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First American Title v. Silber

F-9704-02 (N.J. Super. Ch. Div. 2002) (Unpublished)

CONTRACTS; CONSIDERATION— A spouse’s guaranty of the other spouse’s debt is supported by the benefit received by the marital partnership.

A title insurance company had been defrauded by a closing attorney who, instead of paying off a first mortgage, stole the money and made payments to disguise the fact that the existing mortgage had not been discharged. Shortly after the title insurance company sued the attorney, the attorney and his wife executed a note and mortgage on their family home in favor of the title insurance company. Payments were made for a while, and then they ceased. Then, the title insurance company sought to foreclose on the mortgage. The attorney and his wife did not deny execution of the mortgage, nor did they deny that they were in default. Instead, they claimed, as a defense, that they executed the note and mortgage in return for a promise from the title company’s attorney that no ethics complaint would be filed. Whether or not such a promise was made, an ethics complaint was, in fact, filed. The wife also argued that she had received no consideration for signing the note and executing the mortgage. Her claim was that her husband was the only one liable to the title insurance company for his defalcation.

The Court pointed out that it “well-settled that the only material issues in a foreclosure action are the validity of the mortgage, the existence of an indebtedness and default, and the right of the mortgagee to resort to the mortgaged premises.” Once those elements have been proved, the foreclosing lender has established a prima facie right to a final judgment of foreclosure. Then, the mortgagor is obligated to establish a defense, by validly contesting one of those elements.

The Court rejected the argument that the title insurance company had fraudulently induced them to execute the mortgage, because the alleged promise not to report the defalcation to the ethics committee would have been unethical to either make or accept. Further, because one of the defendants was an attorney, he should have known that such a promise would have be unethical and therefore, he could not have “reasonably” relied on such a promise. “Accordingly, the fraud claim [was] not sustainable as a matter of law or equity.”

As to the wife’s claim that she received no consideration, the Court pointed out that she was overlooking “the fact that the execution of the note and mortgage provided a benefit to her marital partner and indirectly, the marital partnership.” In addition, it was clear that the title company collection action would have had an adverse impact on her and her husband “and the avoidance of that impact, through the execution of the note and mortgage, constitue[d] adequate consideration.”

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