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Court Investment Co. v. Perillo

Decided: December 23, 1966.


For reversal and remandment -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For affirmance -- None. The opinion of the court was delivered by Francis, J.


The issue here is whether the trial court erred in reopening a default judgment obtained on November 24, 1945 by plaintiff Court Investment Company against defendants Millie Perillo and Donato Perillo, husband and wife. The Appellate Division, with Judge Kilkenny dissenting, reversed and reinstated the judgment. Defendants appealed to this Court. R.R. 1:2-1.

On May 10, 1928 defendants gave a bond and third mortgage on their premises in Newark, N.J. to Salvatore Carrera to secure an indebtedness of $1800. On June 8, 1928 Carrera assigned the mortgage to Court Investment as "collateral" security for a mortgage on his own premises at another location in Newark, N.J. The first mortgagee instituted a foreclosure suit on defendants' property on May 23, 1929. Court Investment, the Perillos and others were made defendants; Carrera was not joined in the action. A foreclosure decree was entered and the premises were bought in at the sheriff's sale by the first mortgagee. The purchase price left a substantial deficiency on the first mortgage. Since defendants had made no payments on the $1800 third mortgage held by Court

Investment, the full principal sum remained due after completion of the foreclosure action, and the confirmation of the sale. The order of confirmation was entered on November 23, 1929.

Thereafter Court Investment permitted the matter of the Perillos' liability on their bond to rest without any court proceedings for many years until institution of the action with which we are concerned here and which resulted in the default judgment of $3,600 on November 27, 1945. Plaintiff claims the suit was commenced on May 7, 1943. Defendants contend it was instituted on April 21, 1945, and was barred at that time by the one year limitation on the bringing of such actions set forth in L. 1942, c. 172, N.J.S.A. 2:65-7.1 (now N.J.S. 2A:50-8). The default judgment therein was vacated on January 8, 1963.

As we have said the order confirming the sheriff's sale of defendants' premises to the first mortgagee was entered on November 23, 1929. Thus the lien of plaintiff's subsequent mortgage was cut off as of that date. On May 9, 1942, L. 1942, Chapter 172 became effective. It provided:

"Where a bond and a mortgage shall be or have been given for the same debt and the lien of the mortgage has been or shall be extinguished by the foreclosure of a prior mortgage, * * * and sale of the mortgaged premises, action on the bond shall be commenced within 1 year from the date of the confirmation of the sale of the mortgaged premises whereby the lien of said mortgage was or shall be extinguished, except in cases in which the lien of the mortgage securing payment of a bond has been so extinguished prior to the taking effect of this act, in which cases action upon said bond shall be commenced within one year after this act shall take effect, unless previously barred, and all such actions not commenced within either of said periods, as the case may be, shall be thereafter completely and forever barred for lapse of time * * *." (Emphasis added.)

Thus if plaintiff intended to sue defendants on their bond the mandate of this statute called for commencement of the action by May 9, 1943.

Plaintiff claims it brought suit on the bond on May 7, 1943, two days before the one-year period ended. That is the date

which appears on the summons, which bears the signature of the Clerk of the Supreme Court and the seal of the Court. However, the summons and complaint were not delivered to the sheriff for service upon defendants until April 21, 1945, almost two years later, and were not filed with the court after service upon defendants until May 6, 1945. In the complaint plaintiff alleged that the lien of the mortgage on defendants' property had been "cut off by the foreclosure of a superior mortgage." No pertinent dates of the foreclosure action were set forth. The suit was brought in the name of Court Investment Company and Philip Gaudiosi, "sole acting Trustee in liquidation of Court Investment." Gaudiosi, who later changed his name to Mitchell, was then a member of the New Jersey Bar.

