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Mortgage Corp. v. Manhattan Savings Bank

Decided: January 10, 1962.

THE MORTGAGE CORPORATION OF NEW JERSEY, A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF,
v.
THE MANHATTAN SAVINGS BANK, A BANKING CORPORATION OF THE STATE OF NEW YORK, DEFENDANT



Labrecque, J.s.c.

Labrecque

The plaintiff brings the present action asserting a claim that it is entitled to payment of liquidated damages pursuant to the terms of a servicing agreement entered into between it and the defendant. The plaintiff moved and the defendant countermoved for the granting of a summary judgment. Both sides conceded at the oral argument that the case was one which called for the entry of summary judgment.

The material facts are set forth in the exhibits, the affidavits filed and the deposition of John J. Novak, one of defendant's officers. They are uncontroverted and may be summarized as follows:

The plaintiff, a New Jersey corporation with its principal place of business in Newark, entered into a servicing agreement with the defendant, a New York banking corporation having its principal office in New York City. By the terms of this agreement the plaintiff was engaged to service mortgages held by the defendant. This involved collection of payments due the defendant on the latter's mortgages and the forwarding of same on to the defendant. It also involved other functions more particularly set forth in the agreement.

The pertinent portion of the agreement recited that the plaintiff was to service such notes and mortgages or deeds of trust acquired by the defendant in the course of its business, as might be mutually agreed upon from time to time. However, the only mortgage that was ever serviced under the agreement was the F.H.A. mortgage which is the subject matter of the present suit. This mortgage, dated June 5, 1950, was made by Palisades Court, mortgagor, in the sum of $431,500 to The Trust Company of N.J., mortgagee. It provided for interest at 4% per annum and its date of maturity was December 1, 1983. It permitted prepayment of the debt secured thereby in the following language:

"Notwithstanding the provisions of this mortgage and the bond accompanying same and in the event this debt is paid in part or in full prior to maturity, then and in such event all parties liable for the payment hereof agree to be jointly and severally bound to pay to the holder hereof the following prepayment premiums:

Prepayment shall be allowed during the first ten years from the date of the first principal and interest payment on this obligation upon the payment to the holder hereof of premiums in an amount equal to fifteen per centum (15%) of the original principal amount due herein, and thereafter prepayments shall be allowed upon payment to the holder hereof of premiums in an amount equal to three per centum (3%) of the original principal amount due herein if payment is made during any year after the end of the tenth year from the date of the first principal and interest payment on this obligation and before the end of fifteen years from the date of said first principal and interest payment due under this obligation and upon payment to the holder hereof of premiums in an amount equal to two percentum (2%) of the original amount due herein if payment is made in any year after the end of the fifteenth year from the date of the first principal and interest payment on this obligation and before the maturity date of this mortgage.

Notwithstanding the foregoing provisions, privilege is reserved to make prepayments of principal in an amount not exceeding fifteen per centum (15%) of the original principal amount of this mortgage in any one calendar year without prepayment premium."

The servicing agreement which the parties entered into contained the following relevant provisions:

"WHEREAS, Manhattan [defendant] has acquired or from time to time will acquire as holder and owner, certain mortgage or deed

of trust notes each secured by a mortgage or deed of trust, on real property; and whereas the parties hereto contemplate that the Servicer shall service such notes and mortgages or deeds of trust as from time to time by mutual agreement shall be specified and made subject to the terms hereof, which notes, mortgages or deeds of trust are hereinafter sometimes referred to as 'the mortgages' or collectively as 'the mortgage'; and the mortgage to which it is contemplated this agreement is first to relate is that referred to above the text of this agreement; and

WHEREAS, Manhattan desires the Servicer [plaintiff] to service the mortgage; and

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it is agreed by and between the parties hereto as follows:

COLLECTIONS FROM MORTGAGORS

1. Continuously from the date hereof until the principal and interest of the mortgage are paid in full , the Servicer will proceed diligently to collect all payments due under the mortgage, or under the charter of the mortgagor or Regulations of the Federal Housing Commissioner for replacement reserves with respect to the mortgaged property, as and when the same shall become due and payable * * *.

TERMINATION WITHOUT CAUSE

16. Manhattan as of right may also immediately terminate this agreement without cause, upon written notice to the Servicer and upon payment to the Servicer as penalty or liquidated damages (but without any further liability whatsoever to the Servicer) of an amount equal to the servicing fees which the Servicer would have received if the Servicer had continued to service the mortgages, irrespective of prepayment privileges and all future defaults, for a period of four years from the date of giving such notice of termination, * * * If, on the date of termination of this agreement, * * * any of the mortgages are in default for sixty (60) days or more in payment of principal and interest or otherwise in default so as to give Manhattan the right to foreclose, then, as to such mortgages this agreement may be terminated without payment.

TERM OF AGREEMENT

18. Unless sooner terminated as herein provided or by mutual agreement, this agreement shall continue from the date hereof during the term of the mortgage, and until the principal and interest of the mortgage are paid in full, or until the mortgage is assigned to the Federal Housing Commissioner in order to obtain benefits of FHA mortgage insurance; provided, however, that this agreement shall nevertheless remain in effect for the period and to the extent provided in paragraph 11 hereof." (Emphasis added)

The agreement further provided that the plaintiff, as servicer, was forbidden to waive prepayment terms or penalties if the mortgagor sought to reduce or retire the mortgage without the written consent of the defendant, as mortgagee. The agreement was silent, however, in imposing any equivalent obligation on the defendant to secure the consent of the plaintiff before waiving any prepayment penalties.

Compensation for the services of the plaintiff consisted of the reservation from monthly collections of one-twelfth of one-fourth of 1% of the principal amount of the mortgage, together with any "late charge."

Although the original named mortgagee was The Trust Company of N.J., the latter was in fact holding the mortgage pursuant to an agreement between it and the plaintiff whereby The Trust Company was to hold the mortgage for the benefit and at the risk ...


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