Second Nat. Bank Of Philadelphia v. Thompson

• Decision Date: 31 December 1947
• Docket Number: No. 148/672.,148/672.
• Citation: 56 A.2d 492
• Parties: SECOND NAT. BANK OF PHILADELPHIA v. THOMPSON et al.
• Court: New Jersey Court of Chancery

56 A.2d 492

SECOND NAT. BANK OF PHILADELPHIA

v.THOMPSON et al.

No. 148/672.

Court of Chancery of New Jersey.

Dec. 31, 1947.

COPYRIGHT MATERIAL OMITTED.

Bill in aid of a judgment by the Second National Bank of Philadelphia, a national banking corporation, against Joseph I. A. Thompson and others, wherein defendants filed a counterclaim for an accounting and for an injunction.

Complainant's bill dismissed and defendants' request for relief granted in accordance with opinion.

Syllabus by the Court.

1. In a suit in this State, predicated upon a judgment of a sister State, a defendant can plead fraud as a defense.

2. Such fraud must be extrinsic of the transaction upon which suit is brought and not intrinsic in such transaction.

3. Chancery has inherent power to enjoin the enforcement of a judgment at law where extrinsic fraud is present whether such judgment be of a domestic court or of a court of a sister State.

4. The Court of Chancery of this State has the power to restrain its own citizens or other persons within the control of its process from prosecution of suits in sister States, but this power should be sparingly used and them only there process is being used in an unconscionable manner or the case involves some equitable element which such foreign court cannot apply.

5. An application for an injunction against the enforcement of a domestic judgment at law predicated upon a judgment of a sister State, whether such application be by primary, original bill or by way of counterclaim, is a direct and not a collateral attack upon the New Jersey judgment.

6. Extrinsic fraud imposed upon the court of a sister State in the procurement of a judgment is a ground for an injunction against the enforcement of a domestic judgment at law, predicated upon the judgment of a court of such sister State.

7. A judgment at law of a sister State which is void at its inception is a nullity and any judgment recovered in this State, predicated upon such former judgment is likewise void and unenforceable.

Augustus S. Goetz, of Ocean City, for complainant.

Coulomb, McAllister & Hunter, of Atlantic City, for defendants.

HANEMAN, Vice-Chancellor.

The bill of complaint in this cause is a bill in aid of a judgment heretofore recovered in the New Jersey Supreme Court praying for discovery and that a conveyance be set aside as allegedly fraudulent. This judgment is founded upon a judgment theretofore recovered in the Common Pleas Court of Philadelphia County, Pennsylvania.

The answer and counterclaim of defendants, in brief, pray for affirmative relief to the extent that the complainant be required to make a full, true and perfect accounting of receipts and expenditures made by it in connection with a property upon which there was given a mortgage as collateral security for the bond upon which judgment was entered in Pennsylvania, and further pray that the complainant be enjoined and restrained from taking or maintaining any further proceedings upon the said judgment and execution thereon recovered in the New Jersey Supreme Court, as well as the judgment recovered in the Common Pleas Court of Philadelphia County, Pennsylvania.

The facts as elicited upon final hearing demonstrated that on or about December 9, 1926 the defendants Joseph I. A. Tompson and Lillian R. Thompson, his wife, then residing in Philadelphia, Pennsylvania, being indebted to the complainant in the sum of $16,500, delivered to it their promissory note in that amount. At the same time and as collateral security for the payment of said promissory note, Joseph I. A. Thompson and Lillian R. Thompson also delivered to complainant a bond in the amount of $16,500 with a warrant to confess judgment thereto attached, which said bond was secured by a mortgage upon certain real estate situate in Philadelphia, Pennsylvania. The bond provided for the production ‘to the obligee, its successors or assigns, on or before the 1st day of October of each and every year receipts for all taxes and water rents for the current year * * *,’ and provided further that upon default ‘of any such production to the obligee or its successors or assigns on or before the 1st day of October of each and every year of such receipts for the taxes and water rents of the current year assessed upon the mortgaged premises, * * * the whole principal debt aforesaid shall, at the option of said obligee * * * become due and payable immediately and payment of said principal debt and all interest thereon may be enforced and recovered at once, anything therein contained to the contrary notwithstanding.’

