Bergman, Allen K.

English

St. John's University School of Law

St. John's Law Review Volume 5 Number 1 Volume 5, December 1930, Number 1 Article 6 June 2014 Equitable Relief from the Effect of an Acceleration Clause in a Mortgage Allen K. Bergman Follow this and additional works at: https://scholarship.law.stjohns.edu/lawreview Recommended Citation Bergman, Allen K. (1930) "Equitable Relief from the Effect of an Acceleration Clause in a Mortgage," St. John's Law Review: Vol. 5 : No. 1 , Article 6. Available at: https://scholarship.law.stjohns.edu/lawreview/vol5/iss1/6 This Note is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in St. John's Law Review by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact selbyc@stjohns.edu. NOTES AND COMMENTEditor-JosEPH A. SCHIAVONEEQUITABLE RELIEF FROM THE EFFECT OF AN ACCELERATIONCLAUSE IN A MORTGAGE.It is a trite principle of law that a contract entered into fairlywill be enforced according to its terms.' The enforcement of anacceleration clause in a mortgage is within the purview of the generalrule.2 The agreement of the parties prevails. Judicial sympathy maynot temper the enforcement of the bargain, But 'here, as elsewhere inthe field of jurisprudence, general principles must suffer exceptions.The necessity of fair play has created barriers for warring plaintiffswho, in seeking performance of a contract to its letter, betray justice.The doctrine of de Minimis 3 has been applied to relieve a party froma technical default. Equity has extended its hand to relieve frompenalty 4 and forfeiture,5 from accident 6 and mistake,7 and fromharsh contracts tainted with oppressive and unconscionable conducton the part of one party to the agreement.8 The application of equi-table doctrines extends to provisions in mortgages as well as to othercontract obligations. Indeed, as Cardozo, J., states:"There is no undeviating principle that equity shall en-force the covenants of a mortgage unmoved by an appeal admisericordiarn, however urgent or affecting. The development12 Williston, Contracts (1924), sec. 769.2 1 Pomeroy, Equity Jurisprudence (4th ed., 1918), sec. 439: "It is thereforesettled by the overwhelming weight of authority that if a certain sum is due andsecured by a bond, or bond and mortgage, * * * and is made payable at somefuture date specified, with interest, * * *" that, "* * * in case default shouldoccur in the prompt payment * * * at the time agreed upon, then the principalsum of the debt should at once be'come payable, and payment thereof could beenforced by the creditor, such a stipulation is not in the nature of a penalty,but will be sustained in equity."2Gammaway v. Street Improvement District, 164 Ark. 407, 262 S. W. 22(1924); Blos v. Berritz. 190 Ill. 545, 60 N. E. 883 (1901); Freese v. Blos,248 Ill. 280, 93 N. E. 745 (1910); Workman v. Worcester, 118 Mass. 168(1874); Colman v. Shattuck, 62 N. Y. 349 (1875); Douglas v. Mainzer, 40Hun 75 (N. Y., 1886).'Supra Note 2, sec. 433 et seq.5Supra Note 2, sec. 448 et seq.62 Pomeroy, supra Note 2, sec. 830 et seq.'Ibid., sec. 844 et seq.8 Supra Notes 4, 5, 6, 7; Valentine v. Van Wagner, 37 Barb. 60 (N. Y.,1862).ST. JOHN'S LAW REVIEWof the jurisdiction of chancery is lined with historic monu-ments that point another course." 9The course of decisions in this state affecting acceleration clausessignified a progressive attitude, 10 harmonious with the general prog-ress of our courts during the past two decades. A recent expressionof our highest court seemingly has called a halt to this march forward.Plaintiffs, as executors of Graf, were the holders of two con-solidated mortgages forming a single lien on real property, title ofwhich was in the defendant. The mortgage contained an accelerationclause providing that upon default in any instalment of interest theentire debt would become due and payable. A twenty-day period ofgrace was also made a part of the agreement. An instalment of inter-est became due on July 1, 1927. Herstein, president and treas-urer of the defendant corporation, had sole authority to sign checkson its behalf. Early in June of 1927 he sailed for Europe. Beforehis departure, a clerical assistant, who was also nominal secretary ofthe corporation, computed the interest due July 1, and through anarithmetical error incorrectly calculated it." Herstein signed thecheck for the erroneous amount. Before the due date the secretarydiscovered the error and, in her letter of transmittal, informed thedefendants, stating that a check for the additional amount would beforwarded on Herstein's return. Herstein returned on July 5th. Hewas not reminded of the error. Plaintiffs stood by for the twenty-day period and on the twenty-first day elected to declare the principalindebtedness due by instituting foreclosure proceedings. Defendant,the same day, on notice, tendered the amount in default to the plain-tiff. Its acceptance was refused. The tender was made good by pay-ment into court. These facts being proved, the trial judge held that'Graf v. Hope Building Corp., 254 N. Y. 1, 171 N. E. 884 (1930). In thedissenting opinion, written by Cardozo, L., the learned judge sets forth some ofthe instances in which equitable doctrines have been applied: "Equity declines totreat a mortgage upon realty as a conveyance subject to a condition, but views itas a lien irrespective of its form (Trimm v. Marsh. 