Zabriskie v. Mack, 130/273.

• Decision Date: 07 December 1942
• Docket Number: 130/273.
• Parties: ZABRISKIE v. MACK et al.
• Court: New Jersey Court of Chancery

29 A.2d 199

132 N.J.Eq. 516

ZABRISKIE

v. MACK et al.

130/273.

Court of Chancery of New Jersey.

Dec. 7, 1942.

Syllabus by the Court.

Where one of two innocent persons must suffer a loss, it is borne by the one who first rendered the injury possible.

Where a mortgagee entrusts his agent with the funds to be paid to a mortgagor, and the agent fails to make payment in whole or in part, the mortgagor is liable under the mortgage only for the amount of the funds which actually were paid to him.

Suit by Peter L. Zabriskie against George Mack and others to determine the amounts due on two mortgages, and the priority as between the mortgages. On exceptions by complainant to a master's report.

Exceptions sustained in part.

Jerome J. Dunn, of Ridgewood, for complainant.

Landau & Mehler, of Hackensack (Jacob Landau, of Hackensack, of counsel), for defendant George Mack and others.

Emil Stremlau, of Carteret, for defendant Carteret Bank & Trust Co.

LEWIS, Vice Chancellor.

This suit is before the court on exceptions to report of a Master to whom was referred the questions of the amounts due on two mortgages, one to complainant and the other to defendant, Carteret Bank & Trust Company, and their priority. The real question is as to who shall bear the loss incurred by reason of a series of fraudulent transactions of one Rodenberger.

In March, 1939, defendant, George Mack, was building a house for sale at New Milford and approached Mortgage Service Bureau, Inc., which was operated by Rodenberger, to secure a construction loan. Rodenberger arranged a loan from complainant Zabriskie. Mack and his wife executed a mortgage March 21, 1939, to Zabriskie in the sum of $2,160 which was recorded April 4, 1939. It was to secure future advances under the following provision:

"This is an advance money mortgage and is given to secure whatever amount of indebtedness may at any time hereafter become due from the said George Mack and Teresa Mack, his wife, to Peter L. Zabriskie. Interest on this mortgage to be computed at the rate of six per centum per annum from and after the date of each advance."

On March 24th, Rodenberger showed it to Zabriskie, who thereupon signed a check for $2,160 which was drawn by Rodenberger to the order of Harold E. Smith, Atty., who was a salaried employee of the Mortgage Bureau. Rodenberger secured the endorsement in blank by Smith and cashed the check the same day. What he did with the proceeds does not appear exactly. At any rate, none of the proceeds of this check was paid to Mack. It was shown before the Master that on the same day $1,980 was deposited in the First National Bank of Paterson in the account of the Mortgage Bureau. Overdraft checks in the amount of $410 were already outstanding against the account. The balance created by the deposit was soon exhausted by payments to others than Mack before he received anything on his mortgage. In other words, the Mortgage Bureau had converted to its own use all the money entrusted to it by Zabriskie to be advanced to Mack. The Master found, and all the evidence confirmed it, that on this transaction the Mortgage Bureau was the agent for Zabriskie and not for Mack. If this were the entire situation, the Mack mortgage would be void for lack of consideration, Zabriskie being liable for the embezzlement from him by his agent. In Miller v. Schielke, 105 N.J.Eq. 337, 154 A. 314, 315, the mortgagee delivered a check to one Comp to be delivered to the mortgagor. The mortgage was cancelled. The court stated:

"It is obvious that both mortgagor and mortgagee are innocent dupes of Comp: one or the other must suffer loss as the result of Comp's rascality. It seems equally clear, upon consideration of the facts, that the loss in this instance must fall on the mortgagee. Comp was Schielke's agent; the latter entrusted him with $3,500. * * * Comp embezzled the $3,500 immediately upon his receipt thereof. * * * The mortgagors executed and delivered to the mortgagee the bond and mortgage, relying on his promise to pay the $3,500 for their use and benefit, to the holders of the existing mortgages in satisfaction thereof. The mortgagee did...