Up to September 20, 1937 the said Joseph I. A. Thompson and Lillian R. Thompson had made payments on account of the principal of said loan in the total amount of $3,000. During the month of September 1937 the said Joseph I. A. Thompson and Lillian R. Thompson sold another parcel of real estate owned by them in Philadelphia, Pennsylvania, for which they received the net amount of $3,718.16. This sum was likewise paid to complainant on account of the above referred to loan. In the meantime, Joseph I. A. Thompson and Lillian R. Thompson had, from time to time, given renewal notes for the balances then due. On June 7, 1940, on which date one of the renewal notes fell due, Joseph I. A. Thompson and Lillian R. Thompson gave to complainant a promissory note in the amount of $11,281.84, which said note became due and payble on September 7, 1940.

In October of 1937 the complainant, with the consent of Joseph I. A. Thompson and Lillian R. Thompson, took over the management of the property upon which it held the mortgage to secure the above referred to bond, as a mortgagee in possession.

By letter dated June 11, 1940 the complainant forwarded its first statement of account showing its collections and disbursements from said property from October 15, 1937 to June 7, 1940 and exhibited in said statement that it had disbursed the sum of $229.31 for the following purpose: ‘Paid City and School Taxes for 1939.’ In said letter complainant stated as follows:

‘You will find enclosed a statement of earnings and expenses from October 15, 1937 to June 7, 1940, showing a balance of $801.92 due the bank for money advanced for taxes and repairs.

‘The loan is $11,281.84, so that the total amount due the bank on June 7th was $12,083.76.’

Complainant recognized that the sum due it was due on account of the promissory note and not on account of the bond given as collateral security for said promissory note.

On June 11, 1940 James E. Gallen, attorney for the complainant herein, entered his appearance and confessed judgment by virtue of the warrant above set forth. In said entry of judgment the basis therefor was set forth as follows: ‘* * * default having occurred under the terms of the said bond in that defendants have failed to produce 1939 tax receipts.’ Subsequent to this entry of judgment further steps were taken in accordance with the requirements of the Pennsylvania law. Thereafter summons and complaint were personally served upon Joseph I. A. Thompson and Lillian R. Thompson on August 30, 1945 in New Jersey in a New Jersey Supreme Court action predicated upon te Pennsylvania judgment. No answer having been made by either of the said defendants, judgment was entered against them on September 24, 1945 in the sum of $3,589.54, being the balance then allegedly due after a credit was given for payments on account of the indebtedness and the value of the mortgaged real estate.

The defendants, in effect, here allege that the Pennsylvania judgment was void at its inception and therefore pray for an injunction as above set forth.

Complainant contends that full faith and credit must be accorded the Pennsylvania judgment under Article IV, Section 1 of the United States Constitution, and that Joseph I. A. Thompson and Lillian R. Thompson not having filed an answer or litigated in our Supreme Court, are now barred from attacking the New Jersey judgment on the doctrine of res adjudicata.

For some years after the adoption of the United States Constitution there was sonsiderable dispute as to the effect and intent of Article IV, Section 1. Since that time the doubts have been resolved and it has so often been interpreted that the broad general effect of the provision ‘that Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State,’ has become crystallized and is almost academic. This mandate is, of course, not absolute in barring any defense to a suit on a foreign judgment, but is subject to some exceptions. Where suit at law is brought in this State upon a judgment of a sister State, the defendant has the following defenses available to such suit, (1) that the sister State did not have jurisdiction of the person or of the subject matter; (2) that it was fraudulently procured, or (3) that it had been paid. National Surety Co. v. Mulligan, 105 N.J.L. 336, 146 A. 372; White v. Mindes, 106 N.J.L. 606, 148 A. 781; Friedland v. Iscuith, 106 N.J.Eq. 344, 150 A. 840; Royal Arcanum v. Carley, 52 N.J.Eq. 642, 29 A. 813; Jardine v. Reichert, 39 N.J.L. 165; Mackay and Lusher ads. Gordon, et al., 34 N.J.L. 286; Walter v. Keuthe, 98 N.J.L. 823, 121 A. 624; Fairchild v. Fairchild, 53 N.J.Eq. 678, 34 A. 10, 51 Am.St.Rep. 650.

We are here not concerned with the first and third defenses referred to above. The defense, if any, in the case sub judice falls into the scond category, i.e., those judgments fraudulently obtained.

The proffered defense of fraud finds its foundation in the contention of Joseph I. A. Thompson and Lilliam R. Thompson that the Pennsylvania judgment was procured by a fraudulent imposition upon the court of that State.

Fraud, to be available as a defense against an action on a foreign judgment, must be extrinsic fraud. It must be a fraud in the procurement of the judgment rather than a fraud attendant upon the cause of action itself.

As stated in Clark v....