Opinion
Argued October 17th, 1935.
Decided January 31st, 1936.
1. Before purchasing the premises in question, complainant inquired of defendant whether he had any interest in the tract. Defendant replied that he did not, despite the fact that he had a second mortgage on the premises. Complainant, relying on this representation and the search made by his attorney (which did not show defendant's mortgage), then completed the purchase, the first mortgage being canceled of record and a new mortgage made by complainant to the building and loan which loaned him the money being placed on record. Held, defendant's bond and mortgage ordered surrendered upon full payment of the principal and interest due thereon.
2. The present holder of the mortgage in question took it by assignment from his brother and failed to get a declaration of no set-off from the mortgagor or those holding under him, to wit, the complainants. He took subject to the equities in the situation.
3. Although equity will not allow a merger of mortgage when this would aid in carrying a fraud or other unconscientious wrong into effect, a merger will be allowed where substantial justice will result.
4. As a general rule equity will not relieve a person from the effects of a mistake which is the result of his culpable negligence. Complainant's actions may not be qualified as such under the circumstances.
On appeal from a decree of the court of chancery advised by Vice-Chancellor Sooy, who filed the following opinion:
"On December 27th, 1926, complainants purchased from one Brocolello premises situate in Atlantic county, hereinafter referred to as "Tract No. 3." The purchase price was $2,000 and was to be paid in cash at the time of settlement.
"Complainants, in order to raise the purchase-money, agreed with the building and loan association to borrow, on what was intended to be a first mortgage, $1,600, on said tract No. 3.
"At the settlement Brocolello received the purchase price and the building and loan association canceled a $1,200 building and loan mortgage then of record against the locus in quo, but did not cancel it as to two other tracts of land therein described (tracts 1 and 2). The new mortgage of $1,600 was placed of record and complainants and the building and loan association thought that the premises purchased by complainants were subject only to the $1,600 mortgage but, as a matter of fact, the records then disclosed the following conditions:
"October 22d 1925 — Mortgage, Brocolello to the building and loan association, $1,200; covers tracts of land herein referred to as Nos. 1, 2 and 3.
November 5th, 1925 — Mortgage, Brocolello to Joseph D. Giacomo, $542.80; covers same tracts, Nos. 1, 2 and 3.
June 4th, 1926 — Mortgage, Brocolello to John D. Giacomo, $4,800; covers tracts Nos. 1 and 2.
December 27th, 1926 — Deed, Brocolello to Pitroni, $2,000; covers tract No. 3. (This tract being the property more particularly described in the bill of complaint.)
December 27th, 1926 — Mortgage, Pitroni to the building and loan association, $1,600; covers tract No. 3.
December 31st, 1926 — Release of mortgage, the building and loan association to Brocolello; covers tract No. 3 ( i.e., the $1,200 first mortgage that was recorded October 22d 1925).
"Subsequently, John Giacomo purchased from his brother, Joseph, the $542.80 mortgage and took an assignment thereof under date of March 31st, 1932.
"Thus things stood until the early part of 1932, when complainant applied to the building and loan association for an increase in his loan, whereupon an investigation was made and the existence of the $542.80 mortgage was disclosed, whereupon an effort was made to have Joseph Giacomo, the then holder of the mortgage, assist in rectifying the mistake. He refused to assist and assigned the mortgage to his brother, John.
"I find the facts as set forth in the preceding paragraph, notwithstanding the testimony of Joseph to the contrary. He says that he did not know of the sale by Brocolello to complainants until about a week after the settlement had been made. He further testified that the officers of the building and loan association were mistaken when they testified that the first effort made to rectify the mistake was in the early part of 1932, but says that on the contrary, they came to him about a year after the settlement, i.e., some time in 1927, and called his attention to the alleged mistake and that he told them to `cancel the mortgage.' I take it that he meant that he told them to pay off the mortgage. He attempted to identify the officer of the building and loan association who came to him, as he says, in 1927, and picked out and identified as the man with whom he had had the conversation, a Mr. Bridges, and when Mr. Bridges took the stand and denied the incident, Joseph testified that he was mistaken; that it was a Mr. Doerfel, and Mr. Doerfel took the stand and denied the incident.
"I am satisfied that Joseph did not tell the truth with reference to this important matter, but that the true fact is that Joseph was not approached until February of 1932, and that after the mistake was called to his attention he assigned the mortgage to his brother, John, with full knowledge that the mistake had been made. This finding of fact is important because of the evidence of Mr. Pitroni to the effect that prior to the purchase of the property, he, Pitroni, talked to Joseph and advised him that he had agreed to purchase it and asked Joseph whether he had any interest in it and that Joseph replied that he had no interest in tract No. 3, but that he had a mortgage on tracts 1 and 2.
"Having in mind the testimony of Joseph as above outlined and its untruthfulness, I must decide against him when he says that Pitroni did not discuss the matter of the purchase of the property prior to the time of the sale, and find that Pitroni did, as a matter of fact, ask Joseph what his interest in the property was and that his reply was that he had no interest in tract No. 3. The probabilities are that the same result would have been reached by merely contrasting the manner in which the two witnesses gave their testimony on the stand. Pitroni was earnest, his answers were responsive and he gave every evidence of truthfulness, and Joseph's demeanor was the exact opposite.
"With this finding of fact, are the complainants entitled to the relief which they seek, i.e., are they entitled to compel Joseph Giacomo to deliver to them the bond and mortgage covering all three tracts, amounting to $542.80, uncanceled, upon the payment to him of the full amount of principal and interest due thereon?
