On appeal from Superior Court, Law Division, Ocean County.
Pressler, Baime and DiMartino. The opinion of the court was delivered by Pressler, P.J.A.D.
[244 NJSuper Page 106] Plaintiff Friendship Manor, Inc. (Friendship) brought this specific performance action to compel defendant Murray Greiman, individually and trading as Grey Realty Co. (Greiman), to convey to it, free and clear of any encumbrances, a parcel of vacant land in Jackson Township which Greiman had contracted to sell to it for $75,000. More specifically, plaintiff seeks to have Greiman satisfy two mortgages given to Garden State Bank by his own grantor, Bee Tree Corporation, a corporation then wholly owned by one Stephen Sigler, not a party to this action.*fn1 Greiman, taking the position that the mortgages are void and unenforceable as to his chain of title because of their late recording, filed a third-party complaint against Garden State demanding a judgment so declaring. Following a bench trial in the Law Division, the court concluded that the mortgages were a valid lien upon the premises. It declined, however, in its discretion, to grant plaintiff specific performance, awarding it instead damages for breach of Greiman's contractual undertaking to convey good title. Greiman appeals from those provisions of the ensuing judgment validating the mortgages and awarding plaintiff damages. Plaintiff cross appeals from
that portion of the judgment denying it the remedy of specific performance. We agree with the trial judge's holding that the mortgages constitute an enforceable lien on the premises. We are, however, satisfied that it erred in withholding specific performance relief.
Dispositive of the issues before us is the proper application to the facts, both undisputed and as found by the trial judge, of the so-called race notice statute, N.J.S.A. 46:22-1, which provides in full as follows:
Every deed or instrument of the nature or description set forth in section 46:16-1 of this title shall, until duly recorded or lodged for record in the office of the county recording officer in which the affected real estate or other property is situate, be void and of no effect against subsequent judgment creditors without notice, and against all subsequent bona fide purchasers and mortgagees for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded or whose mortgage shall have been first duly recorded or registered; but any such deed or instrument shall be valid and operative, although not recorded, except as against such subsequent judgment creditors, purchasers and mortgagees.
The critical inquiry here is whether Greiman, when he recorded his deed from Sigler, had notice of the later executed but prior recorded mortgages from Bee Tree to the bank. The trial judge found that Greiman did not have actual notice, and since the record adequately supports that finding, we are obliged to defer to it. Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 483-484, 323 A.2d 495 (1974). It is, however, well settled that constructive notice of an existing encumbrance -- that is, chargeable notice beyond actual knowledge and record notice pursuant to N.J.S.A. 46:21-1 -- will also defeat a claimant's right to rely on the protections otherwise afforded by the race notice statute. Scult v. Bergen Valley Builders, Inc., 76 N.J. Super. 124, 135, 183 A.2d 865 (Ch.Div.1962), aff'd 82 N.J. Super. 378, 197 A.2d 704 (App.Div.1964). See also Palamarg Realty Company v. Rehac, 80 N.J. 446, 404 A.2d 21 (1979); Gutermuth v. Rapiecki, 159 N.J. Super. 139, 148, 387 A.2d 385 (Ch.Div.1977); Michalski v. United States, 49 N.J. Super. 104, 108-109, 139 A.2d 324 (Ch.Div.1958).
In the context of the race notice statute, constructive notice arises from the obligation of a claimant of a property interest to make reasonable and diligent inquiry as to existing claims or rights in and to real estate. Scult, supra, 76 N.J. Super. at 135, 183 A.2d 865. Accordingly, as Justice (then Judge) Pashman there held, the claimant will be charged with knowledge of whatever such an inquiry would uncover where facts are brought to his attention, " sufficient to apprise him of the existence of an outstanding title or claim, or the surrounding circumstances are suspicious and the party purposefully or knowingly avoids further inquiry." Id. (Emphasis the court's.) We are satisfied that both plaintiff and Garden State conclusively established Greiman's constructive notice, as so defined, of Bee Tree's prior recorded mortgages to the bank at the time he recorded his own deed from Bee Tree.
The history of the Bee Tree-Greiman chain of title has its genesis in the sad and simple fact that Sigler was not an honest man. Greiman is an attorney-at-law of this state who represented Hartford Accident and Indemnity Co. Hartford indemnified the First National Bank of Toms River against the risk of improperly honoring customers' checks. Sigler, a customer of that bank, fraudulently obtained $38,000 from it by "kiting" checks. Hartford paid the bank's loss and instructed Greiman to commence an action against Sigler to recover its payment. The suit, which Greiman commenced in late 1969 or early 1970, was concluded in April 1971 by Sigler's execution in Hartford's favor of a promissory note in the amount of the debt, an arrangement apparently satisfactory to Hartford because of Sigler's representation that he owned sufficient property in Ocean County to cover the obligation.
Sigler, by his corporation, Bee Tree, acquired the premises in question in 1976, and in the following year gave Hartford a replacement note which included interest on the original principal sum. Several months later, in October 1977, Sigler told Greiman that he was in danger of losing the property to a sheriff's sale. Sigler, we gather, exerted the successful conman's
charm and plausibility to which Greiman succumbed. He lent Sigler $2,986 to avert the sheriff's sale and in October 1977 took back, apparently as collateral for the loan, Bee Tree's deed conveying the property to him. Greiman did not, however, then record the deed. In 1979, Greiman and Sigler entered into an agreement, also not recorded, whereby they agreed that on sale of the property, the proceeds would first be used to pay Sigler's still outstanding debt to Hartford and that Sigler and Greiman would equally share the balance. For the evident purpose of protecting the consequent rights of his client Hartford as well as his own since neither the Bee-Tree/Greiman deed nor the Greiman/Sigler contract had been recorded, Greiman requested and obtained from Sigler possession of the Bee Tree stock certificates and its corporate kit, including the corporate seal -- a rather illusory assurance against ...