Tomlinson v. Warner Bros. Theatres, Inc.

• Decision Date: 20 December 1939
• Citation: 9 A.2d 774,126 N.J.Eq. 485
• Parties: TOMLINSON et al. v. WARNER BROS. THEATRES, Inc., et al.
• Court: New Jersey Court of Chancery

9 A.2d 774

126 N.J.Eq. 485

TOMLINSON et al.

v. WARNER BROS. THEATRES, Inc., et al.

Court of Chancery of New Jersey.

Dec. 20, 1939.

Syllabus by the Court.

1. Where mortgagor's grantee agreed to purchase the mortgaged lands for a stated purchase price, partly in cash and the remainder thereof "by the assumption, without liability for the payment" by the purchaser "of the mortgage," the mortgagee may not recover from the purchaser a deficiency arising on foreclosure sale.

2. Where the parties to a contract for the sale of real estate have expressly agreed that the grantee shall not be liable for the payment of an existing mortgage indebtedness created by the grantor, there cannot be imposed on the grantee by the mortgagee an implied assumption of said indebtedness.

3. The principle that if by the terms of the sale mortgage money is to be taken as part of the consideration, equity raises upon the conscience of the purchaser an obligation to indemnify the mortgage debt, has been evolved on equitable theories and is not dependent on an express contract or covenant of assumption. The liability arises by implication and if the mortgagor-grantor and his grantee have expressly covenanted or agreed that the grantee shall not be liable for the payment of the mortgage indebtedness, an equitable implication does not arise.

4. Even though the terms of a contract for sale of lands may have been ambiguous as to whether existing mortgage encumbrances were intended to be deducted from the purchase price, if the deed of conveyance executed and delivered in pursuance of the contract clearly provides against liability on the part of the grantee for the payment of an existing mortgage indebtedness, the deed governs and the mortgagee may not recover from the grantee a deficiency contrary to the express covenant in the deed.

Action by Ephraim Tomlinson and others, and the Camden Trust Company, trustee for bondholders, against Warner Bros. Theatres, Inc., and others, to recover the amount of a deficiency arising out of the sale under a mortgage foreclosure. On motion by Warner Brothers Theatres, Inc., to strike the bill.

Motion granted.

Waddington & Mathews, of Camden, for complainants.

Starr, Summerill & Lloyd, of Camden, for defendant.

SOOY, Vice Chancellor.

Complainants seek to recover from defendants the amount of a deficiency arising out of a sale under a mortgage foreclosure.

The defendants are a Mr. and Mrs. Handle, mortgagors, and Warner Bros. Theatres, Inc., their grantee of the mortgaged premises.

Warner Bros, move to strike the bill because "the bill of complaint discloses neither an express agreement of assumption" on its part "nor facts from which an agreement to pay can be implied."

Complainant alleges that there was a direct assumption of payment on the part of Warner Bros. Theatres, Inc., that there was an implied or equitable assumption and that "the actions of the parties subsequent to the deed by the payment of interest and principal disclose an assumption."

Complainant has annexed to the bill of complaint copies of an agreement of sale and a deed covering the premises in question. The agreement of sale describes six tracts of land, all with theatre buildings thereon erected. The purchase price of all was fixed at $1,103,000, subject to mortgages aggregating $897,000. The particular tract with which the bill of complaint deals is known as "Towers Theatre," for which the Handles gave a separate deed of conveyance.

Those portions of the bill which the complainants contend support their right to relief are paragraphs 7, 8 and 16.

Paragraph 7 concludes—"The said agreement to convey and the said deed of conveyance from Morris Handle and Gertrude Handle, his wife, to Warner Bros. Theatres, Inc. contained a provision whereby the said grantee, Warner Bros. Theatres, Inc. assumed and undertook the payment of the mortgage hereinbefore referred to."

Paragraph 8 alleges—"The said premises were conveyed for the sum of $250,000.00. $125,000.00 thereof was paid in stocks or bonds. The remaining $125,000.00 was by the assumption and deducting out of the purchase price the mortgage of $125,000.00 heretofore mentioned."

Paragraph 16 alleges demand was made before the commencement of this suit of the said Warner Bros. Theatres, Inc., "which had assumed the payment of the said bonds and mortgage and which had purchased the premises from Morris Handle and Gertrude Handle, his wife, and deducted from the purchase price the mortgage."

Going back to paragraph 7 of the bill of complaint, under which it is alleged that Warner Bros, "assumed and undertook the payment of the mortgage hereinbefore referred to," we turn to the agreement of sale annexed to and made a part of the bill of complaint and find that the only language contained therein under which complainants contend that Warner Bros, assumed as aforesaid is paragraph 11, page 8 of the agreement aforesaid, and that paragraph starts out by saying: "The purchase price, which the party of the first, second and third part hereby agree to accept for the sale and delivery of the real property (all six tracts) * * * and which Warner Bros, agree to pay upon the terms, conditions and covenants hereinbefore and hereinafter set forth is One Million One Hundred Three Thousand Dollars ($1,103,000), subject to mortgages of $897,000." The $1,103,000 was to be paid in cash and debentures at a certain valuation fixed in the agreement and the $897,000 "by the assumption without liability for the payment therefor by Warner Bros, of the mortgages hereinafter set forth," and one of the mortgages thereinafter set forth is the $125,000 mortgage on the Towers Theatre property.

Paragraph 23, page 13 of the agreement, provides that in case the Handles could not make title to all of the property set forth in the agreement Warner Bros, should have the right to declare the whole agreement void or accept conveyance of each separate tract of which the grantors were able to make conveyance, and fixes the Towers Theatre at a price of $250,000, and the agreement then says, "from all of which prices shall be deducted the mortgages thereon and which have hereinbefore been agreed to be assumed by Warner Bros." In other words, the price was $125,000 subject to a $125,000 mortgage, and when paragraph 23 says that the mortgage had been "hereinbefore agreed to be assumed by Warner Bros." reference must be had to the language of the assumption clause in the preceding parts of the agreement, which is "by the assumption without liability for the payment therefor by Warner Bros."

The language quoted above sets forth clearly that the entire consideration for the conveyance of all the property mentioned in the agreement was $2,000,000 but the price at which the sale was made is stated in paragraph 11 as being $1,103,000. It is the mortgages for $897,000 which make up the total of the $2,000,000, but clearly the parties to the agreement did not deduct from the consideration the amount of the mortgage money. They fixed the purchase price at $1,103,000 subject to the mortgages and Warner Bros, assumed those mortgages "without liability for the payment" of said mortgages.

Going to the deed for the Towers tract,...