On certified appeal from the Chancery Division to the Appellate Division of the Superior Court.
For affirmance -- Chief Justice Vanderbilt, and Justices Heher and Jacobs. For reversal -- Justices Wachenfeld and Burling. The opinion of the court was delivered by Heher, J.
[22 NJ Page 377] The action here is to foreclose one of 11 mortgages covering certain parcels of real property in New Jersey, given September 28, 1955 by the corporate defendant, Garford Trucking, Inc., to the individual defendant, Ignatz J. Krosnowski, to secure the payment of $400,000, an obligation assigned, in turn, by the latter to the plaintiff, Walter A. Krosnowski, as collateral security for the payment of
$190,000 to the plaintiff, each representing an interest in common with other members of the Krosnowski family, as will presently appear.
Both the corporate mortgage debt of $400,000 and the individual indebtedness of $190,000 would in the regular course mature in three years approximately from September 28, 1955; and the basic issue concerns the legal consequence of a conceded default in the payment of a quarter-annual installment of interest which accrued January 2, 1956 on the $400,000 mortgage debt under a provision of the mortgage, invoked by the plaintiff, for the immediate payment of principal and interest in the event of a "default in the performance" of the mortgage or a contemporaneous agreement in writing between the parties, to be set forth presently.
The plaintiff and the individual defendant are brothers. They and other members of the family were the holders of the capital stock of the corporate defendant, and creditors of the corporation as well. In 1955 the corporation filed a petition for relief under Chapter XI of the Bankruptcy Act; and the proceeding was eventually terminated by the approval of a plan which classified the corporate creditors in two groups: Class 1 and 2, the latter comprising the members of the Krosnowski family, and the former including all other general creditors. The plan provided for the giving of mortgages and pledges of corporate assets for the security of the family creditors, in part subordinate to the claims of Class 1 creditors.
By the agreement of September 28, 1955, the corporation's indebtedness to the family creditors was fixed at $400,000. The corporation agreed to secure the debt, with interest at 5%, by 11 real estate mortgages. As between themselves, the family divided into two groups: the "Baltimore Group" headed by plaintiff; and the "I.J. Group," represented by the individual defendant. The Baltimore Group sold its interest in the stated corporate debt and the corporate stock and the stock of a subsidiary corporation to the I.J. Group for $225,000, of which $35,000 was paid on account; the payment of the balance of $190,000 was deferred until the
discharge in due course of the moneys due to the Class 1 creditors under the plan of reorganization approved in the Chapter XI Proceeding, and meanwhile interest was to be paid thereon quarter-yearly at the rate of 5%. As security for the indebtedness of the I.J. Group to the Baltimore Group, the former assigned not merely their own interest in the corporate debt, mortgages and corporate stock, but also the interests acquired from the Baltimore Group in the same assets.
January 2, 1956 was the day appointed for the payment of the first installment of interest on both the individual debt of $190,000 and the corporate debt of $400,000, but neither was paid; and, the default continuing after notice given January 12 following that unless "interest due * * * on the amount secured by said mortgages" and other specified defaults involving a prior lien were cured within ten days, the "acceleration rights provided for in each of said eleven mortgages" would be exercised, plaintiff elected to accelerate and accordingly brought this suit to foreclose. Tender of the interest due on the $190,000 debt, made in open court on February 17, 1956, was refused, as coming too late.
The notice specified these defaults: (1) interest due January 2, 1956 "on the amount secured by said mortgages," and "each of said mortgages is therefore now in default"; (2) interest and installment of principal due December 1, 1955 to Farmer & Oehs Company on its prior mortgage lien, amounting to $11,352.84, and additional interest of $1,291.67 due January 1, 1956, and also an installment of $4,000 falling due January 1, 1956 on the principal of the latter mortgage. The defaults involving the prior mortgage set down in subdivision (2) of the notice were cured by payment within time, but not the default stated in subdivision (1).
Defendants contend that "No notice was given to the individual defendant as to default in payment of interest on his $190,000 debt, or specifying any default in the agreement of September 28, 1955"; that the default set forth in subdivision (2) "was completely cured," and "no interest
was due January 2, 1956 on the mortgage indebtedness, and there was no default as to item No. 1." This, on the hypothesis that "under the terms of the mortgage, as modified by the collateral agreement of even date, incorporated by reference, an interest payment due January 2, 1956 pursuant to the terms of the mortgage itself, had been deferred." A secondary question raised is whether the notice of January 12, 1956 constituted "due notice of default as to ...