It is appropriate to note here that on March 31, 1945, only 21 days before the summons and complaint were delivered to the sheriff for service, Court Investment had given a discharge of the Perillo mortgage to an attorney for a prospective purchaser of the property. Although the first mortgage thereon had been foreclosed, the attorney had raised a title question in behalf of his client, because Carrera, the original Perillo mortgagee and assignor of the mortgage to Court Investment, had not been made a party to the foreclosure action. (Mitchell knew the Perillo property very well. He acquired title to it himself on February 8, 1927. When he sold it and to whom prior to the time the Perillos bought it in 1928, and the seller to the Perillos do not appear in the record before us. Mitchell knew Carrera well also. Carrera built the house on the property and lived there in 1927. Also he acted as rental and collection agent for Mitchell for this and other nearby properties. (See Gaudiosi v. Micone, 6 N.J. Misc. 425, 141 A. 575 (Sup. Ct. 1928)). The testimony in the cited case shows that Carrera went into bankruptcy in 1927; Mitchell was his attorney in the proceedings.)

The prospective purchaser's attorney indicated that he would not accept the title or allow his client to complete the purchase of the property unless the then owner-prospective

seller obtained a discharge of the mortgage. Court Investment thereupon furnished the discharge, signed by Philip Mitchell, its president, and acknowledged by his wife, Lillian Mitchell, its secretary. The discharge was recorded on April 10, 1945 by the attorney to whom it had been given. The suit on the bond made no mention of this discharge.

After service of the summons and complaint in the deficiency suit, defendants retained and paid a fee to Samuel Ehrenkranz, then a member of the bar, to represent them. Donato Perillo testified in the present proceeding that Ehrenkranz told him later that the suit was "late" and "everything is all right," and that the matter had been cleared up. Ehrenkranz filed an affidavit of merits, and did nothing further. As a result the $3600 default judgment was entered on November 27, 1945. It now appears that Ehrenkranz had been indicted previously in the United States District Court for the District of New Jersey for using the mails in a scheme to defraud, and for conspiracy to use the mails in a scheme to defraud, and that on April 19, 1943 he had entered pleas of guilty to two such indictments. On one plea he was sentenced to imprisonment of one year and one day, which sentence was suspended, and he was placed on probation for five years. On the other plea he was fined $5,000. On February 23, 1944 the matter of discipline to be imposed upon Ehrenkranz as a member of the New Jersey Bar was referred to the State Board of Bar Examiners for hearing and report to the Supreme Court. Six hearings were held over an extended period, and on May 24, 1945 the Board recommended disbarment. It may be noted that that date is just 18 days after Mr. and Mrs. Perillo had been served with process in the Court Investment suit on the bond. A motion to confirm the report was argued at the October 1945 term of the Supreme Court, and thereafter on September 17, 1946 an order confirming the report was entered. In the Matter of Samuel Ehrenkranz, An Attorney at Law, Docket No. 16825 (1944). It seems reasonable to assume that the pendency of these various proceedings involving Ehrenkranz played a material

part in his failure to file an answer or otherwise defend the Court Investment action against the Perillos.

According to Mr. and Mrs. Perillo they knew nothing about the $3600 default judgment against them until 14 years later. In the meantime, on February 14, 1949, the corporate charter of Court Investment had been forfeited for nonpayment of State franchise taxes, and the Perillos had bought another piece of property in Newark, N.J. In 1959 they sought to obtain an additional mortgage loan thereon and in the course of a title search by the late Nicholas W. Kaiser, attorney for the prospective lender, the Court Investment judgment came to light. The Perillos then engaged Kaiser to take care of the matter. He began negotiations with Mitchell to obtain a warrant to satisfy the judgment, offering a small sum to do so. In the course of the negotiations Kaiser called Mitchell's attention to the discharge of the mortgage, which was recorded before the suit was brought, and also to the claim that the suit was barred, in any event, by the one-year limitation period set out in N.J.S.A. 2:65-7.1, supra. The negotiations were not fruitful and ultimately, on July 16, 1962, the Perillos instituted the present proceeding which resulted, after an extensive hearing, in the setting aside of the default judgment.

We agree with the trial court and the dissenting judge in the Appellate Division that the judgment ...

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