Opinion
04-08-1936
ESTATE OF ESTHER, Inc., v. VESLOR REALTY CO. et al.
Wallace P. Berkowitz, of Jersey City, for petitioner Antonio Loori. Abe A. Schultz, of Jersey City, for respondent Jacob Domnik. Dominick V. Daniels, of Jersey City, for other defendants.
Suit by Estate of Esther, Inc., against the Veslor Realty Company, and others. On petition of Antonio Loori to open a final decree and that he be permitted to defend the suit.
Petition denied.
Affirmed in 193 A. 851.
Wallace P. Berkowitz, of Jersey City, for petitioner Antonio Loori. Abe A. Schultz, of Jersey City, for respondent Jacob Domnik. Dominick V. Daniels, of Jersey City, for other defendants.
FIELDER, Vice Chancellor.
May 26, 1932, Veslor Realty Company executed its bond and mortgage to Estate of Esther, Inc., for $5,000. The mortgage was foreclosed by bill filed September 28, 1934, and January 21, 1935, a final decree was entered and sale was had June 27, 1935, for more than the amount found due on the mortgage and on a second mortgage held by a defendant in the cause. The purchaser defaulted, and the property was resold December 12, 1935, to Jacob Domnik for $100, but confirmation has been withheld because of objection filed December 17, 1935 (as shown by the file in the cause), that the consideration was inadequate.
January 2, 1936, Antonio Loori presented his petition alleging that he had conveyed the mortgaged premises to Veslor Realty Company at the instance of his son Joseph J. Loori, who is a member of the bar; that he owns all the stock of that corporation, three qualifying shares being held by dummies who were the corporation officers; that without his knowledge or consent the dummy officers executed the aforesaid bond and mortgage without consideration moving to the corporation; and that he was unaware of the foreclosure proceedings until after sale to Domnik. He prays that the final decree be opened and he be permitted to defend the suit. The application was heard on affidavits submitted on behalf of the petitioner and on behalf of Domnik, who is the assignee of the final decree.
The story gathered from the affidavits of Joseph Loori and his brother Thomas, filed for the petitioner, is that Thomas owed a debt to Max Goren, who was an officer of Estate of Esther (Goren's affidavit annexed to the master's report states he was secretary), and to secure that debt Joseph Loori had the dummy officers of Veslor Realty Company execute the mortgage to Estate of Esther on Thomas Loori's promise to pay Goren's debt and have the mortgage canceled and upon Goren's promise that the mortgage would not be foreclosed. When Joseph Loori learned of the commencement of the foreclosure suit, he upbraided his brother and Goren, and they promised to settle the matter, and he heard nothing further about the foreclosure until March, 1935, when he learned the property was advertised for sale. Joseph Loori then endeavored to induce his brother to pay the decree of over $6,000, including costs, and he had a conference with his brother and Harry Good, Abe A. Schultz (who is Domnik's solicitor) and one Fullem at which Good said he owed Thomas Loori money and he (Good) would induce his aunt to advance $3,000 to Goren for a stay of proceedings; that Fullem, who said he was Mrs. Good's representative, drew his check for $3,000 and gave it to Schultz, who drew his check for the same amount, and that check was delivered to the solicitor for Estate of Esther; that it was agreed that the assignment of the decree should be made to Domnik (who was not present) for Mrs. Good. The affiants swear further that Joseph and Thomas Loori stated to Good, Fullem and Schultz that the mortgage had been given by Veslor Realty Co. to secure a debt Thomas Loori owed Goren, and that the mortgage was invalid because no consideration had moved to Veslor Realty Co.
Domnik's story is that Good asked his financial assistance on behalf of the Looris, and Domnik thereupon retained Schultz to look into the matter; that Schultz did so,and reported to Domnik that there was ample security for the amount due on the decree, and Domnik entered into an agreement with the Estate of Esther whereby he agreed to pay, and did pay, on April 18, 1935, $3,000, and to pay the balance (at an unstated time) for an assignment of the decree; that he advanced $3,000 on the promise of the Looris made to his solicitor that they would repay him the sum advanced and would pay the Estate of Esther the balance of the decree; that the Looris defaulted on their promise and Domnik was compelled to pay and did pay the Estate of Esther June 18, 1935, a balance of $3,283.82, and thereupon the decree was assigned to him; that he never met any of the Loori family or Goren and has no knowledge that the Estate of Esther advanced no money to Veslor Realty Company for the mortgage; that he is willing to assign or convey his interest in the mortgaged premises on payment of the amount he paid out, with interest and attorneys' fees. Schultz' affidavit is that he conducted the transaction for Domnik without information or knowledge of invalidity of the bond and mortgage and that he received no check from Fullem. Good and Fullem deny that the payment of $3,000 was made by them, or by Good's aunt, and they deny they were told by Joseph or Thomas Loori, or that they had any knowledge, that the mortgage was given to secure a debt due from Thomas Loori to Goren and was without consideration to the mortgagor. Good further denies that he owed money to Thomas Loori. No affidavit by complainant's solicitor, by Goren, or by any officer of Veslor Realty Company was submitted to throw light on the subject, except an affidavit by Julius Kepsel, who was one of the dummy officers of Veslor Realty Company, wherein he swears that as a favor to Schultz he prepared the assignment to Domnik of complainant's decree. Reference is made to Goren's affidavit annexed to the master's report, wherein, as secretary of Estate of Esther, he swears that $5,000 and interest is due on the mortgage.
