Opinion
No. 42/716.
08-09-1917
NEWARK TRUST CO. v. LACKAWANNA INV. CO. et al.
Raymond, Mountain, Van Blarcom & Marsh, of Newark, for complainant. Lehlbach & Johnson, of Newark, for defendants.
the loan, and in a suit to foreclose the mortgage cannot, though the assignment declared that, if recourse should be had to the collateral, any excess should be applicable on any other note held by complainant, recover on account of subsequent loan to a third person on a note indorsed by the owner of all the stock of the defendant corporation; it not appearing that such loan was made on the faith of the mortgage.
Bill by the Newark Trust Company against the Lackawanna Investment Company and others to foreclose a mortgage. Decree for complainant for only part of the relief prayed.
Raymond, Mountain, Van Blarcom & Marsh, of Newark, for complainant. Lehlbach & Johnson, of Newark, for defendants.
LANE, V. C. This is a bill to foreclose a mortgage made on November 1, 1910. by the Lackawanna Investment Company, the defendant, to Roland D. Crocker, purporting to secure the payment of the sum of $8,000 in one year. On December 16, 1910, the said Crocker assigned the mortgage to the complainant as collateral to his note for $5,000. A written assignment was made and recorded. The assignment in terms is as collateral security for the payment "of my demand note of even date herewith for the payment of the sum of $5,000, with interest at six per cent. per annum." The collateral note contained the following language:
"The undersigned having deposited with said Trust Company as collateral security for payment of this or any other liability or liabilities of the undersigned, direct or contingent, individual or firm, to said trust company now existing, or which hereafter may be contracted, the following property, viz.: Assignment of mortgage Lackawanna Investment Company to me for eight thousand dollars, dated November 1st, 1910."
And the following:
"On nonperformance of this promise, or the nonpayment at maturity of any of the other liabilities aforesaid, * * * sale may be made," etc.
And the following:
"It is hereby agreed and understood, that if recourse is had to collateral any excess of collaterals upon this note shall be applicable upon any other note, claim or endorsement, held by said company."
The stock of the Lackawanna Investment Company was all owned by Roland D. Crocker and one Powell. They and one other, a dummy, constituted its board of direc-"tors. Powell was a member of the board of directors of the Newark Trust Company. Crocker was also a member of its board of directors and of its executive committee. He was its counsel, and was as well the personal counsel of Powell. The Lackawanna Investment Company desired to obtain from the Newark Trust Company $5,000. Crocker represented to Powell that it would be easier to obtain a loan of $5,000 with a mortgage for $8,000 rather than $5,000 as collateral. That there should be this excess was rendered necessary by a rule of the banking institution known to Powell which required that the ad vance should not exceed 80 per cent. of the value of the collateral. The loan was granted; the mortgage pledged; the $5,000 was advanced and paid to the Lackawanna Investment Company, and this is the only sum that was ever paid on account of the mortgage. On the 12th day of May, 1914, approximately three years after the transaction hereinbefore referred to, the bank loaned $2,500 to one Ackor and took his note indorsed by Crocker. This note was never paid. Protest was waived, and the indebtedness is an indebtedness of Crocker. The bank claims to hold the mortgage as collateral, not only to the $5,000 Crocker note, but as collateral to the Ackor note. There is no evidence that the bank advanced the money to Ackor upon the faith of its holding the assignment of the mortgage. There is no proof of any facts excusing the failure of the bank to produce such evidence which might possibly lead the court to presume that the bank advanced the money upon the faith of this security. If it had been shown that the officer who made the loan on the Ackor note was inaccessible, it might be argued that the court should presume that the bank, having this collateral in its possession, relied, to some extent, upon it in making the loan.
I am forced to conclude that the bank did not, in making the loan on the Ackor note, rely in any degree upon the fact that it held this mortgage. Counsel for the bank relies upon the case of Tate v. Security Trust Company, 63 N. J. Eq. 559, 52 Atl. 313. Giving that case the force and effect contended for by counsel, to wit, that if the bank is a bona fide purchaser for value it is not bound by the equity of the Lackawanna Investment Company, the question remains as to what extent the bank is a purchaser for value. Only to such extent is it entitled to protection. Lawshe v. Trenton Banking Co., 99 Atl. 617. It certainly is a purchaser for value to the extent of the $5,000 originally paid. But when it advanced $2,500 to Ackor, not relying in any degree upon its possession of this assignment, did it increase its investment in the security by $2,500? I think not. It seems to me that it is only where money is advanced upon the faith of the security, either actually proven or presumed, that the bank can prevent a third party from setting up his equity. As before stated, in this case, there are no facts shown which would indicate that the bank relied upon the security, nor are there any facts shown which would induce the court to presume it. It is not even argued that the court has a right to assume that there was any such reliance. The bank rests upon the technical terms of the contract with Crocker evidenced by his collateral note.
The view that I have taken renders it unnecessary for me to consider to just what extent the doctrine of Tate v. Security Trust
Company, supra, goes. I express no opinion upon that point.
There will be a decree for complainant for the sum of $5,000 with interest.