This action was instituted by plaintiff Kirkeby Corporation (Kirkeby) against defendant Cross Bridge Towers, Inc. (Cross Bridge), seeking to foreclose a mortgage held by plaintiff on a certain leasehold held by defendant Cross Bridge. Subsequent to the institution of the action, the complaint was amended to assert claims against the tenant defendants for rents not paid to plaintiff during the period in which it had held the premises in question as mortgagee in possession.
Cross Bridge was the net lessee of a high-rise apartment building located in Fort Lee, Bergen County. It, in turn, subleased apartments in the building to various tenants. During the month of May 1963 Cross Bridge mortgaged its interest in the ground lease to plaintiff Kirkeby as security for a loan of $454,000 made by plaintiff to Cross Bridge. The mortgage was recorded in the office of the Bergen County Clerk on June 7, 1963.
Among the provisions of the mortgage there was an agreement by Cross Bridge that it would not receive or collect rents from its subtenants for more than one month in advance.*fn1 The mortgage also provided that as further security
for the mortgage debt, Cross Bridge assigned to Kirkeby all rents received by it, with the right in Kirkeby to collect such rents and to apply them, after charges and expenses, on account of the mortgage debt. Kirkeby waived its right to collect the rents until default.*fn2
During July 1964 Cross Bridge came into default under the terms of the mortgage. Thereupon Kirkeby instituted the instant action for foreclosure on August 14, 1964. On August 21, 1964, Kirkeby was appointed mortgagee in possession by this court. Upon obtaining possession, Kirkeby learned for the first time that, notwithstanding the provisions of the mortgage assigning the rents to it and prohibiting the collection of more than one month's rent in advance, a substantial number of tenants had in fact prepaid their rent for varying periods to Cross Bridge. Upon subsequent demand being made by Kirkeby, as mortgagee in possession, upon the tenants for payment of rents, those tenants who had prepaid refused to comply with the demand. It is upon the happening of these latter events that plaintiff amended its complaint to assert the rent claims against the defendant tenants.
The matter is presently before me on cross-motions for summary judgment brought on behalf of plaintiff and the defendant tenants.
Extensive discovery proceedings were conducted by the parties prior to the noticing of the cross-motions here under consideration. It will serve little purpose to analyze the extensive testimony adduced concerning the events and circumstances
which led to and surrounded the pre-payment arrangements entered into between the tenants and Cross Bridge. A brief description of a typical transaction, as gleaned from the depositions (and concerning which there is no dispute), will suffice for the purposes of this opinion.
The bulk of the prepayment situations may be described as "6 for 5" and similar arrangements. Most of them arose in the following manner: During July 1964, shortly before Kirkeby was informed by the fee owner of the July defaults of Cross Bridge, the president of the latter company, either initially or following overtures made by other individuals, approached a number of tenants, stating that he desired to make various improvements in the building. He told them that this would require mortgage financing or refinancing, which would entail the payment of interest. The president stated that he would rather raise the money from the tenants and give them the benefit of his financing costs. The plan was that the tenant would receive six months' occupancy for each five months' rent paid in advance. The arrangement was also available in multiples as 12 for 10, and 18 for 15.
A number of tenants accepted the proposition. Some of them did so after consultation with personal counsel, who in a few cases even went so far as to draw a document which was to be signed for the tenant's protection. The 6 for 5 arrangements specified the six months' occupancy as August 1964 to and ...