Opinion
07-17-1896
LAND TITLE & TRUST CO. et al. v. KOHLENBERG et al.
Lindley M. Garrison, for complainants. Thos. P. Cur ley and James Hays, for defendants.
Bill by the Land Title & Trust Company, as trustee, against August P. H. Kohlenberg and others, to set aside and cancel the satisfaction of a mortgage. Decree for complainant.
This bill is filed for the purpose of having expunged from the record of the county clerk's office of Camden county the entry of satisfaction of a mortgage. The history' of the transaction from which the present litigation springs is this: Kohlenberg had borrowed money from the Mutual Guarantee Building & Loan Association of New Jersey, doing business in Philadelphia and in Camden. To secure the payment of this loan, Kohlenberg and wife gave a mortgage upon property which seems to have been the wife's.situate in Camden. This mortgage was dated March 1, 1894, and was recorded on March* 2, 1894. The building and loan association had previously entered into an agreement with the complainant, the Land Title & Trust Company,—a company organized under the laws of Pennsylvania, and doing business in Philadelphia. This agreement recited that it had been deemed advisable by the building and loan association to keep its loan funds separate from its other funds in the hands of a trustee; therefore it was agreed that the building and loan association should pay to the trust company all sums of money received for subscriptions, except those paid for subscriptions received at its office in Philadelphia. The trust company was to hold the same in trust (among other things), to make investments of the loan fund, under the directions of the said building association, in first mortgages upon real estate, payment for which mortgages should be made by the said trustee only in accordance with an order signed by the president, secretary, and chairman of the loan committee of the building association. All mortgages were to be taken in the name of the "Land Title & Trust Company, trustee of the loan fund of the Mutual Guarantee Building Association." The trustees were to receive payment of all such mortgages, the amount due thereon to be certified by the secretary of the building association. There were a number of other provisions in the agreement which are not material to this inquiry. Among them, the following is pertinent: "The said trustees agree to send, for collection, to any attorney designated by the building association by an order signed by its secretary thereof, any or all mortgages which shall be due by reason of default in payment according to the terms thereof." On July 23, 1894, Mr. Gaffney, the secretary of the building association, wrote to the trust company to send to him the papers in connection with the Kohlenberg mortgage, and the same were so sent. With the mortgage was sent a policy of insurance, issued by the Westchester Fire Insurance Company, insuring Maria Kohlenberg's property for $1,500. The policy contained what is known as the "New York, Pennsylvania, and New Jersey, Standard Mortgage Clause," by which the loss, if any, was payable to the Land Title & Trust Company, trustee, as its interest might appear. On July 23d, Mr. Gaffney forwarded these papers to Messrs. Bergen & Bergen, who were then attorneys of the building association. Before foreclosure proceedings were begun, the Kohlenberg house was destroyed by fire, of which fact Messrs. Bergen & Bergen informed Mr. Gaffney by a letter under date of August 8, 1894. Now, Mr. McDonald was the local agent of the Insurance company, and there seems to have been an agreement entered into for an adjustment of the loss caused by such fire at the sum of $1,112. Mr. Gaffney, under date of September 6th, wrote to Messrs. Bergen & Bergen that Kohlenberg and McDonald had been to see him, and that they were both willing to hand over the insurance money, and that if the building association got this money it might make a new loan to Kohlenberg; that the attorneys should not do anything until further advised. Under date of September 20th, Messrs. Bergen & Bergen, in a letter to Mr. Gaffney, requested him to send a statement of the amount due upon the mortgage, to which letter Mr. Gaffney replied that there was then due $1,314.10. Mr. Gaffney further wrote that on the receipt of this sum, which must come to the association, the attorneys were authorized to cancel the mortgage. On September 22, 1894, Messrs. Bergen & Bergen wrote to Mr. Gaffney that they understood the insurance company would pay the amount of the adjustment, less a discount of 1 per cent., which Kohlenberg would stand. They also said in that letter, "You can settle with the insurance company in that way, and send in a statement, and we will send balance of the mortgage money to you." To this Mr. Gaffney replied on September 24th "that the manner of adjusting the matter is satisfactory to us. You can send us check for $213.22, together with a letter from Mr. Kohlenberg authorizing the insurance company to pay to us the amount of claim, less one per cent. discount, and the matter will then be in proper shape." The check and order were sent on September 27th. On September 20th, Kohlenberg and wife had made a mortgage upon the same property to J. Carl D'La Cour, to secure the sum of $700, which mortgage was recorded on September 21st. Out of the $700 thus secured was deducted the check of $213.22 just mentioned, and a portion of the remainder of the sum went for repairs upon the Kohlenberg property. After some correspondence between the insurance company and the trust company concerning the payment of the loss already adjusted, the latter company on November 9th offered to pay the full amount, upon its being subrogated to the position of the trust company by an assignment of the bond and mortgage and the policy accompanying it. In making this offer the insurance company was insisting upon its right under the standard mortgage clause, which is to this effect: "Whenever this company shall pay the mortgagee or trustee any sum for loss or damage under this policy, and shall claim that, as to the mortgagor or owner, no liability therefor exists, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee or trustee the whole principal due or to grow due on the mortgage, with interest, and shall thereupon receive a full assignment and transfer of the mortgage, and of all such other securities; but no subrogation shall impair the right of a mortgagee or trustee to recover the full amount ofits claim." The trust company was unable to comply with the condition, for it had not the possession of the mortgage and policy of insurance. On November 13th the mortgage was brought to the county clerk's office, with the seals torn off, and canceled of record. This was done at the instance of Messrs. Bergen & Bergen, who had procured the loan from, and drawn the mortgage to, Mr. D'La Cour.
