Germania Building & Loan Ass'n v. B. Fraenkel Realty Co.

Emery, V. C. (after statement of facts and issues). Mortgages to secure future advances are valid, but where it is entirely optional with the mortgagee, whether to. make future advances or not, advances made after notice of a subsequent encumbrance or transfer are not chargeable. Heintze v. Bentley, 34 N. J. Eq. (7 Stew.) 562, 566 (Court of Errors and Appeals, 1881). This case at bar raises the different question as to the rights of conflicting claimants under the mortgagor where, on the — 59 — delivery of the mortgages the advance was not optional. On the facts above stated, and in view of the application for loan and the granting thereof, and the actual execution and delivery of the bonds and mortgages, it is clear that the mortgages in question were mortgages upon which the mortgagee, the association, was obligated on its part to make advances to the realty company to the extent of the mortgages. That the mortgages were of this character is not contested by defendants’ brief, but the right to charge the payment of the order as an advance under the mortgage is disputed upon several grounds: First. Because the association had no right to make advances or pajnnents under the mortgages, except for the payment of debts incurred in the erection of the houses on the mortgaged premises. If this were a question between lien claimant and mortgagee under their lien law, as to their respective rights under advance money mortgages (P. L. 1895 p. 313), the objection might be good, but as between mortgagee and mortgagor and those claiming under the latter by assignment, the provisions of this statute limiting the mortgagee’s rights are not applicable, and their rights are to be governed by the general principles relating to advance money mortgages. Any right of the association to control over the application of the advances was only incidental to their right to sufficient, security for the loan, and was a right, the exercise of which (as between them and the mortgagors) was optional as being intended solely for their protection. It was not a right which the association could be required to exercise for the benefit of the mortgagors, or as between adverse claimants under them. On none of the previous advances had any such right of control been recognized, and the realty company on receiving them had apparently used them (or' a large part of them) to pay debts not arising out of the construction of the buildings, and $1,000 of the first advance was paid to Wolf, Stewart & Co., who applied it to Fraenkel’s individual account,, leaving the amount then due for material used in the buildings ($685) still unpaid, and due when they took over the property. Second. Because it was an advance made after notice of the conveyance of the premises subject to the mortgages to the de — 60 — lend ants and against their protest. This contention is based on the claim that the grantees took the premises subject only to the advances then actually made by the mortgagors, and ignores any rights in the mortgagors, or those claiming under them, to any of the future advances, except to the extent to which these rights have been actually realized or carried out, at the time of the conveyance. As it seems to me, this claim is not well founded, and for this reason: The right of the mortgagor at any fixed or specific time to future advances under the mortgage is a property right existing at that time, and as such is, in equity at least, assignable. And when the mortgagor has duly assigned, either wholly or in part, his right thereafter personally fo receive the advances, the assignee is entitled to receive the advances from the mortgagee, and is so entitled by virtue of the assignment and as deriving right thereto at that time. As to the vesting and priority of estates and rights the general rule applicable both in law and equity, as between the assignor or.those standing in his stead and the assignee is "qui prior est tempore potior est jure.” Jenkinson v. N. Y. Finance Co., 79 N. J. Eq. (9 Buch.) (1911). The precise question then is not, as defendants claim, whether under a mortgage for future advances, the mortgagor or his grantees have generally the right to require future advances to be discontinued, but whether the mortgagor having assigned to! one person for value the right to a portion of the future advances to which he is at the time of the assignment entitled, has himself the right to revoke the order or does, by a subsequent conveyance of the mortgaged property to a grantee standing only on the assignor’,s rights, confer on such grantee the right to countermand the advance previously directed by the grantor, and solely upon the ground that it has not been paid. The grantees of the mortgaged property in this case were also assignees of the shares of stock and of the mortgagor’s- right to future advances payable by the mortgagee after the assignment, and having notice of the previous assignment, stand in the stead of the assignor, and payments on orders previously given which — 61 — were valid assignments as against the realty company, are also valid as against them. My view is that after a valid assignment of future advances neither the assignor nor the subsequent assignee, standing only on his rights, has the right, as against the prior assignee, to revoke the assignment. This conclusion leads to the consideration of the third objection. Third. That