumed such mortgage debt and the payment thereof by an express agreement in writing signed by the purchaser or by the purchaser's acceptance of a deed containing a covenant to the effect that the grantee assumes such mortgage debt and the payment thereof.

Prior to the enactment of the aforesaid statute, the courts had held that the mortgagor-grantor could sue at law the grantee who accepted a deed reciting that the conveyance was subject to an outstanding mortgage which the grantee assumed for the unpaid amount of the mortgage in event of default. The reason stated was that the action was one for breach of contract. Sparkman v. Gove, 44 N.J.L. 252 (Sup.Ct.1882) (grantor-assignee from mortgagee entitled to recover unpaid balance of mortgage of $3,000 even though grantor paid $450 for the assignment. The measure of damages was breach of contract). In Herbert v. Corby, 124 N.J.L. 249, 11 A.2d 240 (Sup.Ct.1940), aff'd o.b., 125 N.J.L. 502, 17 A.2d 541 (E. & A.1940), plaintiff mortgagee was held to have an enforceable contract claim, as a third-party beneficiary, for the amount of a deficiency after foreclosure against the grantee who accepted the deed reciting that there was an existing mortgage and that grantee assumed to pay it. The then Supreme Court said:

... Certainly a grantee who assumes a mortgage debt and promises to pay it makes a contract with the grantor for the benefit of the mortgagee. We cannot, at the moment, imagine a contract, made more for the benefit of a third party. [124 N.J.L. at 254, 11 A.2d 240]

The purpose of N.J.S.A. 46:9-7.1, which was enacted in 1947, was to abolish in New Jersey the authority of the cases applying the concept of "implied assumption" where the consideration paid for the deed was the market value of the subject premises less the amount of the outstanding mortgage and there was no express assumption of the mortgage by the grantee. Many of those cases were based on equitable principles. See 29 N.J. Practice (Cunningham & Tischler, Mortgages) § 132 (1975). The aforementioned statute did not create the basis for the contract rights here considered. It established that they must be in writing to be enforced. Said statute does, however, bar a claim by Kessler or others against Tarrats for the amount of the mortgage.

The courts have recognized the logic of the argument that where a debtor pays the creditor the debt is extinguished, for no person can at the same time be both debtor and creditor of the same debt. See 29 N.J. Practice, op. cit., § 153 at 708 (1975). But if a mortgagor has conveyed the premises to a grantee who takes under a deed reciting that it is subject to the mortgage and the grantee assumes to pay, and if thereafter the mortgagor takes an assignment of the mortgage, there is no merger. In such a situation the original mortgagor is a surety to the original mortgagee and the grantee has become the principal debtor. By taking an assignment of the debt and mortgage, the original mortgagor preserves the right of payment against the grantee--principal debtor and the lien of the mortgage is security for the payment of the debt.

In Stillman's Ex'rs v. Stillman, 21 N.J.Eq. 126 (Ch.1870), a suit by the executors of the original mortgagor who acquired the mortgage by assignment to foreclose against a subsequent grantee who took subject to the mortgage and assumed to pay it, the court said:

The transfer of the mortgage to the executors of the mortgagor does not satisfy it. The land was owned by a third person, and the mortgage was a valid encumbrance upon it. One may purchase his own mortgage on land that he has sold, and although such purchase may render the bond unavailing, yet where lands are conveyed as these were, subject to the mortgage as part of the consideration, the mortgage is the principal security, and even if the obligor pays the bond, he is entitled to be subrogated as to the mortgage, and to be repaid out of the land what he has paid on his own bond. [at 129]

In this action neither Kessler nor Carshel owned the fee subject to the mortgage when, or since, Kessler acquired the mortgage; hence, the doctrine that when the owner of the equity of redemption acquires the mortgage there is a merger of interest does not apply. See 55 Am.Jur.2d, Mortgages, §§ 1387, 1398 (1971).

From the record herein this court finds that the debt for which the mortgage is security is evidenced by a note and not a bond. The Supreme Court has heretofore commented about the different rights of the holder of a note and bond. See 79-83 Thirteenth Avenue, Ltd. v. DeMarco, 44 N.J. 525, 210 A.2d 401 (1965), and Schwartz v. Bender Invest., Inc., 58 N.J. 444, 279 A.2d 100 (1971).

In DeMarco, supra, Justice Hall, writing for the majority, said:

... In the case of default on a bond and mortgage, the mortgage must be foreclosed first in the Chancery Division. Suit may then be brought on the deficiency in the Law Division. The judgment there recoverable will, since N.J.S. 2A:50-3, be limited to the difference between the fair market value of the property and the debt regardless of the price received for the property at the foreclosure sale, the absence of objection to the sale or the equities of the situation. If the debt is evidenced by a note, the mortgagee has a choice. He may foreclose first...

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8 cases
  • CALDWELL TRUCKING v. SPAULDING CO.
    • United States
    • U.S. District Court — District of New Jersey
    • July 13, 1995
    ...date, the New Jersey courts have not issued any published opinions interpreting N.J.S.A. § 58:10-23.11s. See Kessler v. Tarrats, 191 N.J.Super. 273, 311, 466 A.2d 581 (Ch.Div.1983), aff'd, 194 N.J.Super. 136, 476 A.2d 326 (App.Div.1984) (mentioning N.J.S.A. § 58:10.23-11s in passing). The p......
  • Kessler v. Tarrats
    • United States
    • New Jersey Superior Court — Appellate Division
    • June 1, 1984
    ...lien over the City of Paterson's preexisting tax lien and the interests of the assignee of a mortgage in Kessler v. Tarrats, 191 N.J.Super. 273, 466 A.2d 581 (Ch.Div.1983). Paterson and the holder of the mortgage appeal. We On December 21, 1976 Carshel Realty, a partnership owned by Sheldon......
  • In re Distrigas Corp.
    • United States
    • U.S. Bankruptcy Court — District of Massachusetts
    • September 26, 1986
    ...a quid pro quo; namely, that the property had either little or no value until the cleanup which enhanced its value, Kessler v. Tarrats, 191 N.J.Super 273, 466 A.2d 581 (1983) aff'd, 194 N.J.Super. 136, 476 A.2d 326 (1984). It, therefore, would fit the classic definition of an administrative......
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    • October 6, 1983
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1 books & journal articles
  • CHAPTER 2 THE STATE FRAMEWORK: STATUTES AND REGULATIONS AFFECTING TRANSACTIONS
    • United States
    • FNREL - Special Institute Environmental Considerations in Natural Resource and Real Property Transactions (FNREL)
    • Invalid date
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