Lindley M. Garrison, for complainants.
Thos. P. Cur ley and James Hays, for defendants.
REED, V. C. (after stating the facts). I am entirely satisfied that Messrs. Bergen & Bergen, in directing the entry of satisfaction of the mortgage in question, acted in entire good faith. They supposed, when the mortgage was made to D'La Cour for the purpose of raising the difference between the insurance money and the amount due upon the mortgage held by the trust company, that the insurance money would be promptly paid. Such was the complexion of affairs at that time, that such a belief was entirely rational. Having advised the giving of the D'La Cour mortgage as a first mortgage, these gentlemen undoubtedly supposed that they were authorized by their correspondence with the building association, as well as impelled by their representation to Mr. D'La Cour, to cancel the mortgage. The unexpected hitch occurred by reason of the insurance company insisting upon the assignment of the mortgage and policy. Had it not been for that, all would have been regular and satisfactory. So, therefore, I regard the act of cancellation as one which any attorney, under the same circumstances, would not have been unlikely to execute. Nevertheless, I am of the opinion that the cancellation must be set aside. It is entirely settled that an attorney to whom is intrusted a claim for collection can receive nothing but money in payment of the same, without the clear consent of his client. The cases to this effect are collected in Weeks, Attys. §§ 232, 232a. There was no payment of this mortgage. There was a prospect of payment at one time, but even that had become dependent upon the assignment of the mortgage. Without payment, there was no power in the attorney to cancel the mortgage, unless he was clearly empowered to do so by the association. Now, that Mr. Gaffney did not suppose that he bad given such authority is apparent from his letter to the trust company under date of September 28th. But the question is not what he supposed, but what he did. If he conferred such power, its existence must be found in the letters to Messrs. Bergen & Bergen under dates of September 21st and September 24th. Now, in the first of these letters Mr. Gaffney says, "On receipt of $1,314.10, which amount must come to the association, you are hereby authorized to satisfy the mortgage." Nor does the letter of September 24th modify this express caution. It only says that upon receipt of an order upon the company to pay, and a check for the balance, the affair will be in proper shape. Mr. Gaffney was speaking of the adjustment of matters, and had expressed his satisfaction with such a method of adjustment, but he did not direct a satisfaction of the mortgage before the adjustment became a finality by the payment of the money by the insurance company. No doubt, he expected at that time that the money would be paid, as did, apparently, all the rest of the parties, except the Insurance company. The fact itself that such expectation was defeated by the unexpected insistence of the insurance company that the mortgage should be assigned to it would make the cancellation of the mortgage under such an impression such a mistake that, apart from the question of want of power in the attorneys, a court of equity would lean toward its vacation. Taking into consideration the fact of the existence of the want of authority, it seems entirely clear that the entry of satisfaction should be set aside. That this court has the power to decree a vacation of such entry is too well established for present discussion. Banking Co. v. Woodruff, 2 N. J. Eq. 117; Harris v. Cook, 28 N. J. Eq. 345; Building Ass'n v. Thompson, 31 N. J. Eq. 536. The equity of this action, so far as concerns the trust company and the building association, is clear. Unless the mortgage is re-established, they have no remedy upon it for any claim to the insurance money, because of their want of control over the mortgage. The only person who seems to be in the position to complain of such action is Mr. D'La Cour, who took his first mortgage for $700 with the assurance that it was to be a first mortgage upon the property. But at the time when he took his mortgage the old mortgage was still on record, and remained so until November 13th. I think he has an equity, but it is only to have the check held by the trust company, of $213.22, which represents a part of the money which he advanced upon the mortgage, returned to him, he making an indorsement of such an amount as a payment upon his mortgage. So far as Kohlenberg is concerned, if he has a right to the insurance money, I think his position will be unchanged. If he has no such right, then he should not receive the benefit of the payment. When the insurance company attempt to forclose the mortgage which will be assigned to them under the clause already set out, contained in the contract of insurance, it would seem that the company can only recover the face of the mortgage, less the amount which Kohlenberg is entitled to recover upon his policy. This has been so ruled in the courts of Illinois, upon what I conceive to be correct principle, in Insurance Co. v. Race, 142 ill 338, 31 N. E. 392. I will advise a decree that the entry of satisfaction be set aside wholly; that the trust company return to Mr. D'La Cour the check of $213.22; that Mr. D'La Cour indorse the amount thereof as a payment upon his mortgage.