On appeal from the Superior Court, Chancery Division, General Equity, Bergen County.
Deighan, R.s. Cohen and Brochin. The opinion of the court was delivered by Cohen, R.s., J.A.D.
Plaintiffs Alvah and Lucy Howard deeded their home to defendant Joseph Diolosa for $25,000 and an uncertain leaseback arrangement. Diolosa then mortgaged the property to defendant Nanuet National Bank for $100,000. The Howards sued to set aside the deed and void the mortgage. Diolosa counterclaimed for unpaid rent. Nanuet crossclaimed against Diolosa for indemnification and filed a third-party complaint against Diolosa's attorney for legal malpractice.
After a bench trial, the Chancery Division judge set aside both the deed and mortgage, ordered the Howards to repay Diolosa the balance of the $25,000 he paid them for the house, without interest and less the $675 monthly rent payments they had made, dismissed Nanuet's crossclaim against Diolosa without prejudice, and dismissed the bank's third-party complaint against the lawyer with prejudice. Diolosa and Nanuet both appealed. We permitted New Jersey Bankers Association to file a brief amicus curiae. We modify in part and affirm.
Before us, the judge's significant findings of fact are not disputed. They are, in any event, supported by sufficient credible evidence. The parties differ principally on the legal consequences of what the judge found occurred.
The Howards moved into a house in Oakland, New Jersey, in the 1950's. At the time, it was owned by John Johnson, an older man Howard knew all his life and regarded as a father. Howard went to work as a carpenter for Johnson. Then, after leaving to serve a few years in the Air Force, he returned to Oakland with his Philippine wife Lucy. Howard, a high school graduate, went to work in a local woodworking shop for 13
years and then as a public school custodian, and the Howards lived with Johnson.
In 1965, Johnson transferred the property to the Howards, subject to a life estate and an agreement that the Howards would care for him in the house. In 1975, Johnson died and the property passed free and clear to the Howards, who continued to live there. In 1987, at age 60, Howard retired from his job as a school custodian, because his obesity prevented him from doing the work.
In late 1985, serious financial problems were pressing the Howards. The house was their only asset and they were a year behind in property tax payments. On their dozen credit cards they owed nearly $23,000, requiring unmanageable minimum monthly payments of some $760.*fn1 Their car was destroyed in an accident when their daughter was driving it. Because of their poor credit history, the Howards could not even rent a car. They went to three banks and The Money Store to borrow $25,000 to satisfy their creditors, but were turned down.
One of the people Howard discussed his financial problems with was Diolosa, a salesman at a car agency Howard visited in his effort to rent a car. Howard testified that Diolosa offered to help him get a $25,000 mortgage loan, and that he thought all the subsequent paperwork was in furtherance of that loan. He thought he signed a mortgage and believed his $675 monthly payments to Diolosa were to satisfy it. Diolosa testified that what he offered and consummated was a purchase and leaseback of the property. The paperwork was all confirmatory of Diolosa's version. There was a contract, a deed, a buy-sell closing statement, a check from Diolosa marked "payment in full," and written confirmation that the transaction was a sale, signed by the Howards.
The documents transferring title to Diolosa were full of lawyer talk, but the Howards had already been through a complicated real estate deal with Johnson. Mrs. Howard could not read English and had serious eye problems, but her husband was a high school graduate, and the couple were repeatedly warned orally and in writing by Diolosa's attorney that they were selling the house, that he did not represent them, and that they should consult an attorney of their own. They did not do so. Diolosa's attorney testified, truthfully as the judge found, that he fully explained the documents and the transactions to the Howards. A later monthly check to Diolosa was marked "rent" by Howard. He told an insurance man he sold his house. The evidence supported the judge's conclusion that the Howards knew that they were selling their house and renting it back, and that their contrary testimony was untrue.
Diolosa was in his mid-sixties. The car dealership of which he was half-owner had recently been sold, and he worked as a salesman at another agency. He said he had income of $20,000 per month and assets of more than $500,000. The judge found on the basis of Diolosa's self-evaluation that he was "obviously a successful business man." It is apparent, nevertheless, that the income and asset figures he put in his mortgage application were considerably inflated. The real estate, listed at $450,000, was the family home, actually owned by his wife. The $75,000 in furnishings were in the house.
The Howards thought their house was worth about $100,000, according to their 1985 loan applications. When Diolosa applied to the bank for his $100,000 mortgage in 1986, he thought its value was $75-100,000, according to his testimony, but on the mortgage application he stated its purchase price to be $125,000. The bank lent Diolosa $100,000 on the security of the property. The bank had an appraisal done, but the amount was
not revealed in the testimony.*fn2 The 1987 assessed value of the property was $227,200. On this fragmentary information, which was all that appeared in the evidence, the judge found that the fair value at the ...