Opinion
Submitted February 12th, 1932.
Decided May 16th, 1932.
1. The improvidence of the defendant mortgagor, a forty-six-year-old woman subject to epileptic fits and under the dominance of her husband, being so apparent, the presumption is that she did not appreciate the consequences of mortgaging her home, the purpose of the bond and mortgage, who was to receive the proceeds thereof, or the risk she was taking.
2. Under the facts of this case, the burden is on the complainants, who seek to foreclose, to show that the defendant, in mortgaging her home, acted on proper independent advice.
On appeal from a decree of the court of chancery advised by Vice-Chancellor Fielder, who filed the following opinion:
"One McGee, operating in the name of a New Jersey corporation, was engaged in the sale of stocks and securities. He claimed to control the stock issue of an Arizona mine and his principal activity, at the time of the transaction hereinafter mentioned, was promoting the sale of this stock. His activities later attracted the attention of the attorney-general who brought proceedings against him or his corporation, for dealing in worthless securities. McGee's New Jersey corporation had issued a bad check for $2,000, which came to the hands of the complainant Goren, who placed it with his attorney, the complainant Colgan, for collection, and Colgan threatened McGee with receivership proceedings against the corporation. McGee was on friendly terms with the defendant, David J. Allen, and had interested Allen in his stock selling scheme, on the promise that in the event of success of McGee's enterprise, Allen would receive a generous share of profits and Allen believed he saw an opportunity to make money with little effort. McGee and Allen called on Goren and Colgan, stated that McGee's corporation was without funds, explained the mining stock venture in which McGee was engaged, told of McGee's certainty of success and pleaded for time for payment of the $2,000 check, whereupon ways and means for securing payment to Goren were discussed. The parties had several conferences at one of which McGee broached his need of funds in aid of his stock selling campaign and a loan was requested from Goren of a sum sufficient to satisfy his $2,000 claim and to place McGee in funds and Allen offered to place a second mortgage on his (Allen's) home, which Goren agreed to accept as security for a loan of $7,000. The parties agreed that out of the loan, Goren's claim of $2,000 would be discharged and Colgan should receive $700 for his legal services on Goren's behalf. Goren testified that he was interested only in the payment of his claim and his attorney's fees, and the inference from his testimony is that he understood that the $4,300 balance of the loan was to go to Allen, but every one connected with the transaction, including Colgan, knew that the $4,300 was to be paid to McGee and I am satisfied that Goren knew it also.
"Title to the premises to be mortgaged to Goran was not in Allen but in his wife, the defendant Ellen E. Allen. She was not consulted by anyone concerning the proposed mortgage, nor was she informed of its purpose or the disposition to be made of the mortgage money. A few days after Goren had agreed to make the loan, she was taken by her husband to Colgan's law office to sign a bond and mortgage, and there she met McGee, Goren, Colgan, Dowden and Dolan. Dowden is a lawyer and was present as Allen's friend and legal adviser. Dolan was a friend of Allen and was also interested in McGee's corporation. Goren testified that until long after the transaction was closed, he assumed Allen to be the owner of the property mortgaged, but his attorney, Colgan, knew that the property belonged to Mrs. Allen. A bond and mortgage from Mr. and Mrs. Allen to Goren were produced, Mrs. Allen was requested to sign and she asked her husband if it was all right and he replied that it was, whereupon she signed and a notary was called in to take the acknowledgments. He stated the contents of the mortgage to Mrs. Allen in the usual formal manner, asked her if she understood it and acknowledged its execution, and upon her affirmative reply certified her acknowledgment with that of her husband. Goren had given Colgan $7,000 and Colgan drew his check for that amount to Mrs. Allen's order and gave it to Dowden and the entire party repaired to Dowden's law office, where Dowden had Mrs. Allen endorse the $7,000 check and Dowden then drew his checks to Mrs. Allen's order, one for $2,000, another for $700 and two others for the balance of $4,300. At Dowden's direction Mrs. Allen endorsed the four checks so that the first was made payable to Goren, the second to Colgan, and the third and fourth to McGee. Of the two checks for a total of $4,300, McGee received the entire amount. Goren subsequently assigned a half-interest in the mortgage to Colgan and this suit is brought by Goren and Colgan to foreclose the mortgage. Allen has interposed no defense, but for Mrs. Allen an answer was filed setting up mental incompetence to understand the transaction, fraud, concealment of facts and lack of independent advice, and a counter-claim praying that the bond and mortgage be declared void and be delivered up for cancellation.
"When Mrs. Allen executed the bond and mortgage she was about forty-six years old, and she had been subject to epileptic attacks for twenty years, with seizures as often as twice a month. She was not permitted to leave her home unattended and the employment of a housekeeper to manage her household affairs had been found necessary. She has been under a physician's care many years and he testified that she is unable to transact business, being at times in a confused state of mind, although he expressed the opinion that if it were explained to her that she was called upon to sign a mortgage for $7,000 on her house, she could grasp the statement. During the trial of the cause I suggested that she be examined by a physician to be named by me and the suggestion was adopted. After making examination, this physician testified that the history of her case indicated epilepsy but that in his opinion she was capable of understanding, on proper explanation, what a mortgage is, and its effect. In the course of his testimony this physician quoted many questions and answers which passed between Mrs. Allen and him and she was called as a witness before me. The quoted conversation with the examining physician and her testimony in court shows marked incoherency and mental incompetence, and if that were to be taken as the test of her ability to comprehend the nature and effect of a mortgage, there could be no hesitancy in deciding her absolute incompetence. The doctor thought that she was not co-operating with or aiding him in making diagnosis of her condition and as a witness she may have been dissembling or exaggerating her mental state, but whether capable or incapable of grasping a business transaction, she was far below the level of business intelligence of the men with whom she was dealing at the time she executed the bond and mortgage.
