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Kaminski v. London Pub Inc.

Decided: March 7, 1973.


Labrecque, Kolovsky and Matthews. Kolovsky, J.A.D., (dissenting).

Per Curiam

Plaintiffs, mortgagees under a second mortgage in the amount of $64,000 on premises known as The London Inn, White Horse Pike, Lindenwold, Camden County, owned by deefndant, instituted this action for foreclosure. The mortgage which was a standard form collateral mortgage contained a clause requiring the mortgagor to keep the building on the premises insured against loss from fire. The clause also provided that "if Mortgagor shall at any time default in furnishing any policy of insurance agreed to be furnished hereunder * * *, Mortgagee may procure policies of insurance insuring its interest * * * and charge all costs and expenses thereof to Mortgagor * * *." Elsewhere in the mortgage was a provision that if the mortgagor defaulted in the prompt performance of any promise, covenant or condition of the agreement for a period of ten days, the mortgagee could call the entire mortgage debt. Reasonable attorney's fees were also to be allowed in connection with any default.

On July 11, 1969 the fire insurance policy on the premises was cancelled for nonpayment of premium. A notice of cancellation was allegedly mailed on June 6, 1969 by the insurer to defendant. No notice of the cancellation was mailed to anyone else, notwithstanding that the policy contained a reference to the fact that The Peoples National Bank of Camden County was holder of the first mortgage on the premises. The policy had covered the premises during the ownership of the London Pub by plaintiffs and was continued in force after the sale of the premises from plaintiffs to defendant. No notice had ever been sent to the insurer stating that plaintiffs held a second mortgage interest in the premises.

Plaintiffs were not notified of the cancellation of the insurance policy for some time after that event when notification came through the first mortgagee.

Judge Wick refused to grant plaintiffs the right to continue with the "extreme remedy of foreclosure." He noted that all payments of interest, principal and taxes had been made promptly to the first and second mortgagees and that the only reason foreclosure was sought here was the "failure to supply the insurance." In rendering his decision, Judge Wick noted that the notice of cancellation had been sent by the insurer only to defendant corporation but that no individual could testify at the trial as to having received that notice. He also noted that both sides became aware of the nonexistence of insurance at approximately the same time and that both sides immediately attempted to place the insurance. He found that it was not until a year and one-half later that even plaintiffs were able to place the insurance. He also found that since plaintiff Matthew Kaminski was the one who had made the sale and set up the method of financing used, plaintiffs had to absorb some of the responsibility for some of the events that ensued. He therefore denied foreclosure.

The record disclosed that the Kaminskis did in fact obtain a policy of insurance after a number of abortive efforts. The policy obtained required a total annual premium of $4,779.64. After paying the premium, plaintiffs demanded reimbursement within ten days from defendant. The amount was not paid but prior to institution of these proceedings defendant was successful in obtaining a policy on its own and informed plaintiffs of this fact. The record also discloses that defendant also offered to pay the premium advanced by plaintiffs prior to the institution of the action. Plaintiffs insisted, however, in prosecuting the foreclosure.

Plaintiffs on this appeal maintain that a literal reading of the mortgage instrument gives them the right, which the court below could not deny them, to foreclose because of the failure of defendant to keep the mortgaged premises

insured. We disagree. Generally, a provision in a mortgage granting the mortgagee an option to accelerate the maturity of the mortgage date upon the default in payment of principal, interest, taxes or insurance is a proper contractual stipulation and a mortgagee has the right to insist upon strict observance of such a stipulation, unless the default can be attributed to his conduct. Eisen v. Kostakos , 116 N.J. Super. 358, 366 (App. Div. 1971); Weiner v. Cullens , 97 N.J. Eq. 523, 526 (E. & A. 1925).

Under our cases, default in the payment of taxes or municipal liens may be neutralized if the taxes or liens are paid before the complaint in foreclosure is filed. Williams v. Evenstein , 2 N.J. 60, 63 (1949); Eisen v. Kostakos , above; Haase v. Moser , 120 N.J. Eq. 437 (Ch. 1936), aff'd 121 N.J. Eq. 344 (E. & A. 1937). Default in the payment of interest or principal cannot be so neutralized, however. Haase v. Moser , above, 121 N.J. Eq. , at 345. Our research has not disclosed any case in this State which involves the attempt to correct a default under an insurance clause prior to the institution of foreclosure proceedings.

It seems to us, however, that a default in the payment of insurance premiums, or the failure to maintain a policy of insurance on mortgaged premises, is more analogous to a failure to pay taxes or municipal liens when due than to a failure to pay interest or principal when due. Cf. Olshan v. Chrystal , 101 N.J. Eq. 799 (E. & A. 1927). The failure to pay taxes or to maintain insurance does not impair the security of the mortgagee if those defaults are corrected promptly, i.e. , before the institution of foreclosure proceedings. On the other hand, a default in the payment of interest or principal is ipso facto an impairment of security and a violation of the principal condition of the mortgage conveyance.

It is apparent that the mortgage security was imperiled through the lack of insurance during the period of time involved. However, no actual impairment of the security ever ...

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