5 N. Y. 599). Equity declinesto give effect to a covenant, however formal, whereby in the making of amortgage the mortgagor abjures and surrenders the privilege of redemption(Mooney v. Byrne, 163 N. Y. 86, 93). Equity declines, in the same spirit, togive effect to a covenant, improvident in its terms, for the sale of an inheri-tance, but compels the buyer to exhibit an involuntary charity if he is found tohave taken advantage of the necessities of the seller (Pomeroy, Eq. Jr., sec.953). Equity declines to give effect to a covenant for liquidated damages if itis so unconscionable in amount as to be equivalent in its substance to aprovision for a penalty (Kothe v. Taylor Trust, 280 U. S. 224). One couldgive many illustrations of the traditional and unchallenged exercise of a likedispensing power. It runs through the whole rubric of accident and mistake.Equity follows the law but not slavishly nor always (Hedges v. Dixon County,150 U. S. 182, 192). If it did there could never be occasion for the enforce-ment of equitable doctrine (13 Halsbury, Laws of England, p. 68).""Noyes v. Anderson, infra Note 13; infra Note 18."The interest payments varied from time to time. There was due. onJuly 1, the sum of $4617.82. The amount computed was $401.87 short ofthis amount.NOTES AND COMMENTthere had been a mere mistake against which equity would relieve byrefusing to co-operate with the plaintiff in its effort to enforce theaccelerated debt. This conclusion was unanimously affirmed by theAppellate Division. On appeal the lower courts were reversed and aforeclosure decree granted. The prevailing opinion declared that theplaintiff was entitled to the benefit of his bargain and the defendant'somission was not of a nature justifying equitable relief. Cardozo, J.,writing the dissenting opinion took an opposite view:"Equity declines to intervene at the instance of a suitorwho after fostering the default would make the court his allyin endeavoring to turn it to his benefit." 12The prevailing opinion is not without authority in this jurisdic-tion albeit the precedents, with one exception, are not recent expres-sions of our courts.13 Reliance on the more recent decisions leads usto a different conclusion. In Noyes v. Anderson,'14 the defendant wasin default in payment of taxes which continued for more than a year.The mortgage contained the usual acceleration clause. Immediatelyupon notification of the default payment was made good. Plaintiffmortgagee insisted upon the exercise of his right to foreclose. Thedecree was denied, the Court stating:"The power of equity in cases properly requiring it, willbe exercised to relieve against forfeitures and against penal-ties. And this is upon the principle of equity jurisprudencethat a party having a legal right shall not be permitted toavail himself of it for the purpose of injustice or oppression." 15Though a statement was made in the case that the rule set forth abovedid not apply to interest clauses in mortgages, it is, at best, dictum,and we submit that as a practical proposition there is no substantialdifference between default in the payment of taxes and default in thepayment of interest except as it becomes a test to gauge the measureof hardship brought on by it. This becomes more convincing whenwe note a statutory provision placing taxes and interest in the samecategory in this respect.16 And too, judicial expressions, following in'"Supra Note 9 at 15, 171 N. E. at 889.Ferris v. Ferris, 28 Barb. 29 (N. Y., 1858); Valentine v. Van Wagner,supra Note 8; Noyes v. Clark, 7 Paige 179 (N. Y.. 1838) ; Malcolm v. Allen,49 N. Y. 448 (1872); Bennett v. Stevenson, 53 N. Y. 508 (1873) ; Hathorn v.Louis. 52 App. Div. 218. 65 N. Y. Supp. 155 (2nd Dept., 1900), aff'd 170 N. Y.576, 62 N. E. 1099 (1902)."'Noyes v. Anderson, 124 N. Y. 175, 26 N. E. 316 (1891)."Supra Note 14 at 179, 26 N. E. at 317."N. Y. Real Property Law, sec. 254.ST. JOHN'S LAW REVIEWthe light of Noyes v. Anderson, 7 have extended the rule to includedefault in interest payments.' 8Somewhat analogous to the instant case are those involving pay-ments on contracts for the sale of real property where the contractsprovided that all rights therein should be forfeited upon default inthe payment of an instalment. 