Plaintiffs sue for specific performance of a written contract which provides for the sale of real estate and the completion of a house thereon. They are the purchasers. The defendant is the present owner of the property, having purchased it at sheriff's sale upon the foreclosure of a second mortgage. Numerous legal defenses are interposed to the plaintiffs' claim for specific performance with an abatement, and the defendant counterclaims for possession of the premises which are occupied by the plaintiffs.
This suit is the culmination of litigation beginning in 1954, and a review of the prior litigation is necessary to a complete understanding of the conclusions herein reached.
On September 30, 1954, plaintiffs and Jardine Estates, Inc. (hereinafter called "Jardine") entered into a contract for the sale by Jardine and the purchase by plaintiffs of a house which was under construction on land in the City of Summit, New Jersey. Specifications were annexed to the contract, and by its terms Jardine undertook to convey title by warranty deed. The contract was recorded October 13, 1954 in the Union County Register's Office. The price fixed was $38,000, of which $1,500 was paid upon the signing of the contract, which provided, among other things, that the purchasers would pay $300 per month, beginning December 1, 1954, on account of the balance of the purchase price. The monthly payments were to be applied first to the payment of taxes, then for fire insurance premiums, next for interest at 5% on the unpaid balances, and the remainder in reduction of the principal sum due. When the balance due, through these payments, had been reduced to $30,000, the seller agreed to execute and deliver a deed to the purchasers, who were then at liberty either to secure their own financing and pay off the balance due the seller, or to execute and deliver to the seller a bond and mortgage for $30,000, upon which they would make monthly payments of $200, to be applied for the same purposes as the payments under the contract. The purchasers agreed to keep the premises in good and substantial repair at their own expense during their occupancy. The seller undertook certain obligations concerning the completion of the house and reserved the right to sell or assign the contract.
A supplement or amendment to the contract was signed about December 30, 1954. It did not change the basic undertakings of the original executed contract, but it did increase the monthly payment to be made on the bond and mortgage to be given by the purchasers to the seller from $200 to $300 per month, and the seller undertook certain obligations with respect to completion. This supplemental or amended contract was not recorded.
Dissension arose between the parties and Jardine, on December 12, 1955, instituted suit in the Union County Court, Law Division, against the purchasers for possession of the premises, alleging a default in the terms of the contract. The purchasers counterclaimed for damages allegedly resulting from the seller's failure to properly complete the work required of it under the contract and for improper performance of work already done. It should be noted here that the damages sought were limited to the claim for unfinished and substandard work, which the purchasers alleged required their spending money to complete and remedy. The case was tried to a jury, resulting in a judgment of no cause for action on the complaint and $10,000 damages to the purchasers on their counterclaim. This judgment was entered November 2, 1956. Jardine appealed and a review of the evidence in that case is found in Jardine Estates, Inc. v. Koppel , 24 N.J. 536 (1957). The Supreme Court sustained the dismissal of the complaint but directed that there be a retrial of the counterclaim. The result of the retrial was a jury verdict in favor of the purchasers on their counterclaim in the sum of $8,000. The judgment, entered January 23, 1958, was not appealed, nor has it been paid, although execution has been issued against Jardine. It is stated that Jardine is now insolvent.
During all of this time there was a direct reduction first mortgage on the premises, held by a financial institution, in the principal sum of $25,000, upon which monthly payments have continued to be made.
On January 25, 1956, approximately 15 months after the recording of the contract of sale, and prior to the first trial of the suit at law, Jardine conveyed the premises to Camp, Inc. The latter, on the same day, executed a second mortgage on the premises to Modern Funding Corporation in the sum of $12,500. Still on the same day, after executing the mortgage, Camp, Inc. reconveyed the premises to Jardine. On that day also, Modern Funding Corporation assigned the mortgage to Louis Margolis and Henrietta Margolis
(hereinafter called "Margolis"). All of the above-mentioned documents, with the exception of the assignment, were recorded on January 30, 1956 in the Union County Register's Office. The assignment was recorded in that office on February 16, 1956. On April 23, 1956, Jardine conveyed the premises to Plaza Realty Company. Despite the change in the title, Jardine continued to be the active litigant in the suit in the Union County Court. There was never any application by the new owner or owners to be substituted as parties.
On June 15, 1956, prior to the entry of the original judgment in the Union County Court, Margolis, as assignee of the second mortgage given to Modern Funding Corporation, instituted foreclosure action in this court in a cause entitled "Margolis v. Plaza Realty Company, et al. , Docket No. F-2099-55." The Koppels were joined as parties defendant. They filed an answer on July 18, 1956, referring to the pending law action and alleging that their rights were superior to the rights of the plaintiffs in the foreclosure action and that they were entitled to a monetary credit, setoff, abatement or recoupment in such sum as might be determined in the law action to be due them from Jardine. Margolis sought to strike the answer, but this motion was denied by Judge Sullivan. As a result of this, a judgment was entered in the foreclosure action on November 1, 1956, in which it was adjudged, among other things, that the complaint be dismissed as against the Koppels and that, except as to them, all other defendants be debarred and foreclosed of their equity of redemption.
Following this, and after the entry of the $10,000 judgment on November 2, 1956, Margolis, on January 25, 1957, made a motion in the suit in the Union County Court to vacate that judgment. In connection with that motion, William W. Telsher, who stated that he was president of Olaf Realty Corp. (hereinafter called ...