Mann v. Bugbee

• Citation: 167 A. 202
• Parties: MANN v. BUGBEE et al.
• Decision Date: 14 July 1933
• Court: New Jersey Court of Chancery

167 A. 202

MANN

v. BUGBEE et al.

Court of Chancery of New Jersey.

July 14, 1933.

Syllabus by the Court.

1. In a suit for deficiency after sale in foreclosure, subsequent grantees who assumed payment of the mortgage and who were parties to the foreclosure suit but filed no answers are precluded from attempting to show that at the time of the foreclosure decree the lands foreclosed were not liable for the amount fixed by that decree; but they are not precluded from setting up defenses as to release or discharge of their personal liability as sureties, if such defenses do not controvert the express or implied findings of the foreclosure decree.

2. In such suit, the defendant subsequent grantees set up in defense (1) that the original mortgagor is not a party defendant; (2) that complainant is an agent for the original mortgagor, and that, since the latter is the real holder of the mortgage, the obligation of defendants as sureties for the bond is extinguished; (3) that prior to foreclosure the then holder of the mortgage released a portion of the mortgaged premises, and that thereby the liability of the defendant sureties was discharged or reduced. Held, that these defenses are not barred by the decree in foreclosure.

3. The nature of suit for deficiency as distinguished from suit to foreclose.

4. Distinction between effect of release of part of mortgaged premises as a defense in suit to foreclose and as a defense in suit for deficiency.

5. Where the holder of a mortgage, payment of which has been assumed by a subsequent grantee, releases part of the mortgaged premises, the suretyship liability of the assuming grantee is reduced by the value of the lands so released, if the holder of the mortgage had knowledge of the fact of the suretyship relation.

6. The burden of proof to show such knowledge by the holder of the mortgage is on the defendant surety; the recording of the subsequent conveyance is not constructive notice to the mortgage holder.

7. Where after executing a bond and mortgage the mortgagor conveys to a grantee who assumes payment of the mortgage debt, as between the two, the latter takes the place of the former as the debtor; and, if the mortgagor thereafter acquires the bond and mortgage, he is entitled not only to foreclose as against the mortgaged premises, but (in case of deficiency) to proceed against the assuming grantee.

8. In a suit for deficiency against grantees who assumed payment of the mortgage debt, the original mortgagor is not a necessary party, if no relief is sought against him.

Suit by Hannah Mann against Newton A. K. Bugbee and others, in which the named defendant filed a cross-complaint.

Decree in accordance with opinion.

Perlman & Lerner, of Trenton, for complainant.

Richard S. Wilson, of Trenton, for defendant Bugbee.

Katzenbach, Gildea & Rudner, of Trenton, for defendant Bash.

Alexander Budson, of Trenton, for defendant Levin.

BUCHANAN, Vice Chancellor.

Complainant's suit is for deficiency due on a mortgage debt, after foreclosure sale.

The facts, as pleaded and proved, are somewhat more complicated than the following summary, but may be stated as follows without affecting the principles involved:

In 1924 Harry Haveson, gave to John Van Nest his bond of $5,000 and his mortgage on a house and lot owned by him fronting 21 1/2 feet on Brunswick avenue and 200 feet deep. Thereafter he conveyed the mortgaged premises to defendant Bugbee, who expressly assumed payment of the mortgage debt; later Bugbee conveyed to defendants Bash and Levin, who also assumed payment of the mortgage debt; still later Bash and Levin conveyed to Chambersburg Realty Company, which did not assume payment.

In 1929 the state of New Jersey was widening the Brunswick Avenue highway and for that purpose required an additional 34 feet of width between the center line and the side line of the highway, and in December, 1929, the Chambersburg Realty Company conveyed to the state the front 34 feet of the mortgaged premises, and at the same time the Trenton Trust Company, the then holder of the bond and mortgage, released this 34 feet from lien of the mortgage.

In 1931 complainant, Hannah Mann, acquired the bond and mortgage from Trenton Trust Company and foreclosed. The decree was for some $5,100; the premises were sold for $3,100, resulting in a net deficiency of about $2,500. Complainant then commenced the present suit against the assuming grantees, Bugbee, Bash, and Levin, to recover from them the deficiency aforesaid. They were parties defendant in the foreclosure suit, but filed no answers therein.