The case for petitioner depends wholly on the affidavits of Joseph and Thomas Loori, who confess that they perpetrated a gross fraud on their father. If Veslor Realty Company received no consideration for the mortgage, it is not improbable that they would seek to escape the consequences of their fraud by falsely imputing to the assignee of the decree knowledge that the mortgage was invalid. Nothing that the Loori brothers now say on behalf of their father is corroborated by another affiant, or by any circumstance. If the mortgage was without consideration, that fact could be substantiated by at least one officer of the corporate mortgagor, and, if such were the fact, when foreclosure proceedings were instituted contrary to Goren's alleged promise, there was at hand a complete defense to the action. As a member of the bar, Joseph Loori knew that failure to interpose a defense would result in a final decree and he must have known that a defense of no consideration would be precarious as against one taking an assignment of the decree without notice of defect in the mortgage. It is not credible that, after complainant had entered a final decree and had advertised the property for sale and after the assignee of the decree had gone to a sale in June, 1935 (which failed of efficacy only because the purchaser defaulted on his bid), Joseph Loori would have delayed any longer in taking steps to protect his father, if complainant and the assignee of the decree knew the mortgage was fraudulent. If the first payment of $3,000 on the decree was made with money Harry Good owed Thomas Loori, or with money which came from Good's aunt, the natural course would have been to have the agreement to take an assignment of the decree made in the name of Thomas Loori, or Good or Mrs. Good, but with the knowledge of both Looris the agreement was made in the name of a man the Looris did not know and had not seen, and who, so far as they knew, had no direct knowledge of the infirmity they say existed in the mortgage. Kepsel was an officer of Veslor Realty Company when the mortgage was executed, and, if the mortgage was without consideration, he must have known it. His affidavit was made on behalf of the petitioner, but it does not state whether there was consideration for the mortgage or not. He is a member of the bar, and it does not seem likely that he would, at Schultz' request, prepare an assignment of a decree for which he knew money had been and would be paid, with knowledge that the mortgage on which the decree was based was invalid.
If the mortgage was actually given without consideration, there is no reliable evidence that that fact was known to Domnik. All that the Loori brothers say is that they stated to Good, Fullem, and Schultz that the mortgage lacked consideration; thus they participated in a fraudulent act in inducing some one, whether it be Domnik, in his own right, or as agent for Mrs. Good, to paymoney for a decree they believed to be invalid, but Good, Fullem, and Schultz deny that such statement was made to them, and it is not likely that Schultz, as an attorney, would permit a client to pay for a decree he knew could not withstand attack. There is no evidence on behalf of the petitioner as to the circumstances surrounding the second payment of $3,283.33 to the Estate of Esther, or who paid it. There is no denial that a total of $6,283.33 was paid for the assignment of the decree, or that Domnik paid it, other than the statement that the first $3,000 was paid by Fullem's check to Schultz, which statement is denied by Fullem and Schultz. The Looris had not only failed to take steps to prevent the second foreclosure sale, but after that sale they did not attack the proceedings at once but merely caused objection to confirmation to be filed on behalf of Veslor Realty Company on the ground of inadequacy of price.
The affidavits on behalf of petitioner do not satisfy me that the mortgage lacked consideration but, if it did, I am not convinced that Domnik was other than a bona fide purchaser of the decree without knowledge of such infirmity, and without knowledge of petitioner's interest in the mortgaged property. The assignee of a bond and mortgage takes his assignment subject to all defenses which exist in favor of the mortgagor as against the mortgagee, the assignee being under a duty to ascertain from the mortgagor whether any defense exists, but such an assignee does not take the assignment subject to latent equities which may exist in favor of a third party as against the mortgagor and of which the assignee has no notice. Domnik was under no duty to make inquiry as to whether any one other than Veslor Realty Company had an interest in the mortgaged premises, and it is not contended here that he had notice or knowledge of the interest claimed by petitioner. Nor is one who takes an assignment of a court decree adjudging an amount to be due on a mortgage under a duty to go behind the decree to inquire whether the mortgagor has a latent defense which he has not urged. Here the mortgagor interposed no defense to the foreclosure and permitted a final decree to be entered against it, which in effect adjudged the mortgage to be a valid lien. If Veslor Realty Company had a defense, it was its duty to speak. Its silence amounted to a representation that the mortgage was incontestable and created a situation which led to the natural belief that it could raise no objection to the collection of the mortgage debt. Failure to defend the suit would naturally influence the actions of one solicited to take an assignment of the decree. Domnik had a right to assume that all rights and equities between the parties to the mortgage had been settled by the decree and he was not bound to inquire of the mortgagor if it had a defense it had not interposed. Because of the situation created by Veslor Realty Company by its silence, it is estopped from attacking the validity of the decree in Domnik's hands.