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Jennings v. Cutler

March 15, 1996


On appeal from Superior Court, Chancery Division, Burlington County.

Approved for Publication March 15, 1996.

Before Judges Skillman, P.g. Levy and Eichen. The opinion of the court was delivered by Eichen, J.A.D.

The opinion of the court was delivered by: Eichen

The opinion of the court was delivered by EICHEN, J.A.D.

At the time this litigation arose, defendant Alan Cutler was a wealthy real estate developer and defendant A. Cutler Home Inc. (the corporation) was a closely-held corporation over which Cutler exercised majority control. In early 1990, plaintiff Michelle Jennings and Cutler met, began dating, and shortly thereafter, Jennings moved in with him. They lived together until July 1992 when the relationship dissolved. During the time they were together, Cutler presented Jennings with many extravagant gifts, including a new Mercedes Benz automobile. He also paid her expenses, such as her credit card bills, ranging from $7,000 to $10,000 per month, and a $29,000 dental bill.

In the spring of 1992, Cutler gave Jennings a $150,000 mortgage on one of the properties owned by the corporation. When the property was sold, however, Cutler refused to authorize payment to Jennings, and Jennings instituted this litigation.

The primary question presented is whether a duly perfected mortgage, given with the expectation it will be satisfied in the future out of the proceeds of sale of the liened property, can be the subject matter of a valid inter vivos gift.

Sometime in early 1992, Jennings asked Cutler for $250,000 because, she claimed, she was concerned about what she would do if something happened to him. The record reflects that when Cutler declined to give her cash, Jennings asked for a house at "The Beagle Club," one of the real estate developments owned by the corporation. According to Cutler, after "negotiating" with Jennings, they reached a compromise whereby he agreed to give Jennings a mortgage in the sum of $150,000 representing one-half the value of one of the Beagle Club development houses; specifically, he agreed to give Jennings a mortgage on a sample home located at 32 Elliot Drive in the Township of Voorhees, Camden County (32 Elliot Drive).

Cutler testified that, when Jennings asked for the mortgage, he did not believe that, by agreeing, he was really giving her anything of value. He stated:

At that point I saw a way to basically satisfy her mind that she was getting something through this mortgage. In my mind the mortgage was not giving her anything... because the house wasn't sold. It was a sample house at the time. Who knows if I was ever gonna sell it. . . . I was renting houses that I had built on spec in other developments. So at that point when the mortgage was suggested that was almost an out for me, that I didn't have to do anything. I didn't have to put up any money. (emphasis added)

After she agreed to accept the mortgage, Jennings testified Cutler told her to retain an attorney "to make sure everything was legal." Jennings then retained Michael Ridgway and Cutler paid his attorney's fee. The record reflects that in an undated letter, Cutler requested Ridgway to draft an agreement reflecting the parties' intentions. The letter to Ridgway from Cutler provided:

Enclosed please find check #1394 in the amount of $500.00. Let this act as retainer/deposit in this matter. Miss Jennings and I have come to an agreement that I will gift to her $150,000. Miss Jennings would only receive this gift at the settlement of 32 Elliot Drive at The Beagle Club in Voorhees, New Jersey.

Since you will be representing Miss Jennings in this matter, can you draw up an agreement between her and I, that in her best interest, will guarantee her payment of this gift at the settlement when it occurs of 32 Elliot Drive. I think that I have been clear with my intentions in this matter. If you could draft this agreement for Miss Jennings to review as soon as possible it would be greatly appreciated. (emphasis added)

In the letter, Cutler also explained his plans for satisfying existing liens on various lots in the development tract including 32 Elliot Drive, indicating his intention to sell three other lots and thereby obtain a release of all title restrictions for the entire development tract.

On April 9, 1992, Ridgway forwarded to Jennings a proposed form of note and mortgage instructing her to submit them to Cutler for his signature as an officer of the corporation and to return them to Ridgway for recording. In the letter, Ridgway advised Jennings there probably was "sufficient equity in the property," but also cautioned that some "untoward event" still could interfere with payment of the mortgage.

Although the mortgage stated there was "no due date for payment of the obligation," the note and mortgage, dated April 10, 1992, provided that the corporation would pay Jennings $150,000 out of the proceeds of ...

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