"Five months prior to the execution of the bond and mortgage in question she executed a bond and what is now the first mortgage on her home, the proceeds of which were used to satisfy another mortgage, then under foreclosure, on the same premises and arrears of municipal liens. On the occasion of the execution of that bond and mortgage she was accompanied by her husband and Dowden, and the testimony of the official who certified her acknowledgment on that mortgage is merely that he explained the contents to her, asked her if she acknowledged its execution, that she made some affirmative reply and that she appeared to understand what he said. She might be made to understand what a mortgage means, but she signed the one here in question because her husband requested her to and assured her that it would benefit him and her and that McGee had promised to pay it when it fell due, but I am confident that she did not appreciate the risk she was incurring and certainly no one explained the risk to her. Goren and Colgan had visited her home to inspect the property prior to Goren's agreement to make the loan and they testified concerning conversations had with her and testimony was given as to a few remarks she made at Colgan's office the day she signed the bond and mortgage, the purpose of such testimony being to show that her mental condition was good. Everything she is quoted as having said on both occasions was of a trivial nature relating to ordinary matters and might have been uttered by a fourteen-year-old girl. Allen testified that before she signed the bond and mortgage he told all the men present at Colgan's office that Mrs. Allen was an epileptic, but his testimony was denied and I do not believe it. Goren and Colgan testified that they were unaware of her physical condition, but her appearance as she sat in court during the trial (about a year and a half after the mortgage was executed) would convince anyone that she was not then in normal health.
"Mrs. Allen was dominated by her husband and he took advantage of his control over her and her trust in him. It is not disputed that if any explanation was made to her as to the purpose of the bond and mortgage, or who was to receive the proceeds thereof, or as to the risk she assumed by placing a lien on her property, it was made by her husband, and he denied making such explanation. The mortgaged property is her home and the foreclosure will result in taking it from her. It is covered by a first mortgage of $8,000 and her equity was not worth $7,000 in Goren's judgment, for at first he declined to make a loan of that amount on the ground of insufficient security, and before he finally consented he exacted a written agreement from Dowden that he (Dowden) would pay $16,000 for the property at any time within sixty days after foreclosure of the mortgage. Goren says he thought Allen was the owner of the property. I think he knew to the contrary, at least on the day the bond and mortgage were executed. He must have known that Colgan's check for the amount of the loan was drawn to Mrs. Allen and of course he knew that Dowden's check to pay his (Goren's) claim was drawn to Mrs. Allen's order and by her endorsed to Goren. He knew that $2,700 of the mortgage money was raised to pay his claim against McGee and his attorney's fees for services in collecting the claim, but he says that he did not know that the balance of the mortgage loan was to go to McGee. He knew Allen was associated with McGee in a corporation which was unable to pay its $2,000 check and that the mortgage money was to be used for that corporation's purposes. As I have previously stated, I think Goren knew that the mortgage money, except $700, was to go to McGee. Colgan knew Mrs. Allen to be the owner of the property and that she was executing the bond and mortgage at her husband's solicitation and for the purpose of raising money for McGee. The improvidence of Mrs. Allen's act being so apparent, the presumption is that she did not appreciate its consequences and upon the facts here present, the burden is on the complainants to show that her act was based on proper independent advice, that is, that she had conferred on the subject of the bond and mortgage with a person who was in a position to advise her impartially and who was competent to inform her correctly as to the legal effect of her act ( Bliss v. Cronk, 62 N.J. Eq. 496; Thorp v. Smith, 63 N.J. Eq. 70; Post v. Hagan, 71 N.J. Eq. 234; Baur v. Cron, 71 N.J. Eq. 743; Groff v. Stitzer, 75 N.J. Eq. 452; Ware v. Mulford, 79 N.J. Eq. 470; Gautelli v. Brown, 84 N.J. Eq. 33; In re Fulper, 99 N.J. Eq. 293), and they have failed to sustain the burden. Allen was allured by McGee's promise of easy money and by reason of his dominion over his sick wife, he obtained her signature to the papers without informing her of the consequences which might follow and he was anything but a disinterested and impartial adviser, and neither Goren nor Colgan, Dowden nor Dolan, made the slightest attempt to ascertain whether Mrs. Allen understood that she was assuming a debt wholly for McGee's benefit.
"The bill of complaint will be dismissed and there will be a decree in favor of Mrs. Allen that the bond and mortgage are void and be delivered up for cancellation."
Mr. Saul Nemser, for the appellants.
Mr. Richard Doherty, for the respondent.
The decree appealed from will be affirmed, for the reasons expressed in the opinion filed in the court below by Vice-Chancellor Fielder.
For affirmance — THE CHIEF-JUSTICE, TRENCHARD, PARKER, CAMPBELL, LLOYD, BODINE, DONGES, VAN BUSKIRK, KAYS, HETFIELD, DEAR, KERNEY, JJ. 12.
For reversal — CASE, J. 1.