19 Even where it was stipulated thattime was of the essence, a vendee obtained specific performance aftera failure to pay the necessary payment at the time stipulated, whereit appeared that the default was not willful and the defendant wasnot injured.2 0 Similarly, equity has granted relief from a forfeitureof the terms of a lease wherein it was stipulated that the lease willbecome absolutely void or that the lessor has the right of re-entryfor non-payment of rent.21 The courts here had no hesitancy inemploying an equitable doctrine to establish justice. In the instantcase the conduct of the defendant, when viewed in its cumulativesignificance, should have been sufficient justification for the Court todeny the decree on the ground that it was in the nature of a for-feiture 22 and on the strength of the maxim requiring one who seeksequity to do equity.No treatment of the problem here presented would be completewithout regard to a consideration of the modern trend of juristicpronouncements. It is fair to assume that social and economic condi-tions and the mores of the time play an important part in the decisionsof the courts. Abstract justice has been sacrificed so that certainty inthe performance of contract obligations may be secure.23 This is strik-ingly illustrated in property and commercial transactions where noth-ing short of punctilious performance will suffice. Side by side withit is the demand for relief where the burden is too imposing; thehardship too overbearing. Common sense and substantial justice maynot be waived aside without serious consideration. So in the disposi-tion of a case involving the problem presented here, due regard mustbe given to the rule adopted and its effect. A rule of law, positive innature, setting a standard of conduct by which parties to contractsare to be guided, must be one which is fair and one with flexibility toallow for judicial distinction (and not nullification) where it isneeded. In the instant case the Court chose to adopt a positive rule."'Supra Note 14.18Verplank v. Godfrey, 42 App. Div. 16, 58 N. Y. Supp. 784 (1st Dept.,1899) ; Trowbridge v. Malex Realty Corp., 198 App. Div. 656, 191 N. Y. Supp.97 (1st Dept., 1921) ; Nove v. Schechter, 218 App. Div. 479, 218 N. Y. Supp.623 (1st Dept., 1926); Besas v. Slobodoff, 129 Misc. 205, 221 N. Y. Supp.588 (1927)." John v. McNeal, 167 Mich. 148, 132 N. W. 508 (1911); In re DagenheimDock Co., L. R. 8, Ch. 1022 (1873).Richmond v. Robinson, 12 Mich. 193 (1864) ; Griggs v. Londes, 21 N. J.Eq. 494 (1864).'McKean Nat. Gas Co. v. Wolcott, 254 Pa. 323, 98 Atl. 955 (1916)."Noyes v. Anderson, supra Note 14.Sun Printing & Publishing Co. v. Remington Pulp & Paper Co., 235N. Y. 338, 139 N. E. 470 (1923).NOTES AND COMMENTIn the dissent, Cardozo, J., sounds the note of distinction betweensuch a rule and one which denies the exercise of the right to forecloseand leaves open the treatment of cases with analogous circumstances.It seems that a better rule would be the one suggested by Cardozo, J.Not only would it have accomplished substantial justice in the instantcase but it, as well, would allow for a better analysis of future prob-lems unhampered by a precedent of "certainty of obligation." Thefear of the Court in the majority opinion that another conclusionwould affect this "certainty" is unfounded. The general rule, oftenunciated, still retains its force. There is a limit, however, beyondwhich the rule serves no useful purpose and is not consonant with theneed intended for its application. The fostering of equitable doc-trines and decrees in this jurisdiction is well recognized. And theapplication of equitable principles in the instant case would haveadvanced a more just as well as practical rule.ALLEN K. BERGMAN.LIABILITY OF TRUSTEES FOR RETENTION OF SPECULATIVE STOCKS.Society, in its early stages, was devoid of the complicated ruleswhich, today, govern the ownership, use. and disposition of property.Modernity, assailed as it has been by the intricacies of present-daymethods and the demands of constantly changing concepts, has taxedjurisprudence to the limit by its plea that old law should not suffocatenew principles. The answer of the courts to this supplication isadmirably typified in the law of trusts.With the popularity of corporate trustees established beyond per-adventure of doubt, an exhaustive treatment of their duties and lia-bilities by an authority is regarded as salutary. Such a treatment wasaccorded a recent case by Surrogate Slater.' A comprehension of itsconclusions is interesting.The action was brought to surcharge the trustee for the retentionof highly speculative securities, which had declined greatly in value.Appointed as trustee under a clause in the will, permitting the trusteeto continue investments made by the testator, without personal liabil-ity for so doing, the trust company qualified in March, 1923. Forseven years, the trustee, in spite of the fact that the stocks slowly, butsurely, were declining in value, continued to hold them. This it didin the face of knowledge that such stocks were poor trust investments-it having so advised others in a booklet, published for that purpose.The objectors charged the trustee with negligence and a breach oftrust duty. The trustee sought protection under the permissive clausein the will, and further attempted to defend its position by pleadingMatter of Clark, 136 Misc. 881, 242 N. Y. Supp. 210 (1930).

Equitable Relief from the Effect of an Acceleration Clause in a Mortgage

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Equitable Relief from the Effect of an Acceleration Clause in a Mortgage

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