Sears, Roebuck & Co. v. Camp

• Decision Date: 16 September 1938
• Docket Number: No. 202.,202.
• Citation: 1 A.2d 425
• Parties: SEARS, ROEBUCK & CO. v. CAMP et al.
• Court: New Jersey Supreme Court

1 A.2d 425

SEARS, ROEBUCK & CO.

v. CAMP et al.

No. 202.

Court of Errors and Appeals of New Jersey.

Sept. 16, 1938.

Perskie, J., dissenting.

Appeal from Court of Chancery.

Suit for strict foreclosure of a junior mortgage by Sears, Roebuck & Co. against John Camp and others. From an adverse decree, complainant appeals.

Reversed and remanded, with directions.

Wilfred B. Wolcott, of Camden, for appellant.

Franklin H. Berry, of Toms River, for respondent John Camp.

HEHER, Justice.

The essential question for decision is whether the complainant-mortgagee-purchaser of mortgaged lands at a judicial foreclosure sale and his grantee in possession, under a deed of general warranty, may have strict foreclosure against a junior mortgagee not made a party to the foreclosure proceedings, due to the nondisclosure of the latter's recorded assignment of the mortgage on the title search made on complainant's behalf for the purpose of discovering—preparatory to the foreclosure— the interests to be barred. Concededly, complainant did not possess actual knowledge of the identity of the holder of this outstanding interest; and it is stipulated that its omission from the search was the result of "inadvertence and mistake" on the part of the person so retained to prepare it. The search disclosed the mortgage; and the grantee was made a party, but did not answer.

Her apparent equity of redemption was foreclosed by the decree.

The lands were struck off and sold to the complainant on a bid of $100, at a sheriff's sale held on December 17, 1935. The deed of conveyance to complainant, pursuant to the order confirming the sale, was made on January 3, 1936; and complainant entered into possession. On March 27, 1936, while still without knowledge of Camp's interest under the mortgage adverted to, complainant conveyed the lands to the defendants Reinert, who paid to complainant the full purchase price in cash and entered into possession and have since been in continuous possession.

Proceeding on the theory that it had the requisite interest by reason of its taking possession of the lands under the sheriff's deed in foreclosure and its liability under the warranty contained in its subsequent deed of conveyance complainant filed this bill for strict foreclosure against the defendant Camp. The answer interposed pleaded complainant's conveyance of the lands to the Reinerts and the payment of the full purchase price in cash, and its lack of "interest in" or "lien upon said premises." Thereupon, the bill was amended to join the Reinerts as parties defendant; and, by an answer admitting the essential allegations of the bill, they joined "in the prayer" thereof, and, in the event that defendant Camp should be decreed "to pay to the complainant the amount due on its mortgage, with interest and costs," and "to redeem said mortgaged premises," they tendered a reconveyance of the title to complainant, "in order that such redemption may be possible."

The learned vice chancellor ruled that "the right to strictly foreclose" is limited "to a purchaser of the mortgaged premises at sheriff's sale who is in possession" thereof "under the sheriffs deed," and he accordingly dismissed the bill. He regarded "the right to maintain a second suit on a mortgage—a strict foreclosure—" as one "which equity awards to a mortgagee only so long as it is necessary to aid him after condition broken, in taking and holding possession of the mortgaged premises under his mortgage or a judicial sale at which he is obliged to purchase,"—one that dies "when that has been accomplished;" and he held that complainant's right, "until it was lost," was "purely equitable and maintainable against Camp alone," and that "the right of action of the Reinerts, if any, is purely legal and maintainable against" complainant alone. We do not entertain this view.

A strict foreclosure is a procedure designed to extinguish the equitable right of redemption, the creation of the English Court of Chancery in early times to mitigate the rigors of the common law conception of a mortgage as a conveyance of the legal title upon condition in the nature of a defeasance, i. e., the payment of the debt on the very day stipulated, in default of which the conveyance ipso facto became absolute and the mortgagee's estate ripened into an indefeasible legal title in consonance with the terms of the conveyance. Under the common law formalism, the mortgagee, upon the execution of the mortgage, became vested with the fee to the land, and, upon default in payment, the right of possession; and the mortgagor had no estate or interest therein, and no right of possession, after default in the payment of the mortgage money. The mortgagee's remedy was by ejectment, and in a court of law the mortgagor could not plead, after default, that he was willing and ready to pay the debt.

