The present action results from an application for surplus monies arising from a sale held in a mortgage foreclosure. The particular question concerns the priority of two judgment creditors of the mortgagors.
The Vineland Savings and Loan Association held a mortgage executed by and encumbering certain real estate owned by the defendants James and Dorothy Felmey. On the 9th day of March, 1950, the said Vineland Savings and Loan Association filed a complaint seeking to foreclose said mortgage, joining the Corn Exchange National Bank and Trust Company by reason of a judgment held by it against the said mortgagors, obtained in the District Court of Cumberland County, which was docketed in the office of the Clerk of Cumberland County on the 18th day of August, 1949.
Thereafter, and during the pendency of the foreclosure proceedings, the Millville National Bank obtained a final judgment against James and Dorothy Felmey in the District Court of Cumberland County on May 1, 1950, which judgment was docketed in the Cumberland County Court on June 22, 1950, and in the New Jersey Superior Court on August 2, 1950. On June 21, 1950, said real estate here involved was sold by the Sheriff of Cumberland County in connection with said foreclosure, resulting in a surplus of $561.06. The sheriff's deed is dated July 18, 1950, and was delivered to the purchaser a day or two after its date.
Execution on the judgment of the Millville National Bank was issued and levy made by the Sheriff of Mercer County on the said surplus monies then in the hands of this court on August 10, 1950. No further proceedings in connection with this levy were thereafter taken.
The levy was made in the following language:
"levy upon the rights and credits of James Felmey & Dorothy Felmey * * * upon all the right, title and interest of said defendants in and to all moneys deposited with the Superior Court of New Jersey, representing surplus moneys paid into said Superior Court by the Sheriff of Cumberland County, arising out of the sale of real estate conducted by said Sheriff of Cumberland County, in the matter of Vineland Savings and Loan Association v. James R. Felmey, et ux., et als., Docket No. F-1278-49."
On September 14, 1949, the said Corn Exchange National Bank and Trust Company assigned said judgment to the United States of America, which assignment was recorded in the Clerk's Office of Cumberland County on April 17, 1950. A transcript of said judgment was docketed with the Clerk of the Superior Court of New Jersey on July 13, 1950.
Neither the said Corn Exchange National Bank and Trust Company nor the United States of America have taken any proceedings, either by way of answer in the foreclosure or by way of issuing execution upon said judgment.
The Millville National Bank takes the position that it is entitled to be first paid out of the surplus monies prior to the United States of America by virtue of the levy and execution above referred to, under R.S. 2:26-137. This statute reads as follows:
"Whereas, other judgments, and recognizances, besides those, or some of those, by virtue whereof the sale aforesaid was made, might affect the real estate so sold, if no provision be made to remedy the same, and whereas, the persons who have not taken, or will not take out executions upon their judgments, or recognizances, ought not to hinder or prevent such as do take out executions from having the proper effect and fruits thereof, therefore, in any such case, the purchaser, his heirs and assigns, shall hold the lands, tenements, hereditaments, and real estate by him or her purchased as aforesaid,
free and clear of all other judgments and recognizances, whatsoever, on or by virtue of which no execution has been taken out and executed on the real estate so purchased."
The United States of America, on the other hand, in effect assumes the position (1) that the property levied on is in custodia legis and hence not subject to levy; (2) at the time of levy the interest of the judgment debtor in the realty had been extinguished and that the surplus funds were personalty; and (3) the levy was upon the "right, title and interest" (rights and credits) of the judgment debtor in the fund and as such was subject to the lien of its judgment.
In order for the Millville National Bank to succeed upon its theory it becomes necessary to first ascertain whether a levy may be made on property in custodia legis.
In Fredd v. Darnell , 107 N.J. Eq. 249, 152 A. 236, (Ch. 1930), the court said, at page 253:
"It is a general rule that money or other property in the hands of an officer of a court is regarded as being in custodia legis , and in consequence ordinarily cannot be reached by execution in the absence of legislative authority. That rule appears to be based upon a necessity, incident to orderly judicial procedure, for any court which has acquired primary jurisdiction over property to continue the exercise of that jurisdiction free from embarrassments or conflicts with other courts arising from subsequent claims against the same property. Since a levy ordinarily embodies the elements of dominion and control of the property levied upon, such a levy upon property in custodia legis may seriously interfere with orderly administration by the primary tribunal. Accordingly the test of immunity of property in custodia legis may in general be said to be whether substantial confusion or embarrassment to the initial jurisdiction would result from the enforcement of process against the property by another tribunal."
No confusion or embarrassment would be attendant upon a levy made as here, and hence the property is not immune from but ...