Two actions are pending in the Chancery Division of this court between the same parties concerning the same realty, involving related questions of law and fact. The plaintiffs in one action are defendants in the other. One is for foreclosure of a mortgage; the other, for foreclosure of a tax sale certificate. Four motions have been made with respect to the proceedings, three by the mortgagees, viz.: for consolidation of the actions, for trial of the mortgage foreclosure suit first and for leave to amend the complaint. The tax sale certificate holders move for summary judgment in their favor on the ground of the legal insufficiency of the complaint for the foreclosure of the mortgage, which motion will be dealt with first.
The following facts appear from the pleadings and from the affidavit filed on behalf of the tax sale certificate holders in support of the motion for summary judgment. The premises in question commonly known as No. 216 Market Street, Newark, New Jersey, are encumbered by a mortgage for $75,000 dated May 28, 1920, duly recorded, now held through
assignment by Barry, Inc., and Geda Corporation, plaintiffs in the mortgage foreclosure action, and alleged to be in default by reason of nonpayment of taxes and interest. In December, 1945, the City of Newark sold the premises to the defendants Eleanor S. Werbel, David Wasserman and Dorothy Goldfinger for unpaid taxes for the years 1938 to 1944, amounting to $24,386.51, subject to redemption at the rate of 4 7/8 per cent. per annum, and the municipality issued a tax sale certificate to the purchasers. Thereafter, the tax sale certificate holders entered into negotiations with the owners of the property for the acquisition of the title and a price of $11,500 was agreed upon. Their object in desiring to acquire the title, they declare in their affidavit, was to enable them to exercise the rights of owner in possession; "to acquire the legal right to the rents of the property;" and to avoid a merger of their tax sale estate into the fee, they caused a limited partnership association to be organized, known as Baf, Limited, using "dummies" for that purpose. They paid the consideration to the then owner of the fee, Moe Rich, Inc., which on April 9, 1947, conveyed the premises in fee simple to Baf, Limited. The deed recited "This conveyance is made subject to * * * the lien resulting from tax sale, mortgage and all other liens and encumbrances." After the delivery of the deed, Baf, Limited, entered into possession and thereafter collected the rents, until the appointment of a rent receiver in the instant matter.
The defendants in the mortgage foreclosure action, Baf, Limited, the owner of the fee, and Werbel, Wasserman and Goldfinger, the tax sale certificate holders, who admittedly are one and the same group of persons, claim to have been acting in two separate and distinct capacities -- one as owner of the fee and the other as holders of the tax sale certificate. They claim to have collected the rents in the capacity of owner and that, as such, they were under no obligation to pay the taxes, but had a legal right to appropriate the rents to themselves. They aver that in their capacity of tax sale certificate holders they paid to the municipality subsequent taxes for the years 1946 to 1948, inclusive, totaling $12,482.46.
These payments were made with a notation on the tax records "Paid to be represented by Eleanor S. Werbel, David Wasserman and Dorothy Goldfinger," and have been added to the amount paid for the tax sale certificate. The tax sale certificate holders allege in their complaint that there is now due them the sum paid for the tax sale certificate, plus the subsequent tax payments, an aggregate of $42,956.41, of which sum they demand payment or that the equity of redemption be foreclosed.
The mortgagees filed an answer and counterclaim in the tax foreclosure action, the allegations of which are identical with those of their complaint in the mortgage foreclosure suit. They allege that the legal title was procured with intent to impair, diminish and extinguish the security of the lien of their mortgage, and that by reason of the identity of the tax sale certificate holders and the owner, the acts and conduct of the defendants have been fraudulent. Judgment is demanded for an accounting of the rents, that the certificate of tax sale be discharged of record, that the amount due on plaintiffs' mortgage be fixed and a sale be directed.
The defendants argue (1) that the tax estate is not merged in the fee and is paramount to the lien of plaintiffs' mortgage, (2) that, as owner, they could collect the rents without obligation to pay taxes, and (3), inferentially from the allegations and demands in their complaint in the action for foreclosure of the tax sale certificate, that the mortgagees in order to redeem the tax sale certificate must pay the amount of the tax sale certificate, together with the subsequent tax payments, without credit for rents collected. The plaintiffs contend that the tax estate has merged in the fee and that the tax liens are extinguished.
The litigants in both actions are seeking equitable relief. The maxim that he who seeks equity must do equity applies "in every kind of litigation and to every species of remedy. The meaning is, that whatever be the nature of the controversy between two definite parties, and whatever be the nature of the remedy demanded, the ...