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IN RE LEPPERT

October 16, 1952

In re LEPPERT


The opinion of the court was delivered by: MODARELLI

This matter came to be heard on Petition for Review filed pursuant to Section 39, sub. c of the Bankruptcy Act, 11 U.S.C.A. 67, sub. c. The petition was filed by a creditor of the bankrupt from an order of the Referee declaring the chattel mortgage held by petitioner, the Morgan Company, null, void, and invalid as a lien against funds in the hands of the receiver or trustee.

The Referee states in his Certificate of Review, 'The testimony * * * clearly shows that the portion of the mortgage representing the difference between $ 2,560.00 and $ 3,200.00 to wit: $ 640.00 actually was a bonus (while) * * * the affidavit of consideration states that said difference of $ 640.00 represents a 'service charge' * * * . A bonus is not a service charge and therefore, the affidavit of consideration does not actually set forth the true consideration as required by N.J.S.A. 46:28-5 * * * .'

 The Referee's finding that the $ 640 charge was a bonus is amply supported by the record. The transcript of the testimony of the bankrupt and of Morris Goldsmith, a partner of the mortgagee company, shows that the parties to the mortgage transaction understood that sum to be a bonus. The mortgagor was not misled.

 The narrow question of law presented is, therefore: If the affidavit of consideration of a chattel mortgage states the sum of money actually received by the mortgagor and states the total sum which must be repaid to the mortgagee, is the affidavit defective if the difference is called a 'service charge,' when the parties to the transaction understood that the difference was, in fact, a bonus.

 The applicable statute, N.J.S.A. 46:28-5, reads:

 'Every mortgage * * * intended to operate as a mortgage of goods and chattels * * * shall be absolutely void as against the creditors of the mortgagor * * * unless the mortgage, (has) annexed thereto an affidavit * * * stating the consideration of such mortgage * * * .'

 The affidavit of consideration recites:

 'The sum of $ 3,200.00 of which sum $ 2,560.00 has this day actually been loaned and advanced to the mortgagors herein, the balance representing service charge in connection with the making of said loan * * * and deponent further says there is due and to grow due on said mortgage the sum of $ 3,200.00 besides lawful interest thereon from the 19th of September, 1951.'

 The receiver cites also the case of Jarecki v. Manville Bakery, Inc., 1950, 7 N.J.Super. 387, 71 A.2d 228, 229. But there the affidavit recited that the money had been 'loaned this day', whereas, in fact, a large portion of the money was not given to the mortgagor until three months later. Secondly, there was manifest an 'intention to make an installment loan contingent upon future enhancements in the value of the mortgaged property'.

 As in the Jarecki case, so with other cases cited by the receiver, there were substantial reasons why the affidavits of consideration were declared invalid by the courts. Atzingen v. Ottolino, Ch. 1938, 124 N.J.Eq. 510, 2 A.2d 652. (The affidavit of consideration falsely represented that certain shares of stock passed as consideration when, in fact, they did not pass until shortly before the hearing of the cause, eleven months later.) Bigel v. Brandtjen & Kluge, Inc., Ch. 1941, 129 N.J.Eq. 537, 20 A.2d 320. (The affidavit falsely stated that the money secured was the consideration for the sale of five items listed, whereas, in fact, the money was the consideration for one item alone.) McCullough v. McCrea, 3 Cir., 1923, 287 F. 342, 345. (The affidavit falsely stated the amount of money actually received by the mortgagor. The amount of the bonus was 'deliberately and intentionally concealed.') Sickinger v. Zimel, 1950, 8 N.J.Super. 455, 73 A.2d 281, affirmed 1951, 6 N.J. 149, 77 A.2d 905. (The affidavit falsely stated that $ 9,000 had been advanced to the mortgagor, whereas only $ 8,100 had been advanced.)

 Before the turn of the century, affidavits of consideration were held to such technical niceties as to cause attorneys to approach the tack of drafting such instruments with great trepidation and reluctance. Since American Soda Fountain Co. v. Stolzenbach, E. & A. 1908, 75 N.J.L. 721, 68 A. 1078, 16 LR.A., N.S., 703, however, a more practical judicial eye has appraised that instrument. Substantial compliance with the statute is held as sufficient to uphold an affidavit of consideration. Moore v. Preiss Trading Corp., Ch. 1936, 119 N.J.Eq. 366, 182 A. 824, affirmed E. & A. 1936, 120 N.J.Eq. 214, 184 A. 521; Jarecki v. Manville Bakery, Inc., supra; Fidelity Union Trust Co. v. Augelli, 1939, 125 N.J.Eq. 246, 4 A.2d 495; Dawson v. Pine, 1928, 143 A. 89, 6 N.J.Misc. 774; Howell v. Stone & Downey, E. & A. 1909, 75 N.J.Eq. 289, 71 A. 914; In re A. J. Doan & Son, D.C.N.J. 1940, 35 F.Supp. 1002; and In re Bell Tone Records, D.C.N.J. 1949, 86 F.Supp. 806.

 The purpose of the statute is kept in mind today in passing on the effectiveness of the instrument. Disclosure of the consideration passing to the mortgagor is required to protect subsequent creditors. An accurate affidavit enables investigating creditors to ascertain whether the mortgage was honest security or mere fraudulent cover. Fasolo v. Regnu, Inc., 1950, 8 N.J.Super. 234, 237, 73 A.2d 846; In re A. J. Doan & Sons, supra. In the instant case, a creditor reading the affidavit would clearly be appraised of the fact that the mortgagor received $ 2,560 on the transaction and had to repay $ 3,200 plus lawful interest. The monetary facts are frankly stated in the instrument, fulfilling the purpose of N.J.S.A. 46:28-5.


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