On December 11, 1972 defendants Edward and Anna Van Glahn executed a mortgage and promissory note to plaintiff Century Federal Savings and Loan Association of Bridgeton (Century). The mortgage and note provided, among other things, that "(i)f there be any change in ownership of the mortgaged premises, except by operation of will or intestacy laws, the principal and interest secured by this mortgage shall, at the option of the Mortgagee, become due and payable immediately * * *."
On September 3, 1974 the VanGlahns entered into a long-term contract for sale with defendants Johnson and Roberts, seeking to convey the mortgaged premises. This contract was later recorded in the office of the Cumberland County Clerk.
Century, by this foreclosure action, seeks to enforce the "acceleration" or "due on sale" clause which is recited above. The matter is presently before the court on Century's motion for summary judgment.
Essentially, two questions are presented. First, is this acceleration clause valid and enforceable, or is it unenforceable as a penalty or unlawful restraint on alienation? Second, assuming that the acceleration clause is valid, have the VanGlahns violated the clause by their contractual relations with defendants?
I. Validity of Acceleration Clause
It has long been the law in this State that an acceleration clause is a legitimate and valid contractual term, Weiner v. Cullens , 97 N.J. Eq. 523, 526 (E. & A. 1925), not "disfavored in the law or in equity." Poydan, Inc. v. Kiriaki , 130 N.J. Super. 141, 150 (Ch. Div. 1974). Thus, a mortgagee has a right to insist upon strict observance of such a clause unless the default of which he complains is attributable to the conduct of the mortgagee himself. In fact, our courts have even held that an improper motive will not defeat the rights of the mortgagee under the acceleration clause. Glorsky v. Wexler , 142 N.J. Eq. 55, 57 (Ch. 1948).
The validity of an acceleration clause similar to that here was recently upheld in Poydan, Inc. v. Kiriaki, supra. In Poydan a note was secured by a real estate mortgage on a restaurant and by a security agreement covering personalty in the restaurant and its liquor license, and by the pledge of the restaurant stock. The note and mortgage provided for the acceleration of the principal and interest should the ownership of the mortgaged property change. When the mortgagors sold their stock, the mortgagee sought the entire amount remaining on the note and mortgage. The court held that the mortgagee had the right to accelerate the due date of the unpaid balance. The court based its decision on the fact that a mortgagee has an interest in the identity of
his debtor. Even though the security may be adequate, an unreliable owner may allow it to deteriorate or even remove or conceal a portion thereof. Id. 130 N.J. Super. at 148. The court also relied on the fact that acceleration of a mortgage by reason of the failure of the mortgagor to abide by the term of the contract "is not a penalty or forfeiture disfavored in the law or in equity." Id. at 150.
In Shalit v. Investors S, & L. Ass'n , 101 N.J. Super. 283 (Law Div. 1968), the validity of an acceleration clause was again accepted by the court. In that case plaintiffs (borrowers) sought to recover a payment which they had made in return for defendant's (lender's) waiver of its right to accelerate payment under a bond and mortgage executed by plaintiffs. Plaintiffs had executed the bond and mortgage in order to finance a multi-unit dwelling. Several years later plaintiffs contracted to sell the premises subject to the mortgage and so advised defendant. The parties entered into negotiations for the waiver of defendant's right to accelerate and agreed on an amount, which plaintiff paid. Plaintiff later started suit for the return of the premium.
The court concluded that receipt of a premium in exchange for waiver of the acceleration privilege was within the proper discretion of the mortgagee. Accordingly, since it is proper to accept a premium in place of the ...