On certification to the Superior Court, Appellate Division, whose opinion is reported at 177 N.J. Super. 491 (1981).
For remandment -- Chief Justice Wilentz and Justices Schreiber, Handler, Pollock and O'Hern. Dissenting -- Justice Pashman. The opinion of the Court was delivered by Schreiber, J. Pashman, J., dissenting.
This case involves the status of a mortgage on real property owned by tenants by the entirety. The precise issue is what, if anything, is owed and by whom when one of the tenants receives the mortgage as a gift and subsequently dies.
On August 16, 1973, Robert G. Colquhoun and his wife, Elizabeth, purchased a house at 39 Oak Ridge Road, Basking Ridge, for $51,000. They moved into the home and continued to reside there until their respective deaths. The deed recited the grantees as Robert G. Colquhoun and Elizabeth Colquhoun, his wife, thus creating a tenancy by the entirety. See Mosser v. Dolsay, 132 N.J. Eq. 121 (Ch.1942). Robert F. Colquhoun, a son, advanced the necessary purchase money. The loan was evidenced by a bond and secured by a purchase money mortgage. Under the terms of the loan, $35,000 was to be repaid to the son on August 31, 1974. The $16,000 balance, with 6% interest, was to be repaid in equal monthly payments of $103.09 commencing
on October 1, 1974 until August 1998. Mr. and Mrs. Colquhoun, utilizing proceeds from the sale of their previous home at Lake Mohawk, paid the $35,000 due on August 31, 1974. A balance of $16,000 remained due under the mortgage.
On June 8, 1978, Robert F. Colquhoun assigned the mortgage to his father, Robert G. Colquhoun, individually. Though the assignment recited it was made "for a valuable consideration," the parties have agreed that the transfer was made as a gift. The assignment was recorded on June 9, 1978.
Robert G. Colquhoun died on October 14, 1978. In his will, he expressly disinherited his wife and their two sons, although he designated his older son, Robert F. Colquhoun, as executor. He bequeathed and devised his estate to his brothers and sisters in Scotland. At the request of his mother's attorney, Robert F. Colquhoun executed a partial release of the mortgage reflecting the fact that the $35,000 had been paid on August 31, 1974. This document was recorded on March 13, 1979. No monthly payments had ever been made on the $16,000 mortgage.
Elizabeth Colquhoun died on May 29, 1979. The primary beneficiary in her will, executed shortly before her husband's death, was her son, Owen Colquhoun. Her will expressed her intention that neither her husband nor her son Robert F. was to benefit from her estate. Owen, as executor of his mother's estate, contracted to sell the Basking Ridge property for $89,500. However, the sale could not be consummated because of the record existence of the mortgage. The father's estate demanded payment of the $16,000 unpaid principal amount of the mortgage plus accrued interest. The attorney for Mrs. Colquhoun's estate contended that her estate was liable for only $8,000 since "Mr. Colquhoun was a co-signer of the mortgage obligation." When agreement between the parties could not be reached, this action was instituted on behalf of Elizabeth Colquhoun's estate for an order compelling the executor of Robert G. Colquhoun's estate to release the recorded mortgage lien so the sale could be effectuated and also for a setoff of $8,000 against the claim of $16,000.
The trial court granted pendente lite relief by ordering that the mortgage be cancelled and funds covering the principal and interest be placed in escrow. Thereupon the real estate transaction was closed.
The trial court subsequently granted summary judgment in favor of the estate of Robert G. Colquhoun, concluding that Elizabeth Colquhoun's estate was liable for the $16,000 principal amount plus interest. It held that when Elizabeth Colquhoun became the sole owner of the property upon her husband's death, the property was encumbered by the $16,000 mortgage and therefore she was responsible for paying it in full. If she had used her funds to pay off the mortgage resulting in a benefit to her husband, she would have been entitled to contribution, but since she had not, no basis existed to compel his estate to make contribution.
The Appellate Division reversed. Colquhoun's Estate v. Colquhoun's Estate, 177 N.J. Super. 491 (1981). It reasoned that a confidential relationship existed between the co-owners of the property and that when one co-owner protects the common title, he does so for the benefit of all. Thus, when Robert G. Colquhoun received the mortgage, he did so for the benefit of his wife Elizabeth and himself. Accordingly, the mortgage merged with the title and Elizabeth's estate had no obligation with respect to the mortgage. We granted the petition for certification of the executor of the estate of Robert G. Colquhoun. 87 N.J. 362 (1981).
This is a classic example of a case in which competing legal principles may lead to different results. If the wife had died first, the husband as the surviving tenant would have become the sole owner of the property. The merger of the mortgage and deed would have been complete upon her death. Portuguese v. Ziss, 2 N.J. Super. 397, 400 (Ch.Div.1949) (merger occurs upon uniting greater and ...