The equitable view, considered by Professor Pomeroy as "the most magnificent triumph of equity jurisprudence over the injustice of the common law," found permanent lodgment in English equity in the reign of Charles I; and, while it was termed in the early years of its development a "mere right" to recover the land in equity after default in the performance of the condition, it eventually came to be regarded in English equity jurisprudence as an estate in the land, subject to devise, grant and entailment. Out of this grew the remedial process of strict foreclosure, still in vogue in England, although not the only form of foreclosure since the enactment of the Chancery Improvement Act, 15 & 16 Vict. ch. 86, sec. 48. Its object is to bar the equity of redemption. The mortgagee's title after such foreclosure is that conveyed by the mortgage free and discharged of the condition of defeasance; hence, it is inconsistent with the theory that a mortgage creates a mere equitable lien, without conveying the legal estate. This right of redemption is an application of the equitable principle of relief against legal penalties and forfeitures, where a money award will suffice as compensation to the person seeking to enforce them. This process proceeds on the principle that equity, having relieved the mortgagor from the forfeiture resulting from his default in the performance of the condition, should require him to perform it within a reasonable time or be forever barred of the right of redemption. A decree of strict foreclosure does not operate to extinguish the debt, unless the mortgaged lands are of sufficient value to satisfy it. The value of the property may be ascertained in the event of a suit at law upon the mortgage debt. Parker v. Child, 25 N. J. Eq. 41; Champion v. Hinkle, 45 N.J.Eq. 162, 16 A. 701; Pettingill v. Hubbell, 53 N. J. Eq. 584, 32 A. 76; Blue v. Everett, 56 N.J.Eq. 455, 39 A. 765; Shepard v. Barrett, 84 N.J.Eq. 408, 93 A. 852; Kendall v. Treadwell, 14 How.Prac, N.Y., 165; Pomeroy's Equity Jurisprudence (4th ed.) sections 162, 1227; Jones on Mortgages (8th ed.) sections 1960, 1961, 1963, 1993, 1998.

While some of the early cases in this state subscribe to the English view, both as to the common law literalism and the equitable doctrine devised to relieve of its harshness, our courts, regarding more the essence than the form of the transaction, ultimately laid down the principle that the mortgage did not vest in the mortgagee an immediate estate in the lands, with the right of immediate possession, defeasible upon the payment of the mortgage money, but merely gave him a right of entry on breach of the condition, in which event his estate has all the incidents of a common law title, including the right of possession subject to the equity of redemption, and, meanwhile, the mortgagor is treated as the owner of the lands for all purposes. Montgomery v. Bruere, 4 N.J. L. 260; Id., 5 N.J.L. 865; Sanderson v. Price, 21 N.J.L. 637, 646, note a; Osborne v. Tunis, 25 N.J.L. 633; Shields v. Lozear, 34 N.J.L. 496, 503, 3 Am.St.Rep. 256; Verner v. Betz, 46 N.J.Eq. 256, 19 A. 206, 7 L. R.A. 630, 19 Am.St.Rep. 387; Devlin v. Collier, 53 N.J.L. 422, 22 A. 201; Cummings v. Jackson, 55 N.J.Eq. 805, 38 A. 763; Blue v. Everett, supra; Perkins v. Trinity Realty Co., 69 N.J.Eq. 723, 727, 61 A. 167, affirmed 71 N.J.Eq. 304, 71 A. 1135; Voorhees v. Nixon, 72 N.J.Eq. 791, 66 A. 192, affirmed sub nom. Voorhees v. Malott, 73 N.J.Eq. 673, 69 A. 643; Stewart v. Fairchild-Baldwin Co., 91 N.J.Eq. 86, 108 A. 301; J. W. Pierson Co. v. Freeman, 113 N. J.Eq. 268, 166 A. 121; Wade v. Miller, 32 N.J.L. 296; Kircher v. Schalk, 39 N.J.L. 335; Woodside v. Adams, 40 N.J.L. 417; Jersey City v. Kiernan, 50 N.J.L. 246, 13 A. 170; Marshall's Ex'rs v. Hadley, 50 N.J.Eq. 547, 25 A. 325. And so, in consonance with equity's treatment of a mortgage as essentially a security for the payment of the debt, foreclosure by judicial sale supplanted strict foreclosure as the more equitable mode of effectuating the mutual rights of the mortgagor and mortgagee. This is upon the theory that the mortgagor, in the case of a sale, receives "the full value of the property by the payment of the debt and receipt of the surplus." Jones on Mortgages, sec. 1994. It is now a statutory requirement where a bond and mortgage are given for the same debt. 3 Comp.Stat.1910, p. 3420 et seq.; Rev.Stat.1937, 2:65-1 et scq.

Yet strict foreclosure is still an appropriate remedy where, in the special circumstances, it will subserve equity and justice. This is particularly the case where, through the customary foreclosure by judicial sale or a conveyance by the mortgagor, the legal and equitable estates have become united in the mortgagee, who is also in possession under his legal title, and some outstanding junior interest has not, by reason of pure inadvertance, not aggravated by bad faith, been barred by the decree. Such is the established practice in this State. Eldridge v. Eldridge, 14 N.J.Eq. 195; Benedict v. Mortimer, N.J. Ch., 8 A. 515; Lockard v. Hendirckson, N. J.Ch, 25 A. 512; Parker v. Child, supra...