Lembeck & Betz Eagle Brewing Co. v. Kelly.

it may, the two after-born children are parties to this suit, and will be bound by its result; and the mother can recover from them whatever they ought to contribute toward the amount she will be obliged to pay under the decree made herein.

I will advise a decree for the amount due the complainant at the time the $5,000 was paid, less that sum, with interest at four per cent. on the balance to date, together with costs.

I have assumed four per cent. as the amount of interest which the defendant received upon the several deposits in savings banks which constituted the bulk of her husband's estate. The defendant is at liberty, before decree signed, to show, as she can easily do by reference to the books of the several banks, that the interest actually received by her was less than four per cent. Again, the defendant swears that she paid the complainant a little more than $5,000. The complainant denies this. The payment was by transfer of savings bank accounts. Here the issue between them can also be easily settled by a reference to the several accounts actually transferred. If she paid more than $5,000, she will have credit for it.

THE LEMBECK AND BETZ EAGLE BREWING COMPANY

υ.

ANNIE KELLY and EDWARD W. BURGER, executors of the last will and testament of Simon Kelly.

[Submitted December 9th, 1901. Decided March 27th, 1902.
Filed September 8th, 1902.]

1. The question whether the mortgage of a leasehold is violative of a covenant in a lease against assignments, so as to work a forfeiture of the leasehold, is rendered immaterial, in proceedings to foreclose the mortgage, by a foreclosure sale; the risk of the question being taken by the purchaser, and the contest thereafter concerning merely the proceeds of the

Lembeck & Betz Eagle Brewing Co. v. Kelly.

2. Executors of a deceased mortgagor of a leasehold may, on foreclosure, interpose, in behalf of creditors whose claims accrued before the recording of the mortgage, the defence that the mortgage was void as against such creditors by reason of failure to immediately record it, and want of change of possession.

3. P. L. of 1898 р. 670, revising the act concerning conveyances, authorizes (section 21) two classes of instruments to be recorded-first, those affecting title to land, including leaseholds for not less than two years, and second, those affecting chattels. Section 41 provides for the registry of leases of lands in one book, assignments of leases by way of mortgage in another book, entitled "Mortgages," and of chattel mortgages in a third book. Section 53 concerns instruments which "shall have been" or shall be duly executed, &c. Section 54 avoids unrecorded instruments as to subsequent judgment creditors, &c.-Held, that the mortgage of a ten-year leasehold was within the purview of the act, though executed a year prior to its passage, and was properly recorded as a mortgage affecting real estate, so as to be effective against creditors of the mortgagor whose claims accrued between its execution and recording.

4. A mortgage of a ten-year leasehold is an instrument which "conveys" an interest in land, so as to be within the purview of the title of an act entitled "An act respecting conveyances" (P. L. of 1898 p. 670), and is properly recorded, under section 21, dividing instruments capable of record into two classes, the first of which includes those affecting title to land and leases for not less than two years, as a mortgage of realty; and it is not necessary, to make such a mortgage good against creditors, that it be recorded in conformity to P. L. of 1885 р. 318 (Gen. Stat. pp. 2113, 2114), governing the recording of chattel mortgages.

On final hearing on bill, answer and proofs.

The complainant, the Lembeck and Betz Eagle Brewing Company, files its bill against the defendants to foreclose a mortgage given to it by Simon Kelly, deceased. The mortgage is dated September 1st, 1896, and was given to secure the sum of $10,000 on the 1st day of March, 1897, with interest payable semi-annually. The instrument was duly acknowledged by Kelly in April, 1897, and recorded as a mortgage of real estate on March 1st, 1900, three and one-half years after its date, and nearly three years after its acknowledgment.

Kelly died May 31st, 1900, leaving a last will and testament, of which the defendants are the executors.

The estate of Kelly is hopelessly insolvent.

The subject-matter of the mortgage is a leasehold estate in certain lands in the county of Hudson, which estate was vested

Lembeck & Betz Eagle Brewing Co. v. Kelly.

in Kelly by virtue of an indenture of lease dated August 26th, 1895, made by the West Shore Railroad Company and the New York Central Railroad Company to said Kelly.

By that indenture the lessors "granted, demised and farm let" to Kelly certain lands, particularly described, to have and to hold the same unto the said Kelly, his executors, administrators and assigns, from the 1st day of September, 1895, for and during and until the end of the term of ten years next ensuing, reserving a rent of $120 a year, which rent Kelly agreed to pay, besides

"ain taxes, assessments and payments extraordinary as well as ordinary, which shall, during the term hereby granted and during any renewal thereof, be imposed or grow due and become payable out of or for the said demised premises, or any part thereof."