the order itself does not operate as an equitable assignment. Neither of the two reasons relied on to support this objection is valid. The first is that the order is not an imperative direction for payment out of any fund, its language being: “You may please pay to Union Lumber Company $582.50 * * * out of third payment, and $582.50 out of fourth payment, total $1,165.11, on two mortgages,” &e. No particular form of words is necessary to constitute an equitable assignment, and if the writing or act indicates the intent of the assignor to make an appropriation of the fund or part of it, it will in equity be enforced as an assignment. Weaver v. Atlantic Roofing Co. (Vice-Chancellor Grey, 1898), 57 N. J. Eq. (12 Dick.) 547, and cases cited (at p. 553). The test to be applied in the case is whether the contract or agreement in question between the assignor and the assignee authorized the depositary of the fund to pay it directly to the assignee without the further intervention of the debtor or party originally entitled to it. Lanigan v. Bradley & Currier Co. (Vice-Chancellor Pitney, 1892), 50 N. J. Eq. (5 Dick.) 201, 206. Treated merely as a matter of its construction, the written order meets this test. So1 far as the form of the order is concerned, and for the purpose of directing control of the fund, authority to the depositary to make the payment to the assignee is equally effective with a positive direction to pay. And where there is a good consideration for the assignment, the real nature of the transaction rather than the mere form of it, including all the acts of the parties in reference thereto, as well as the written documents must, as between them, be considered to decide the question of assignment. Malcolm v. Scott, 8 Jur. 283; 3 Har. 39 (Vice-Chancellor Wigram, 1844). The Union Lumber Company, the name under which J. N. Holloway carried on busi — 62 — ness, had furnished materials for the construction of the building at the time of the first $3,000 payment to the realty company under the mortgage, and had for the realty company’s benefit postponed its existing and future liens to the mortgages in question, in order that it might receive this payment. And at the time of receiving the order in question the lumber company further agreed upon payment to deliver up certain notes of the ¡realty company, one of which was due on the receipt of the order. Substantially the order was delivered as security for existing and future debts for part of which security was released, and it was therefore upon good consideration. The second reason urged against the validity of the order as an assignment is that the order authorizes or directs payment out of the third and fourth payments on the mortgages, and it is claimed that as no further payments (outside of the order) were ever made under the mortgage, the orders were not according to their terms ever effective. There has been no proof as to> any agreement between the realty company and the association in reference to the number and time of payments, and as to number of payments the only proof is that by two previous payments a portion of the advances had been made. At the time of giving the order the realty company were proceeding in the construction of the buildings and the association also still held itself in readiness to make the advances, and did,in fact subsequently and while the realty company was still constructing the buildings, set aside funds by its check to Mr. Gurney for the balance of the advances. The association on its part was obligated to continue the mortgage as one for future advances until b}7 six months’ default of the realty company or its assignees and grantees to make the payments required by the mortgage, or for some other abandonment of the contract by the mortgagor, the principal of the mortgage became due and the contract for future advances terminated by the act of the realty company or its grantees. At the time of directing the payment the obligation for future advances was still in force and the right to them had been assigned to and was held by the grantees who gave notice of their rights. The grantees protested against the payment of the order at any time or out of any funds, on the — 63 — ground that if paid there would not be money enough left to finish the buildings, but did not then abandon or give up the contract for future advances under the mortgage. The subsequent abandonment of the contract for future advances by the grantees, by their failure to make the payments called for by the mortgages, did not give them or tbe realty company the right as against the association, or against the prior assignees of the future advances, to set up that the time for third and fourth payments never arrived. If the contract for future advances was in force, the payment in question was in fact the third payment, out of which one-half of the order was payable, and tbe fourth payment, out of which the balance was payable, would become due, at the latest, when the foreclosure was directed, and the whole amount of the order being then due and payable, tlic complainant ivas then entitled to1 recover the amount paid on tbe order as an advance to the realty company under the mortgages. Decree including this payment will be advised, and the amount due will be settled on the usual basis, including interest, dues, &c., up to the time of complainant’s exercising its option of declaring the principal due because of default.