Opinion
01-12-1931
SABATINO v. D'ALOISE et al.
W. Louis Bossle, of Camden, for complainant. Boyle & Archer, of Camden, for defendant John J. Moore. George H. Jacobs, of Camden, for defendant Annie D. Cashman. Sidney Kaplan, of Camden, for defendants Felix and Mary G. D'Aloise.
Syllabus by the Court.
The assignee of a mortgagee who purchases the mortgage in good faith for an original valuable consideration, as distinguished from a pre-existing indebtedness, takes it free from latent or secret equities created by the mortgagee in favor of third persons of which the assignee does not have notice, but takes it subject to all the defenses which the mortgagor, or those who have succeeded to his rights, may urge against it.
Syllabus by the Court.
While culpable negligence in some circumstances will be operative as a bar to affirmative equitable relief to a negligent suitor, that rule cannot be asserted to deny a mortgagor relief against his mortgagee based on the fraud practiced by him, since it is the very purpose of fraud to cheat its victim by making him neglect the precautions essential to prevent injury; and to deny relief from fraud because the victim was negligent would only be operative to encourage dishonesty.
Syllabus by the Court.
The rule requiring investigation is not applied when there exists a relation of trust and confidence which disarms the victim.
Syllabus by the Court.
A wife in fraudulently co-operating with her husband in causing a property held by a third person under a naked trust for her husband to be conveyed by the trustee to another as an absolute estate may be enjoined from thereafter asserting against the vendee a dower interest in the property so conveyed.
Syllabus by the Court.
The assignee, in good faith for a valuable consideration, of a mortgage first of record, takes free from equities in favor of another mortgage on the same property later recorded in violation of an engagement of another to record it first in order.
Suit by Onofrio Sabatino against Felix D'Aloise and others.
Decree for complainant.
The solution of this controversy is controlled by a determination of the rights which may flow to an assignee of a mortgage on real estate who in good faith has purchased from the mortgagee for valuable consideration a mortgage which had been executed by the mortgagor to the mortgagee for an amount in excess of the true amount due thereon, in a case in which the mortgagor was ignorant of the fact that the mortgage was for an excessive amount by reason of fraudulent deception on the part of the mortgagee and the failure of the acknowledging officer to perform her duty.
The facts are not susceptible of doubt. Complainant, the mortgagor, is an Italian who does not understand the English language. Defendant D'Aloise, the mortgagee, is an Italian who is familiar with English and was engaged in the real estate business in Camden, and who appears to have enjoyed the confidence of all who knew him. Complainant agreed to purchase from D'Aloise a house and lot on Sylvan street, Camden, for $3,300, and to pay for it by executing two mortgages which were to aggregate $3,300; one of the mortgages was to be on the Sylvan street property so purchased, the other on a house and lot on Royden street, which was owned and occupied by complainant. It was immaterial to complainant how the two mortgages were to be apportioned; D'Aloise was to determine that. The legal title to the Sylvan street property then stood in the name of oneKeliher and wife, but the property was owned by D'Aloise. Complainant had implicit confidence in D'Aloise. and intrusted to him the preparation of all the papers, and confidently signed all papers so prepared for his signature.
The method adopted by D'Aloise to swindle complainant and others was as folows: D'Aloise borrowed from defendant Cashman $2,800, and offered her as security a mortgage for $2,000 on the Sylvan street property and another mortgage for $800 on the Royden street property. He then caused Keliher and wife to convey the Sylvan street property to complainant, and caused complainant to execute a $2,000 mortgage on that property to defendant Cashman and also an $800 mortgage to Cashman on the Royden street property. That left a balance of $500 of the purchase price due from complainant to D'Aloise. To secure that balance D'Aloise prepared another mortgage from complainant to himself for $2,500 on the Royden street property instead of the proper amount of $500, and caused complainant to sign it at the same time all the other instruments already referred to were executed. D'Aloise at the same time informed Cashman that his $800 mortgage was a first lien on the Royden street property. All the instruments were left with D'Aloise to be recorded. He then recorded his fraudulent $2,500 mortgage on the Royden street property ahead of the $800 mortgage which he had represented to Cashman to be a first mortgage. That left D'Aloise with a first mortgage lien of $2,500 on complainant's Royden street property, whereas he should have had only a $500 second mortgage lien. D'Aloise then assigned the fraudulent $2,500 mortgage to defendant Moore, an' innocent purchaser of the mortgage for valuable consideration. Moore took the assignment of the mortgage without procuring a declaration against defenses from the mortgagor or making any inquiries from any one except D'Aloise touching the mortgage. This swindle on the part of D'Aloise was made possible by reason of the implicit confidence imposed in him by all the parties, together with the aid he received from his wife who was a notary public and who certified acknowledgments of complainant to the $2,500 mortgage without acquainting him with the nature of the instrument which he signed. D'Aloise is now serving time in prison. He was brought to court in custody of an officer to enable him to hear the testimony and to testify, but he did not testify.
Complainant now seeks to be relieved from the $2,500 mortgage to D'Aloise (which is now held by Moore) except as to the true amount of $500. Cashman seeks to preserve the lien of his $800 mortgage as a prior lien to the mortgage held by Moore.
W. Louis Bossle, of Camden, for complainant.
Boyle & Archer, of Camden, for defendant John J. Moore.
George H. Jacobs, of Camden, for defendant Annie D. Cashman.
Sidney Kaplan, of Camden, for defendants Felix and Mary G. D'Aloise.
LEAMING. Vice Chancellor (after stating the facts as above).
