Case Law Summaries

Medcon Farms v. Pulte Home Corporation of the Delaware Valley

• Opinion Date: November 19, 2001
• Real Property Law
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FORECLOSURE; MORTGAGES—Although a lender may generally insist upon strict compliance with the terms of a mortgage, a court of equity may bar a mortgagee whose own conduct created confusing circumstances from declaring a default.

Certain mortgage payments were due by January 2. However, on the prior December 17th, an attorney representing several principals of the mortgagee notified the mortgagor that settlement among all of the owners of the mortgagee was pending and that no payment should be made. The attorney suggested that if the mortgagor needed a court order to protect its position, it would make the application. The mortgagor’s attorney responded that “I am not able to hold up any payments that may be owing ... without a Court Order.” An application to the United States District Court for District of New Jersey was made and a hearing held on January 4, two days after the mortgage payment was due. The nature of the payment was discussed at that hearing and the mortgagor stated that it was ready to make the payment, but for the application for a temporary restraining order. The federal court issued the order to show cause, but refused to order temporary restraints. The order did not limit the mortgagor’s obligation to make payment on January 2 and the mortgagee’s attorney responded, “[t]hat’s very helpful Your Honor.” A principal of the mortgagee said that he would like to contact the mortgagor “to have him make a check ... to me for [the mortgagee].” Days later, the mortgagor tended the check, but the mortgagee declined the tender of payment, taking the position that the mortgagor was in default. The mortgagee then filed a complaint with the Chancery Division seeking a judgment allowing it to proceed with foreclosure and, the motion judge believed he was without the power to provide an equitable remedy under the circumstances presented. The Appellate Division disagreed and remanded the matter. “As a general matter, a mortgagee is entitled to insist upon a mortgagor’s strict compliance with the terms of the mortgage. However, a court of equity may bar a mortgagee whose own conduct has created confusing circumstances, from declaring a default.” Here, the mortgagor “found itself in circumstances which allegedly caused it to hesitate in making any payment on or before” its due date. It acted reasonably under the circumstances and, although the mortgagee was correct “that the contract required the payment by January 2, [a] court of conscience is imbued with the power to mitigate a harsh result which appears disproportionate to the legal right urged.” The lower court was ordered not only to assess “the legitimacy of the [mortgagee’s] claim of default, but also to insure that [the mortgagor’s] reliance on the pending federal litigation was appropriate under all the circumstances.”

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