120 N.J. Eq. 266 | N.J. Ct. of Ch. | 1936
The defendant Newman moves to strike the bill of complaint on the ground that it discloses no cause of action against him. This is the case made by the bill:
Collins and wife applied in writing to complainant for a loan and agreed to furnish as security a first lien on their home in Bayonne. The application stated that the encumbrances on the property, besides taxes, were a first mortgage of $5,000, a second mortgage of $2,025.88, both held by Stillwell; and a third mortgage of $1,000 held by Newman. The application was approved by complainant in the sum of $6,200. Before closing the loan, complainant had the title examined by a lawyer and received his report that the liens were as stated in the application. The transaction was closed *267 by another member of the bar designated by complainant as its attorney. Collins and wife executed and delivered to complainant a promissory note and mortgage for $6,200. Complainant paid to the city of Bayonne $1,876 in satisfaction of municipal liens and delivered to Stillwell its bonds amounting, with accrued interest, to $4,240 in settlement of his first mortgage. This mortgage, endorsed for cancellation, he surrendered to complainant. His second mortgage was also surrendered and replaced by a new mortgage in the sum of $1,093.
Through inadvertence, complainant's instructions to its attorney who closed the loan, failed to notify him of the existence of Newman's mortgage. The borrowers did not inform him of it but, on the contrary, made affidavit at the time of closing that there were no mortgages open against the premises except the two held by Stillwell. Complainant's disbursements in bonds and cash were made at the instance and request of Collins and were made on the understanding and agreement, and with the intention that complainant's mortgage would be a first lien upon the premises. Two days later, the Stillwell mortgages were canceled of record at the request of an agent of complainant who was ignorant of the existence of Newman's mortgage.
Complainant's mortgage, by reason of defaults, has fallen due. Complainant prays that it be subrogated to the liens of the city of Bayonne and of Stillwell and that these liens be revived for the benefit of complainant and be declared prior to Newman's mortgage and that the premises be sold to raise the amount due complainant.
It is commonly said that subrogation is either legal or conventional; that legal subrogation exists only in favor of one who, to protect his own rights, pays the debt of another; that conventional subrogation arises only upon agreement between the lender and the debtor or old creditor, that the lender shall be subrogated to the old lien; that otherwise, the one who advances money to pay a debt cannot be subrogated to the rights of the old creditor. Seeley v. Bacon, 34 Atl. Rep. 139; Gore v. Brian,35 Atl. Rep. 897. Generally, when the *268
person advancing the money to pay the old debt, takes a new mortgage and the old lien is canceled, there is no subrogation, because the acceptance of the new security evidences an agreement and intention by the new creditor to rely thereon rather than on the old, and because, upon the cancellation of the old lien, nothing remains to be the object of subrogation. Vaux v. Vaux,
But where, through fraud or mistake, the new security turns out to be defective, there frequently arises a third kind of subrogation. It does not depend upon the subrogee having been a surety or having had an interest in the property to protect and it does not depend upon an agreement that he would be subrogated to the rights of the old creditor. It grows rather from an agreement or understanding that he would obtain a security of a particular kind and from his failure, through fraud or mistake, to obtain such security. Our reports furnish several examples of this sort of subrogation. Barnett v. Griffith,
Defendant calls attention to the application for the loan, *269
and to the title search, both revealing that Newman held a mortgage for $1,000. "That the knowledge of the proper corporate agent must be regarded as in legal effect the knowledge of the corporation," Allen v. City of Millville,
In considering what effect should be given to the negligence of complainant, the surrounding circumstances should be considered. Complainant corporation was created by act of congress to meet a national emergency; its operations were on a gigantic scale; its agencies numerous and scattered; its attention centered on granting to home owners the maximum of relief in the minimum of time. Necessarily, its personnel was hurriedly gathered. The man who must act quickly in an emergency is not required or expected to proceed with the same care as if the situation were quiet and unhurried. So with complainant. The failure of complainant to notify the settlement attorney of the existence of Newman's mortgage is not surprising but is a normal result of the tremendous volume of business which complainant was transacting through its hastily formed organization.
In both Seeley v. Bacon, supra, and Jackson Trust Co. v.Gilkinson, supra, the lender's predicament was due to the carelessness of himself or his agent, yet he was not denied relief. Vice-Chancellor Leaming in Institute Building and LoanAssociation v. Edwards,
Newman has not been prejudiced in any respect by complainant's mistake. Indeed, he is benefited, since Stillwell accepted, in satisfaction of his first mortgage, less than the full amount due thereon. Complainant is entitled to subrogation. The motion will be denied.
