Leisure Technology-Northeast, Inc. v. Klingbeil Holding Co.

• Decision Date: 02 December 1975
• Docket Number: TECHNOLOGY-NORTHEAS,INC
• Citation: 137 N.J.Super. 353,349 A.2d 96
• Parties: LEISURE, Plaintiff-Respondent, v. KLINGBEIL HOLDING COMPANY and Village of Woodlake Co., Defendants-Appellants, and American Fletcher National Bank and Trust Company and the State of New Jersey, Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 353

137 N.J.Super. 353

349 A.2d 96

LEISURE TECHNOLOGY-NORTHEAST, INC., Plaintiff-Respondent, v. KLINGBEIL HOLDING COMPANY and Village of Woodlake Co.,

Defendants-Appellants,

and

American Fletcher National Bank and Trust Company and the

State of New Jersey, Defendants.

Superior Court of New Jersey,

Appellate Division.

Submitted Nov. 12, 1974.

Decided Dec. 2, 1975.

Greenbaum, Greenbaum, Rowe & Smith, Newark, for defendants-appellants (Stephen H. Roth and Charles Applebaum, Newark, on the brief).

Giordano & Halleran, Toms River, for plaintiff-respondent (Dale S. Orlovsky, Toms River, on the brief).

Before Judges HALPERN, CRANE and MICHELS.

The opinion of the court was delivered by

CRANE, J.A.D.

This is an appeal, pursuant to leave granted, from an interlocutory order in an action to foreclose a mortgage commenced in the Chancery Division. Defendants filed an answer and counterclaim alleging that plaintiff's wrongful and frandulent actions subsequent to the execution of the mortgage caused Klingbeil's default on the mortgage and that under the equitable principle of unclean hands plaintiff should be denied the right to foreclose. In simplified terms, the answer alleged as a first affirmative defense that plaintiff breached a contract relating to the development of parcels of land within a planned recreational community; that the local zoning ordinance limited the percentage of three-bedroom units which could be constructed overall in the zone to 20%, and that plaintiff falsely and fraudulently represented to the planning board that it had the right to allocate to a parcel it planned to develop itself a rate of 33 1/3% Of three-bedroom units. Defendants also alleged that the false representations caused the planning board to grant site plan approval to plaintiff and to deny site plan approval to a proposal submitted by the assignee of defendant Klingbeil. Defendants further alleged that the denial of site plan approval caused them to lose the opportunity to sell some of the land to their assignee, American Housing Systems Corp., which resulted in the inability to meet the mortgage payments. Defendants also sought damages, injunctive relief and an accounting. The trial judge granted plaintiff's motion to strike the first affirmative defense asserted in the answer of defendants Klingbeil, Woodlake and American Fletcher National Bank and Trust Company which alleged fraudulent conduct on the part of plaintiff. The judge also granted plaintiff's motion to sever defendants' counterclaim and to transfer it to the Law Division for trial. Additionally, he denied the application of defendants Klingbeil and Woodlake for discovery pertinent to the answer and counterclaim.

We have carefully reviewed the record and have concluded that the trial judge took too narrow a view of the scope of permissible Chancery litigation. R. 4:6--2 requires that every defense to an action 'legal or equitable, in law or in fact' be asserted in an answer. Ordinarily, failure to set forth a defense constitutes a waiver. R. 4:5--4; R. 4:6--7. A party who resorts to equity to foreclose a mortgage exposes himself to the operation of equitable principles and must submit to an equitable resolution of the issues raised. Spiotta v. William H. Wilson, Inc., 72 N.J.Super. 572, 579, 179 A.2d 49 (App.Div.1962), certif. den. 37 N.J. 229, 181 A.2d 12 (1962). The defense of unclean hands is cognizable in a foreclosure action. Atlantic Seaboard Co. v. Seaside Park, 36 N.J.Super 142, 115 A.2d 110 (App.Div.1955), certif. den. 19 N.J. 619, 118 A.2d 128 (1955); Taylor v. Mitchell, 90 N.J.Super. 312, 217 A.2d 331 (Ch.Div.1966). Plaintiff has cited Montclair Savings Bank v. Sylvester, 122 N.J.Eq. 518, 194 A. 811 (E. & A.1937), and other cases decided prior to the adoption of our 1947 Constitution to the effect that unless the defense sought to be interposed goes to the validity or existence of the underlying debt or mortgage, it may not be raised in a foreclosure action. We are of the opinion that the principles of those cases are no longer controlling. The single controversy doctrine requires that a party litigate all aspects of a controversy in a single legal proceeding. N.J.Const. (1947), Art. VI, § III, par. 4; Falcone v. Middlesex Cty. Med. Soc., 47 N.J. 92, 219 A.2d 505 (1966). One of the purposes of the adoption of the Judicial Article of the 1947 Constitution was to permit the resolution of all aspects of a controversy between parties to be resolved in a single forum, whether the claims be legal or equitable in nature. Massari v. Einsiedler, 6 N.J. 303, 78 A.2d 572 (1951). The reasons for such a policy were expressed in Applestein v. United Board & Carton Corp., 35...