Natovitz v. Bay Head Realty Co.

• Citation: 59 A.2d 423
• Parties: NATOVITZ v. BAY HEAD REALTY CO. et al.
• Decision Date: 13 May 1948
• Court: United States State Supreme Court (New Jersey)

59 A.2d 423

NATOVITZ

v.BAY HEAD REALTY CO. et al.

No. 219, October Term, 1947 and No. 211, February Term, 1948.

Court of Errors and Appeals of New Jersey.

May 13, 1948.

Cross-Appeals from Court of Chancery.

Suit by Abraham Natovitz against Bay Head Realty Company, Guy R. Lister and Florence Lister, his wife, and Michael H. Lielmann, and Borough of Point Pleasant, to have certain conveyance of real property made by defendant realty company declared fraudulent and void. From the decree, defendants Bay Head Realty Company, Guy R. Lister and Florence Lister, his wife, and Michael H. Liebmann appeal, and complainant cross-appeals.

Decree affirmed as to defendants Lister and Liebmann, and reversed as to defendant Borough of Point Pleasant, and cause remanded.

SCHETTINO, Judge, and WACHENFELD, Justice, dissenting.

Siegler & Siegler, of Newark (Irving Siegler, of Newark, of counsel), for defendant appellants.

Abraham Natovitz, of Jersey City, in pro. per.

Rogers & Sim, of Point Pleasant (Richard W. Sim, of Point Pleasant, of counsel), for Borough of Point Pleasant.

HEHER, Justice.

There are cross-appeals here. The challenged decree vacates, as in fraud of the complainant creditor of the grantor, two several deeds of conveyance of lands made by the defendant Bay Head Realty Co. to defendants Guy R. Lister and Florence Lister, his wife, and to defendant, Michael H. Liebmann, and sustains, as supported by ‘good and valuable consideration,’ a third such deed made by the same grantor to the defendant Borough of Point Pleasant. The deeds to the Listers and Liebmann were found to be ‘voluntary and without the support of an adequate valuable consideration and fraudulent’ as to the complainant creditor, and made when the grantor was insolvent. The Listers and Liebmann appeal from the provisions of the decree setting aside their respective deeds of conveyance; and complainant appeals from the dismissal of the bill of complaint as to the Borough of Point Pleasant.

On January 12, 1946, complainant recovered a judgment in the Supreme Court against the defendant Bay Head Realty Co. for $30,476.75, as the deficiency arising from the foreclosure in the Ocean Circuit Court of a mortgage made by that corporation to complainant's assignors in the principal sum of $20,000, covering a tract of land in Point Pleasant. The deed to the Listers bears date November 29, 1945, and was recorded on the ensuing December 22nd; the deed to Liebmann was dated December 27, 1945, and was recorded the following day; and the deed to the Borough of Point Pleasant was dated January 2, 1946, and was recorded on January 10th following. Guy R. Lister was the principal stockholder of the grantor corporation, and at the time of these conveyances he was the secretary of the corporation and his brother Albert E. was the president, and as such they executed the conveyances on behalf of the corporation.

The amount due under the deree for sale entered in the foreclosure proceeding was $29,868.60, with interest, and taxed costs in the sum of $453.42. Pursuant to a writ of execution issued thereon, the sheriff sold the mortgaged lands at public vendue to complainant for $300.00; and the judgment at law is for the deficiency thus arising.

The insistence is that complainant purchased the mortgage later foreclosed for ‘a nominal consideration’ and the mortgaged lands acquired by complainant in the foreclosure proceedings were ‘worth considerably in excess of the amount due on the mortgage and many times more than the paltry sum which complainant had apparently paid to acquire’ the mortgage, and chancery may intervene ‘in behalf of an aggrieved debtor, by refusing to allow a prayer for affirmative relief, in a case such as this, where the granting of such affirmative relief would result in the complainant's obtaining satisfaction of his debt two or three times, and thus pillage of the estate of the mortgagor.’ The case of Bourgeois v. Risley Real Estate Co., 82 N.J.Eq. 211, 88 A. 199, is cited. But the principle of that case is not apposite here.

First, barring an overriding equity, the want of consideration for the assignment of a mortgage is generally not a defense open to one not a party to the assignment. The mortgagor cannot defeat foreclosure or reduce the quantum of his obligation by showing a want of consideration for the assignment, either total or partial. Donnington v. Meeker, 11 N.J.Eq. 362.