"If the complainants do not obtain the relief they seek they will be compelled to protect their equity of redemption by the purchase of the property under foreclosure of the mortgage in question and they will not have in their possession the bond which accompanies the mortgage and will not, therefore, have a right to proceed as against Brocolello on the bond. They have paid the full purchase price of the property and will have to pay the amount of the mortgage, without receiving the benefit of the security. On the other hand, if John Giacomo receives the full amount of the principal and interest on the bond and mortgage, he will have lost nothing. His $4,800 mortgage on tracts 1 and 2 will still be a third mortgage, subject to the $1,200 building and loan mortgage, and the $542.80 mortgage. He has no interest in tract No. 3 because his third mortgage does not cover that tract. In addition to this, when he took his assignment on March 31st, 1932, he took it subject to all the equities that existed as between Pitroni and his brother, Joseph, and while I am not prepared to find that Joseph's statement to Pitroni prior to the purchase of the property that he, Joseph, had no interest in it, brought about the mistake made at the settlement, yet, had Joseph then advised Pitroni of the existence of the mortgage as a lien against tract No. 3 the possibilities are that the mistake would not have been made by the attorney who effected the settlement.
"That a mistake was made at the settlement is without doubt, and that the mistake was mutual in so far as the building and loan association and Pitroni is concerned is also apparent. In so far as Brocolello is concerned, he knew of the existence of the mortgage as a lien against tract No. 3 but did not disclose his knowledge, and I believe his failure so to do was more through ignorance than design, but be that as it may, he participated in the mistake.
"As to John, it appears that when he took the assignment he did not get a declaration of no off-set from Brocolello or those holding under him, to wit, the complainants. If he had applied for such a document from the complainants, the owners of the equity of redemption, he would have been advised of the mistake that had been made and would have been in position to be compelled to surrender the bond and mortgage uncanceled, upon the payment of the amount due thereon.
"It is urged that Pitroni, were he to be permitted to pay the amount due on the mortgage and receive an equitable assignment thereof, would, through merger, gain an inequitable advantage over the present holder thereof.
"Professor Pomeroy, in the second volume of his work, section 794, page 1625, says:
"Whatever may be the circumstances, or between whatever parties, equity will never allow a merger to be prevented and a mortgage or other security to be kept alive, when this result would aid in carrying a fraud or other unconscientious wrong into effect, under the color of legal forms. Equity only interposes to prevent a merger, in order thereby to work substantial justice.'
"The converse of the above equitable rule would be true, so that a merger would be decreed in order `to work substantial justice' so that, in the instant case, a decree that Giacomo accept the principal and interest of the mortgage and deliver over the bond and mortgage uncanceled to complainant will not permit complainant to work an injustice, either through merger or otherwise.
"It is also urged that the mistake made consists of negligence in not ascertaining the record status as disclosed by a search on the premises and that equity will not relieve under such circumstances.
"In Seeley v. Bacon, 34 Atl. Rep. 139 (at p. 141), Vice-Chancellor Reed held:
"`As a rule equity will refuse to rectify a mistake which occurred through the unexcusable negligence of the party who asks to be relieved from the effect of the mistake,' and cites cases in support of this doctrine, and continues:
"`But what degree of vigilance is to be exercised must depend upon the facts of each case. Where the act done by mistake is one calculated to induce others to take a line of conduct which will put them to loss if the mistake is corrected, it ought to be clear that the party asking for relief has been led into the mistake in spite of the employment of the highest degree of viligance.'
"In 2 Pom. Eq. Jur. 1748 § 856, he says:
"`Where the mistake is wholly caused by the want of that care and diligence in the transaction which should be used by every person of reasonable prudence, and the absence of which would be a violation of legal duty, a court of equity will not interpose its relief; but * * * each instance of negligence must depend to a great extent upon its own circumstances.'
"In effect, this statement has been approved in Collignon v. Collignon, 52 N.J. Eq. 516 (at p. 520).
"It is true that the general rule is `that equity will not relieve a person from the effects of a mistake which is the result of his culpable negligence.' Dillett v. Kemble, 25 N.J. Eq. 66, and that `this rule has been applied where the negligence was that of counsel,' supra (at p. 67), and Hayes v. Stiger, 29 N.J. Eq. 196.
Now then, in so far as Pitroni is concerned, he relied on two things, first, Joseph Giacomo had said that he had no interest in tract No. 3 and, second, he paid for a search and relied upon an attorney in the result thereof. The attorney failed him and Joseph Giacomo, by his statement of no interest in tract No. 3, at least prevented any suspicion of the mistake in the mind of Pitroni, and if Pitroni may be made whole without material injury to Joseph Giacomo's assignee, his brother, the court should aid him and, as heretofore pointed out, the decree sought for will not result in the material injury of Joseph's assignee.
"A decree will be advised ordering the surrender of the bond and mortgage in question, upon payment of the full amount of principal and interest due thereon, and the counter-claim under which the defendants seek the right to foreclose the mortgage will be dismissed. There will be no counsel fees allowed to the complainants but they may have their taxed costs against the defendants."
Mr. Emerson L. Richards, for the appellants.
Messrs. Bleakley, Stockwell Burling, for the respondents.
The decree appealed from will be affirmed, for the reasons expressed in the opinion of Vice-Chancellor Sooy.
For affirmance — THE CHIEF-JUSTICE, LLOYD, BODINE, HETFIELD, DEAR, WELLS, WOLFSKEIL, JJ. 7.
For reversal — CASE, DONGES, HEHER, PERSKIE, RAFFERTY, JJ. 5.