It is suggested in Tate v. Security Trust Co., 63 N. J. Eq. 559, at page 561, 52 A. 313, that there is some conflict of the authorities in this state touching the equitable rights subject to which an assignee of a mortgage will or will not take; but I think an examination of all the authorities in this state on that subject discloses a clearly defined and established rule which cannot be mistaken and which may be accurately applied to any given facts. That rule, expressed both exclusively and inclusively, in essentially the language adapted in Vredenburgh v. Burnet, 31 N. J. Eq. 229, may be said to be as follows: The assignee of a mortgage who purchases a mortgage in good faith for an original valuable consideration, as distinguished from a pre-existing indebtedness, takes it free from latent or secret equities created by the mortgagee in favor of third persons of which the assignee does not have notice, but takes it subject to all the defenses which the mortgagor, or those who have succeeded to his rights, may urge against it. The reason for this rule appears to be that it is possible for an assignee of a mortgage to ascertain from the mortgagor, and thereby protect himself from, any claim the mortgagor may urge against the mortgage, whereas it is impossible for him to ascertain secret equities created by the mortgagee in favor of third persons. The following authorities in this state may be cited in support of the rule as above stated: Shannon v. Marselis, 1 N. J. Eq. 413; Losey v. Simpson, 11 N. J. Eq. 246; Woodruff v. Depue, 14 N. J. Eq. 168; Lee v. Kirkpatrick, 14 N. J. Eq. 264; De Witt v. Van Sickle, 29 N. J. Eq. 209; Putnam v. Clark, 29 N. J. Eq. 412; Vredenburgh v. Burnet, 31 N. J. Eq. 229; Magie v. Reynolds, 51 N. J. Eq. 113, 26 A. 150; Davis v. piggott, 57 N. J. Eq. 619, 42 A. 768; Tate v. Security Trust Co., 63 N. J. Eq. 559, 52 A. 313; Riley v. Hopkinson, 82 N. J. Eq. 469, 88 A. 1077; McMurtry v. Bowers, 91 N. J. Eq. 317, 109 A. 361; Reddavide v. Laskowitz, 99 N. J. Eq. 614, 133 A. 719, affirmed 100 N. J. Eq. 588, 133 A. 719, 135 A. 920; New Jersey Discount Co. v. Telesca, 101 N. J. Eq. 462, 139 A. 1; Perry v. Maud, 107 N. J. Eq. 102, 151 A. 735.
Since defendant Moore took an assignment of the fraudulent mortgage from complainant to defendant D'Aloise without obtainingfrom complainant as mortgagor a declaration of no defenses, he took subject to all the defenses which complainant as mortgagor may urge against it.
It is further urged in behalf of defendant Moore that complainant's negligence in intrusting the preparation of the mortgage to the mortgagee and executing it without knowing its contents should be operative to bar equitable relief in his behalf as against the assignee of the mortgage.
While culpable negligence in some circumstances will be operative as a bar to affirmative equitable relief to the negligent suitor, the application of that rule to the circumstances of this case encounters well-recognized; concurrent and co-operative elements which deny to it controlling force. The rights here asserted by complainant are equitable rights existing in favor of a mortgagor against his mortgagee, subject to which the assignee of a mortgage takes when the assignee of the mortgage neglects to procure from the mortgagor a declaration against defenses; and it scarcely will be contended that intrusting the mortgagee in the circumstances already stated the mortgagor barred himself from relief against the mortgagee based on the fraud practiced by the latter. As stated in 25 C. J. 1147, it is the very purpose of fraud to cheat its victim by making him neglect the precautions essential to prevent injury; and to deny relief from fraud because the victim was negligent would only be operative to encourage dishonesty. See, also, Decker v. Hardin, 5 N. J. Law, 579; Bigelow on Frauds, 524; Kerr on Frauds, pp. SO, 81. It is also recognized that the rule requiring investigation is not applied where there exists a relation of trust and confidence which disarms the victim. 26 C. J. 1158; Ricketts v. Tompkins, 73 N. J. Eq. 552, 68 A. 1075; Roberts v. Tompkins, 75 N. J. Eq. 576, 73 A. 505.
As between defendant Moore and defendant Cashman, the lien of the mortgage held by Moore on the Royden street property in its true amount must be held superior to the lien of the $800 mortgage held by Cashman on that property. This is because the prior record of the mortgage now held by Moore protects it against the latent equity arising from D'Aloise's representation to Cashman that his $800 mortgage was a first lien.
As already stated, the legal title to the Sylvan street property was held by Keliher and wife under a naked trust for defendant D'Aloise, and that property at the instance of D'Aloise was conveyed by the Kelihers directly to complainant. Accordingly, defendant Mary G. D'Aloise, wife of Felix, claims a dower right in that property. It was she who, as a notary public, falsely certified to the acknowledgment of complainant's mortgages, and in that manner assisted in consummating the fraud against complainant by causing complainant to accept the title of the Sylvan street property as free from any dower right on her part and to execute the purchase-money mortgage on it and also the mortgage for $2,500 instead of $500. It seems clear that in these circumstances she cannot equitably now be heard to assert against complainant a right of dower in the property so conveyed and incumbered; she cannot be permitted to assert a claim against the natural and obvious consequences of her own deliberate and wrongful acts.
The decree to be entered will cancel the $2,500 mortgage held by defendant Moore as to the principal amount of $2,000, thus leaving due thereon the principal amount of only $500. As between defendants Moore and Cashman, the lien of the mortgage held by Moore on the Royden street property in its reduced amount will be decreed to be a lien superior to the lien of the $800 mortgage on that property held by Cashman. Defendant Mary G. D'Aloise will be enjoined from asserting against complainant a claim of dower in the Sylvan street property. Rents of the Sylvan street property collected by D'Aloise and not applied by him, as agreed, in payment of interest on the mortgages and taxes, may be charged against the Moore mortgage up to the time it was assigned to Moore. Unless that amount be ascertained by agreement, a reference may be made to a master for that purpose.