There is also a clause restricting the assignment of the lease; also one against maintaining any nuisance on the premises. The indenture also contained a covenant, on the part of Kelly, within two years from the commencement of the term, to

"erect and build, or cause to be erected and built, on the premises hereby demised a good and substantial building for hotel purposes, at least two stories high, upon plans to be approved by the lessors."

There is a further clause providing that if Kelly should build such a hotel and otherwise perform his covenants, then the lessors, their successors and assigns, shall, and will, at the end and expiration of the term hereby demised, grant and execute unto Kelly, his executors, administrators or assigns, a renewal of the lease for the further term of twenty-one years, at a rent to be fixed by agreement or arbitration. It was further agreed that

"if the lessors, at the expiration of the term of ten years, or at the expiration of any term that may be granted thereafter by any subsequent renewal, elect and choose to pay unto the party of the second part, his executors, administrators or assigns, the value of the said hotel building, to be ascertained by arbitration, and shall actually make such payment or tender the same, then the said Kelly, his executors, administrators or assigns shall deliver up the said hotel building in the same order and condition in which it was at the time of its valuation, and all and singular

Lembeck & Betz Eagle Brewing Co. v. Kelly.

the other premises hereby demised, into the hands and possession of the parties of the first part, their successors and assigns, without fraud or delay."

This indenture was duly acknowledged and recorded in the clerk's office of Hudson county on October 4th, 1895.

The mortgage recites the demise and description of the land contained in the indenture, and also an indebtedness from Kelly to the complainant, and then proceeds "to grant, bargain, sell, assign, transfer and set over unto" the complainant the lease, "with the buildings and improvements thereon erected, together with the appurtenances, and all the estate and rights of the parties of the first part," to have and to hold, &c. Then follows the usual condition found in mortgages of real estate.

Kelly took possession and erected the building in accordance with his covenant, and occupied it until his death. The defendants took possession, as his executors, and occupied the premises at the filing of the bill.

The defence set up in the answer and disclosed by the proofs is twofold-first, that the mortgage from Kelly to the complainant was a breach of that clause in the lease which forbids an assignment, and hence destroyed at once the term.

The second defence relied on was that the complainant's mortgage is no more and no less than a mortgage of chattels, and hence, as it was not immediately recorded, and there was no change of possession, and it lacked the affidavit required to a chattel mortgage, it was void against creditors who became such before it was actually recorded, and that Kelly died hopelessly insolvent and owing large sums of money, most of which indebtedness was incurred prior to the recording of the mortgage, and that the executors, in the interest of the creditors, set up that

defence.

By an interlocutory order made in the cause the leasehold interest, with the buildings and fixtures, was sold by a master, and the contest is now over the proceeds of the sale.

Mr. John Griffin, Mr. Robert S. Hudspeth and Mr. Henry Puster, for the complainant.

Mr. Maximilian T. Rosenberg, for the defendants.

Lembeck & Betz Eagle Brewing Co. v. Kelly.

PITNEY, V. C.

The position taken by the defendants, that they represent the creditors, and are entitled to set up any defence against the mortgage that creditors who became such before the recording of the mortgage could set up, is well established. Currie v. Knight, 7 Stew. Eq. 485.

If the mortgage would be void against creditors of Kelly if attacked by them in his lifetime, it must be held void as against his executors, to the extent, at least, that it will satisfy the creditors.

The point taken that the assignment of the lease by way of mortgage was a breach of the covenant which at once terminated the term, is rendered immaterial by the sale of the mortgaged premises. The purchaser at the sale took the risk of that question. The contest here is over the proceeds of the sale.

The principal question is as to the character of the complainant's mortgage and the effect of its record at the time and in the manner disclosed by the case that is, as a mortgage of real estate, and not as a mortgage of chattels. The complainant contends that it was properly so recorded, and took effect from the date of the mortgage as against all creditors.

The complainant relies on the act of April 4th, 1872. P. L. of 1872 p. 93; Rev. of 1877 p. 157; Gen. Stat. p. 857. The title of the act is "A further supplement to an act entitled 'An act respecting conveyances." The language of the act, modified by the revision of 1877, is this:

"SEC. 19. That all leases for estates in lands and tenements for life, or for a term not less than two years, being duly signed, sealed and acknowledged or proved, in the manner herein prescribed for the acknowledgment or proof of deeds of conveyance, may be recorded in the same manner as such deeds may be recorded; and such record shall be notice to subsequent judgment creditors, purchasers, lessees and mortgagees."

Section 20 provides

"that the estate of any such lessee in the demised premises, the lease whereof shall have been recorded in manner aforesaid, shall be liable to sale under a judgment or decree, in like manner, only as estates of freehold are now liable to be sold thereunder."