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Smith v. National Commercial Title and Mortgage Guaranty Co.

Decided: March 31, 1938.


On appeal from the Supreme Court, Essex county.

For the plaintiff-respondent, Spaulding Frazer, David Stoffer and Harold H. Fisher.

For the defendant-appellant, Lindabury, Steelman, Zink & Lafferty (James L. R. Lafferty).


The opinion of the court was delivered by

CASE, J. Defendant is a New Jersey corporation engaged in the business of investing in bonds and mortgages secured by real estate and in selling and guaranteeing such securities as well as shares and certificates of participation therein. Plaintiff purchased the defendant's guaranteed mortgage bond in the amount of $20,000 bearing interest at the rate of five and one-half per centum per annum, now evidenced by a participation certificate. The principal became due July 1st, 1936, all of which, with some accumulation of interest, remains unpaid; and this suit is to recover the debt. Defendant filed an answer which, on plaintiff's motion, was struck. Judgment for plaintiff was entered in the amount of principal, interest and costs. Defendant appeals. Such of the facts as appear to have weight will be stated in the body of the opinion.

The gist of the factual presentation set up in the answer is that defendant was organized under the "Insurance Companies" act, chapter 134, Pamph. L. 1902, and was and remained under the supervision and control of the commissioner of banking and insurance; that on March 6th, 1933, until which time defendant paid its obligations as they accrued, defendant suspended operations because of the "interpretation" given to the presidential proclamation suspending the business of banking and was not able thereafter to pay its then existing obligations without great loss and hardship to debtors and stockholders and without unfavorable effect upon the investing public and the market for real estate; that on March 21st, 1933, the commissioner of banking and insurance, acting under authority of chapter 71, Pamph. L. 1933, issued his General Order No. 1 which, amongst other provisions, suspended payment of interest and principal due to holders of guaranteed mortgages and interests in mortgages and the redemption or repurchase thereof by mortgage guaranty companies, except under certain named conditions which do not here apply; that on January 10th, 1934, pursuant to that order, defendant submitted to the owners and holders, including the plaintiff, of its obligations a plan of operation;

that by May 27th, 1935, the requisite number of investors had approved, and that on that day the commissioner approved, the adoption of the plan; that on June 20th, 1935, defendant notified the holders of its obligations, including the plaintiff, of the adoption; that on September 15th, 1936, a further order was made by the commissioner; and that, beginning March 6th, 1933, defendant has continuously conducted its business in accordance with the aforesaid proclamation, statutes, orders and plan. Except as those allegations of fact assume a conclusion of law they may be taken to be true. The court below treated plaintiff's motion to strike as in essence a general demurrer to the answer as to conceded facts, and while there were charges that parts of the answer were false and depositions were taken by both sides, the court below thought, and we think, that the factual differences do not go to the heart of the case.

The defenses which deserve our attention are, first, that chapter 71, Pamph. L. 1933, together with the action thereunder of the defendant in adopting the plan and of the statutorily requisite number of investors and of the commissioner in approving the same, limits plaintiff to such remedies for recovery as are within the provisions of the plan, and, second, that the plaintiff is estopped to deny that she has consented to, or is subject to the effect of, the plan and that she has waived her right to payments except as modified by the plan. We shall assume, for the purposes of the argument, but we do not decide, that the legislature had power to enact the statute and that the plan was within the scope of the statute.

The plan provides in part that interest payments for a period of five years after the effective date are to be at the rate of three per centum per annum instead of the contract rate of five and one-half per centum; that the remaining two and one-half per centum is to be credited together with interest in arrears at the effective date and is to be paid ratably out of collected income, if possible, and at the end of the five-year period a certificate of indebtedness is to be issued for any interest then remaining unpaid to "be payable, without

interest, ratably in one payment or installments, at the call of the company;" and that payments of principal are extended for a period of five years beyond the date specified in the contract. Therefore, if the plan be binding, payment of the plaintiff's guaranteed certificate is deferred from July 1st, 1936, to July 1st, 1941, the interest payments are, in part at least, deferred and the ultimate payment of the interest is left in doubt.

The statutory authority (chapter 71, Pamph. L. 1933, ยง 2(e)) is that "The Commissioner of Banking and Insurance shall have power * * * with the consent of the respective holders of not less than two-thirds of the face amount of shares or parts of mortgages or mortgage participation certificates * * * to authorize or require the alteration or amendment or waiver of any of the terms and provisions of the same, or of the mortgage or trust mortgages or indentures securing the same * * * in which such holders are respectively interested." These excerpts demonstrate the importance of, and the necessity for, affirmative action on the plan by the commissioner. The plan has no status unless and to the extent that the commissioner approves. The commissioner's order of May 27th, 1935, was a special order directed exclusively towards the defendant's plan. In addition to the formal approval it contained this provision:

"It is further ordered and directed that all guaranteed mortgages and interests in mortgages not made subject to said plan under the consents heretofore received or that may hereafter be received shall continue subject in all respects to General Order No. 1 as issued by the Commissioner of Banking and Insurance under date of March 21st, 1933, and all other general regulations supplemental thereto or amendatory thereof."

Sharp difference arises between the parties on the identification of the mortgages and interests in mortgages which the approval directs shall remain subject to General Order No. 1. Construction must be given to the wording of the approval because it is, in effect, a part of the plan. Plaintiff contends that it is to be understood as a direction that those, like herself,

who did not consent remained outside the plan and subject at that time to General Order No. 1. Having in mind that the validating consents necessary to the adoption of the plan had been received and were a part of the structure upon which the approval was grounded, we incline to think that the approval, on its face, carries that implication, but sufficient doubt exists to justify extraneous study. If the language of a written instrument is indefinite and ambiguous, the construction put thereon by the parties themselves will ordinarily govern provided the language will reasonably permit of such construction. Albert v. Ford Motor Co., 112 N.J.L. 597; Thomsen v. Riedel, 114 Id. 379. The construction given by the defendant, draftsman, proponent and sponsor of the plan and party to all of the instruments involved therewith, may be resorted to.

The plan became effective with the approval of the commissioner May 27th, 1935. The next interest date thereafter was July 1st, 1935. By the terms of the plan interest was to be paid on that day or within sixty days thereafter; and so with respect to each succeeding interest date. No interest payment was made to the plaintiff on that day or thereafter until the event next mentioned. On November 19th, 1935, the defendant company, by ...

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