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Mayo v. City National Bank and Trust Co.

Decided: May 18, 1970.

JOHN MAYO, PLAINTIFF-APPELLANT,
v.
CITY NATIONAL BANK AND TRUST COMPANY, DEFENDANT-RESPONDENT



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

Haneman

This matter involves the question of the order of precedence of various creditors of an owner-builder to payment out of an installment of a construction mortgage.

On May 10, 1966, The City National Bank and Trust Company of Hackensack (City National Bank) signed a "Mortgage Commitment and Closing Instruction Sheet" agreeing to advance $750,000 to Fairleigh Arms, Inc. (Fairleigh)

in unspecified installments, the repayment of which was to be secured by a "Construction Mortgage." Said Commitment reads in part: "Subject to the conditions as stated in a Permanent Commitment by Manhattan Savings Bank, dated December 14, 1965." The Permanent Commitment of the Manhattan Savings Bank above referred to reads in part:

"The loan shall be * * * secured by a first mortgage on the above premises * * * which mortgage shall constitute a valid first lien on a good and marketable title in unencumbered fee simple to the premises and building and improvements now or hereafter erected thereon and all fixtures, equipment and articles of personal property now or hereafter affixed to or used in connection with the operation of the premises.

"The mortgage shall be superior to any mechanic's lien which may be filed for construction of the building and proof satisfactory to our counsel that the cost of construction of the building has been paid in full shall be submitted at or prior to the closing."

On May 11, 1966, Fairleigh executed and delivered a mortgage in the face amount of $750,000 to City National Bank. Although the mortgage recites that $750,000 had been "in hand well and truly paid by the Mortgagee at or before the sealing and delivery of these presences", a legend appearing on the top of page one, indicates that it is a "Construction Mortgage" printed by "Irwin Karkus, Law Blank Publisher, Newark, N.J." No place in the body of the instrument is there any finite specification of the time for and amount of future installments. This fact is adverted to, not because it affects the merits of the matter but because it is explanatory of why this Court as well as the trial court, encountered some difficulty in ascertaining the facts. In order that there be no misunderstanding, no such written statements are required to make a valid Construction Mortgage. However, as a matter of propriety and safety this should be done. Bell v. Fleming's Executors, 12 N.J. Eq. 13 (Ch. 1858), aff'd 12 N.J. Eq. 490 (E. & A. 1859); Reed v. Rochford, 62 N.J. Eq. 186 (Ch. 1901). Such

statements are helpful in resolving the parties' respective rights and duties. All parties agree that the loan was upon a Construction Mortgage and that advances were to be made by the mortgagee under some oral arrangement subject to the conditions contained in the above mentioned instruments.

On August 22, 1966, Fairleigh executed an assignment to plaintiff of which defendant had notice and which reads:

"For and in consideration of the sum of ONE ($1.00) DOLLAR, and other good and valuable consideration, receipt which is hereby ...


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