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Bloomfield Savings Bank v. Stainton

Decided: April 5, 1960.

BLOOMFIELD SAVINGS BANK, A NEW JERSEY CORPORATION, PLAINTIFF-RESPONDENT,
v.
HOWARD S. STAINTON AND CO., A NEW JERSEY CORPORATION, AND HOWARD S. STAINTON, DEFENDANTS-APPELLANTS



Price, Gaulkin and Foley. The opinion of the court was delivered by Price, S.j.a.d.

Price

[60 NJSuper Page 525] By this appeal defendants seek to reverse a summary judgment in favor of plaintiff in a real estate mortgage foreclosure action in the Superior Court, Chancery Division. In addition, defendants contend that the court erroneously denied their motion for a summary judgment on their counterclaim. The crux of the dispute centers in the legal propriety of defendants' claim (rejected by plaintiff) that they had the right at any time to pay the entire principal of $60,000 and accrued interest on their bond held by plaintiff, without penalty for prepayment, thereby discharging their indebtedness to plaintiff and entitling them to a cancellation of the mortgage securing said debt. Following rejection of their claim, and subsequent tender pursuant thereto, defendants refused to pay further monthly installments in accordance with said bond. Thereupon

plaintiff's suit (described in its brief as "a partial foreclosure" under N.J.S. 2 A:50-39 et seq.) was instituted.

The factual situation disclosed by the record was that on April 13, 1959, Haag, Inc., Herman Haag, Adolph Haag and Eugene Haag executed a bond to plaintiff in the sum of $60,000, secured by a mortgage bearing even date therewith. The mortgage was signed by Haag, Inc., and covered certain real property therein described. The bond called for the periodic payments of taxes, other municipal charges and hazard insurance premiums referable to the property "described in the mortgage accompanying" the bond.

The aforesaid bond required the obligors to pay the principal sum of $60,000 "with lawful interest for the same," to be computed from the date thereof at the rate of 6% per annum, "the said principal and interest to be paid in monthly installments of * * * $666.14 commencing on the first day of June, 1959, and payable on the first day of each month thereafter until the principal and interest are fully paid, except that the final payment of principal and interest if not sooner paid shall be due and payable on the first day of April, 1969 * * *." (Emphasis supplied.) The bond contained no specific prepayment provision and, apart from the aforesaid phrase "if not sooner paid," provided without qualification for the periodic installment payments of principal and interest over the aforesaid ten-year span.

On July 15, 1959 Haag, Inc., defendant Howard S. Stainton and Co., and plaintiff entered into a tripartite "assumption agreement." The agreement recited that Haag, Inc. had sold the aforesaid real property to Howard S. Stainton and Co., "subject to the aforementioned mortgage" and that the said corporations had requested plaintiff to release the obligors on the bond "from all further liability on account" thereof. Expressing as part of the consideration the contemporaneous "delivery of a covenant," under which plaintiff promised it would not sue Haag, Inc., the agreement contained an undertaking by Howard S. Stainton and Co. "to assume and pay the indebtedness secured by said bond and mortgage, including

interest at the rate set forth in the said bond and mortgage, in accordance with the terms thereof * * *." Howard S. Stainton and Co. also therein covenanted "to execute another bond" to plaintiff "in the same amount and terms" as were contained in the aforesaid bond executed by Haag, Inc., et als. on April 13, 1959. Plaintiff, in turn, agreed "to the assumption of said mortgage" by Howard S. Stainton and Co. and further covenanted "not to exercise its option, under paragraph 8 of said mortgage, to demand payment of the entire principal and interest thereon, because of the sale of the land and premises covered by said mortgage."

Pursuant to the assumption agreement, Howard S. Stainton and Co. and, in addition, Howard S. Stainton, individually, on July 15, 1959 executed a bond to plaintiff in the sum of $60,000 providing for monthly installment payments similar to those contained in the former bond, with the specification that the initial installment payment was to be made on August 1, 1959.

On or about September 1, 1959, defendants requested that plaintiff furnish to the Chelsea Title & Guaranty Co. of Atlantic City a "pay-off statement" showing the full amount due it. Under date of September 8, 1959 plaintiff furnished such a statement which included a "prepayment penalty" of $1,800, demanded by it as a condition of its discharge of defendants' aforesaid indebtedness and the cancellation of said mortgage. Defendants by letter dated September 22, 1959 asserted that plaintiff had no right to the $1,800 payment and asked that a new statement, omitting that item, be issued to the aforesaid Guaranty Company. On September 25, 1959 plaintiff in a letter to the corporate obligor reasserted the correctness of its aforesaid "pay-off statement" and noted that "under the terms of the Bond and Mortgage you do not have the right to prepay the balance due."

On October 1, 1959 defendants' attorney, by letter, acknowledged plaintiff's last mentioned communication and, placing emphasis on the aforesaid phrase that "the final

payment of principal and interest, if not sooner paid , shall be due and payable on the first day of April, 1969," stated that the "prepayment penalty in the amount of $1800 * * * is an endeavor to collect by duress an unlawful penalty which is tantamount to usury." The letter designated October 8, 1959 at 10:30 A.M. at the office of the aforesaid Guaranty Company as the time and place when and where the writer's "client will be in a position to make tender of the total amount of principal and interest currently due and owing under said mortgage without regard to any penalties." The letter closed with the statement by the writer that if plaintiff failed to "comply with this demand * * * I shall deposit into Court the monies ...


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