Haveson, the original obligor and mortgagor is not a party to the present suit.

The defenses set up are three: (1) That Haveson, the original obligor, is not made a party defendant; (2) that complainant is a dummy or trustee for Haveson, and that, by the assignment of the mortgage to her, there was a merger and extinguishment of the mortgage debt; (3) that the release of part of the mortgaged premises by the Trenton Trust Company when it held the mortgage was without the knowledge and consent of the defendants, and thereby defendants became either completely discharged from liability, or at least became and are entitled to credit, in the amount of the value of the lands so released, plus the amount of alleged consequential damage to the remaining lands, against their liability for the mortgage debt.

It is contended by complainant that defendants are precluded by the principle of res adjudicata from interposing these defenses in the present suit, that defendants were all parties to the foreclosure suit, and that the final decree in that suit is binding and conclusive upon them and prevents their raising defenses in the present suit which they had the opportunity to set up in that foreclosure suit.

A judgment in a former suit is a bar to any attempt to litigate over again, in a subsequent suit between the same parties (or those in privity with them), any rights, matters, or facts actually in issue and determined, or necessarily involved in the determination, in the fcrmer suit. See 34 C. J. 743.

The defenses now set up were not set up. and hence not actually tried or determined, in the foreclosure suit. It is urged, however, that the defendants had the opportunity to set these defenses up in the foreclosure suit, and should have done so, and that they are bound by the decree just as conclusively as if they had set them up and received an adverse determination on them.

In order, however, to prevent, under the doctrine of res adjudicata, a party to a suit from attempting to assert an alleged right either as a basis for affirmative relief or as ground of defense, it must appear that the existence of such alleged right was actually or by necessary implication established or denied by the judgment in a prior suit between the same (or legally equivalent) parties.

It is sometimes said that a defendant is not prevented by the doctrine of res adjudicata from setting up defenses which he did not set up in a former suit between the same parties, unless the former suit was for the same claim or demand, was on the same cause of action, as the second suit. Such expression seems not apt, for it is rare indeed to find a second suit between the same parties for exactly the same cause of action, and assuredly the doctrine of res adjudicata is not so narrowly limited; it extends to any claim of right which was an essential factor or part of the cause of action sued on in the prior suit. Cf. Murray v. Pearce, 95 N. J. Law, 104, 112 A. 314, Freitag v. Renshaw, 157 A. 455, 9 N. J. Misc. 1161.

A failure to set up a particular defense is in effect an admission that the defendant has no such defense to that suit, that he has no such right in opposition to the right claimed by the plaintiff or complainant; and the judgment or decree, therefore, by necessary implication, establishes it as a fact that the defendant has no such defense or opposing right. But clearly a failure to set up a particular right or claim in defense of a suit can have no such effect unless such right or claim, if set up, would be entertainable in that suit as a valid or material defense to the relief sought by the plaintiff or complainant in that suit.

It becomes necessary, therefore, to consider the nature of the prior suit, the foreclosure suit. Such a suit is a proceeding in rem against the mortgaged premises. As it has been expressed in some of the cases, where a real estate mortgage is given to secure a bond, under the law in New Jersey, "the land becomes the principal debtor." The right which the complainant seeks to establish by his suit, and the decree therein, is the right to have certain lands sold and the proceeds applied to the payment of a debt due to him.

He asserts, and it is necessary for him to establish, that there is a valid debt owing to him, and accrued, due and payable, and the amount thereof; that the particular lands in question were and are subject as security for the payment of that debt. And that (omitting possible questions of priorities as to other parties claiming interests in the lands) is all that he is required to establish. He is not required to establish whether or not there are any other persons liable to him for the payment of the mortgage debt; and any defense on an issue of that kind would not be material or maintainable.

Where the mortgaged premises have been subsequently conveyed by the mortgagor to grantees who have assumed the mortgagor's liability for the payment of the mortgage debt, and such subsequent grantees have been brought in as parties defendant in the foreclosure suit, it is incumbent upon them to set up any and all claims of right which would go toward denial or modification of those rights asserted by complainant which are necessary and essential to the establishment of the decree sought by him. If, for instance, there have been any payments made on account of the mortgage debt,...