Second, the relationship between the maker of a bond and mortgage and the mortgagee, and their privies, is grounded in contract, as supplemented by R.S. 2:65-1 et seq., N.J.S.A.; and it is of the very essence of this relationship that the decree in foreclosure and the order confirming the sale of the mortgaged lands made pursuant thereto are res judicata of the value of the lands thus sold and of the quantum of the deficiency upon the obligation for which the mortgage stood as security, except that in an action at law upon a bond so secured made subsequent to March 29th, 1933, credit is allowable for the fair market value of the mortgaged premises at the time of the sale thereof in the foreclosure proceeding, if the defendant shall file an answer disputing the amount of the deficiency and such value shall be proved by evidence or fixed by appraisers appointed by the parties. Section 2:65-3. The principle is embedded in our jurisprudence. It controls courts of equitable jurisdiction as well as courts of law.

This was the established rule in equity even before the adoption of Chap. 170 of the Laws of 1880 (Pamph. L. 255), now R.S.2:65-1, N.J.S.A., barring the entry of a personal deficiency decree in the foreclosure proceeding. The value fixed by the foreclosure sale was conclusive. It was the rule that in determining the amount of the decree for such personal deficiency, the sum for which the mortgaged premises were sold ‘must, so long as the sale stands, be taken, as between the parties to the suit, as a conclusive test’ of their value. Snyder v. Blair, 33 N.J.Eq. 208. In that case it was said by Vice Chancellor Van Fleet that, while this principle was implicit in the then existing Chancery Act (Revision of 1877, p. 118, § 76), empowering the Chancellor to enter a decree for a personal deficiency in the foreclosure proceeding, measured by the excess of the mortgage debt ‘above the net proceeds of sale,’ it had judicial sanction long prior to the adoption of any statute upon the subject and ‘must be considered so firmly settled as to be beyond alteration by the courts.’ Pointing out that ‘the pledge is sold’ by the court's ‘authority and under its process,’ and the court therefore ‘is really the vendor,’ the Vice Chancellor continued: ‘If the pledge is sold for a sum greater than is required to pay the liens to which it is subject, the surplus is paid to the pledgor; if for less than the amount due to the pledgee, it is the duty of the court, according to the well-established practice, to award him a decree for the deficiency. The price, however, realized at the sale, whether it be more or less than is required to pay the pledgor's debt, is the only known legal standard of value. The court cannot sell the pledge to the pledgee for one price, and make title to him for that price, and then, in adjusting the amount remaining due to him from his debtor, compel him to pay a much larger price. If such a thing could be done, it would amount to this: the court would nullify the sale so far as it affected the interests of the vendor, but compel the vendee to keep his part of the bargain, and to pay for the property a price he never agreed or consented to give. This court has no such power. * * * It is also true that a creditor who holds a pledge as security for his debt cannot have both his debt and the pledge. If a mortgagee, after obtaining a decree of strict foreclosure and taking possession, proceeds to collect his debt, the decree of foreclosure is ipso facto opened, and the debtor let in to redeem. * * * But when the pledge is converted into money by judicial sale, even if the creditor is the purchaser, it is not true that he has both debt and pledge. In that case the pledge is sold to pay the debt; the debt is satisfied to the extent of the money realized, but no further; the interest of both pledgee and pledgor passes by the sale, and the purchaser stands in the right of a new title, founded upon the rights of both.’

And in the case of Bohde v. Lawless, 33 N.J.Eq. 412, where the circumstances were akin to those of the case under review, Chancellor Runyon, applying the same principle, ruled that it was no objection to the enforcement of the complainant mortgagees' right to set aside a voluntary conveyance of lands, made to defeat their personal decree for a deficiency on a foreclosure in excess of $5,000, that the mortgaged premises were bought by the complainants at the foreclosure sale at much less than their actual value, where there was no showing of fraud or inequity on complainants' part. In setting aside the conveyance, the Chancellor declared: ‘On the hearing it was insisted that the fact that the complainants were the purchasers of the mortgaged premises at the sale under the foreclosure, for $500, while the property was and is worth a large sum beyond that amount (perhaps enough to cover the entire amount of the deficiency), is of itself enough to induce this court to refuse to aid the complainants in enforcing payment of the deficiency. But it is quite evident that that consideration cannot avail the defendants. The complainants are before the court seeking payment of a lawful demand, and they have been guilty of no fraudulent or inequitable conduct to debar them from the aid of equity.’

The current statute modifies but does not annul this basic principle. It provides that no decree for a personal deficiency shall be rendered in the foreclosure proceeding; and that where both a bond and mortgage have been given for the same debt, there...