SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-260-94T5
MICHELE JENNINGS,
Plaintiff-Respondent/
Cross-Appellant,
v.
ALAN CUTLER, A. CUTLER HOME, INC.,
Defendants-Appellants/
Cross-Respondent,
and
SURETY TITLE CORPORATION,
Defendant.
________________________________________
Argued December 18, 1995 - Decided March 15,
1996
Before Judges Skillman, P.G. Levy and Eichen
On appeal from Superior Court, Chancery
Division, Burlington County
Frank H. Wisniewski argued the cause for
appellant/cross-respondent (Blank, Rome,
Comisky & McCauley, attorneys; Mr. Wisniewski
and Anne C. Singer, of counsel, and on the
brief).
Benjamin Goldstein argued the cause for
respondent/cross-appellant (Maressa,
Goldstein, Birsner, Patterson, Drinkwater &
Oddo, attorneys; Mr. Goldstein, of counsel).
No other parties participated in this appeal.
The opinion of the court was delivered by
EICHEN, J.A.D.
At the time this litigation arose, defendant Alan Cutler was
a wealthy real estate developer and defendant A. Cutler Home Inc.
(the corporation) was a closely-held corporation over which Cutler
exercised majority control. In early 1990, plaintiff Michelle
Jennings and Cutler met, began dating, and shortly thereafter,
Jennings moved in with him. They lived together until July 1992
when the relationship dissolved. During the time they were
together, Cutler presented Jennings with many extravagant gifts,
including a new Mercedes Benz automobile. He also paid her
expenses, such as her credit card bills, ranging from $7,000 to
$10,000 per month, and a $29,000 dental bill.
In the spring of 1992, Cutler gave Jennings a $150,000
mortgage on one of the properties owned by the corporation. When
the property was sold, however, Cutler refused to authorize payment
to Jennings, and Jennings instituted this litigation.
The primary question presented is whether a duly perfected
mortgage, given with the expectation it will be satisfied in the
future out of the proceeds of sale of the liened property, can be
the subject matter of a valid inter vivos gift.
Sometime in early 1992, Jennings asked Cutler for $250,000
because, she claimed, she was concerned about what she would do if
something happened to him. The record reflects that when Cutler
declined to give her cash, Jennings asked for a house at "The
Beagle Club," one of the real estate developments owned by the
corporation. According to Cutler, after "negotiating" with
Jennings, they reached a compromise whereby he agreed to give
Jennings a mortgage in the sum of $150,000 representing one-half
the value of one of the Beagle Club development houses;
specifically, he agreed to give Jennings a mortgage on a sample
home located at 32 Elliot Drive in the Township of Voorhees, Camden
County (32 Elliot Drive).
Cutler testified that, when Jennings asked for the mortgage,
he did not believe that, by agreeing, he was really giving her
anything of value. He stated:
[A]t that point I saw a way to basically
satisfy her mind that she was getting
something through this mortgage. In my mind
the mortgage was not giving her anything ...
because the house wasn't sold. It was a
sample house at the time. Who knows if I was
ever gonna sell it....I was renting houses
that I had built on spec in other
developments. So at that point when the
mortgage was suggested that was almost an out
for me, that I didn't have to do anything. I
didn't have to put up any money. (emphasis
added)
After she agreed to accept the mortgage, Jennings testified
Cutler told her to retain an attorney "to make sure everything was
legal." Jennings then retained Michael Ridgway and Cutler paid his
attorney's fee. The record reflects that in an undated letter,
Cutler requested Ridgway to draft an agreement reflecting the
parties' intentions. The letter to Ridgway from Cutler provided:
Enclosed please find check #1394 in the amount
of $500.00. Let this act as retainer/deposit
in this matter. Miss Jennings and I have come
to an agreement that I will gift to her
$150,000. Miss Jennings would only receive
this gift at the settlement of 32 Elliot Drive
at The Beagle Club in Voorhees, New Jersey.
* * *
Since you will be representing Miss Jennings
in this matter, can you draw up an agreement
between her and I, that in her best interest,
will guarantee her payment of this gift at the
settlement when it occurs of 32 Elliot Drive.
I think that I have been clear with my
intentions in this matter. If you could draft
this agreement for Miss Jennings to review as
soon as possible it would be greatly
appreciated. (emphasis added)
In the letter, Cutler also explained his plans for satisfying
existing liens on various lots in the development tract including
32 Elliot Drive, indicating his intention to sell three other lots
and thereby obtain a release of all title restrictions for the
entire development tract.
On April 9, 1992, Ridgway forwarded to Jennings a proposed
form of note and mortgage instructing her to submit them to Cutler
for his signature as an officer of the corporation and to return
them to Ridgway for recording. In the letter, Ridgway advised
Jennings there probably was "sufficient equity in the property,"
but also cautioned that some "untoward event" still could interfere
with payment of the mortgage.
Although the mortgage stated there was "no due date for
payment of th[e] obligation," the note and mortgage, dated April
10, 1992, provided that the corporation would pay Jennings $150,000
out of the proceeds of sale of 32 Elliot Drive. Additionally, the
note stated:
[Jennings] has been given a Mortgage dated April 10th, 1992, to protect [her] if the promises made in this Note are not kept. I agree to keep all promises made in the Mortgage covering property I own located at 32 Elliot Drive in the Township of Voorhees in the County of Camden and State of New Jersey.
All terms of the Mortgage are made part of
this Note. (emphasis added)
Upon receiving the note and mortgage, Cutler asked his
employee, Cheryl DiSanti, a licensed real estate agent, to
determine if the mortgage and note were legal documents and to
explain their import to Jennings, which she did. Then Cutler
executed and notarized the note and mortgage and returned both
instruments to Ridgway, who had the mortgage recorded. Thereafter,
Ridgway sent the note and mortgage to Jennings, who secured them
in her safe deposit box.
On June 29, 1993, after the relationship between Jennings and
Cutler had ended, the corporation sold 32 Elliot Drive. At the
closing, Cutler refused to authorize payment of $150,000 to
Jennings from the proceeds of sale. Consequently, Surety Title
Corporation (the title company) withheld the funds and placed them
in escrow at Cutler's direction.
Jennings instituted suit against Cutler, the corporation, and
the title company,See footnote 1 on several grounds, including breach of
contract, fraudulent misrepresentation and tortious interference
with contract. The judge disposed of most of the claims by motion,
and the case proceeded on the issue of whether a completed gift had
been accomplished by Cutler's transfer of the executed note and
mortgage to Jennings.
On the motion for summary judgment, defendants contended
Jennings had failed to demonstrate the existence of an inter vivos
gift, because she had not proved delivery, irrevocable
relinquishment of dominion and control over the subject matter of
the gift, and donative intent. Cutler conceded he intended to
give, and did give, Jennings the mortgage, but insisted that his
true intent was to give her nothing. He argued that the property
may never have been sold and even if it were sold, he still
maintained control over the sales proceeds. Thus, he argued that
because he never relinquished control over the money, the gift was
incomplete. Relying on dicta in Scherer v. Highland,
153 N.J.
Super. 521, 527 (App. Div. 1976), aff'd,
75 N.J. 127 (1977), Cutler
further asserted that the mortgage had no independent legal force
because a promise to pay money in the future for which no
consideration is given cannot be the subject of an inter vivos
gift.
On the motion for summary judgment, the judge determined that
the "delivery of [the] mortgage and its recordation satisf[ied]"
the elements of delivery and relinquishment of dominion and
control:
I'm holding that there is a difference between
a note or a check on the one hand, an IOU
whatever you want to call it which, in fact,
essentially says, I will do something in the
future, and a mortgage which is recorded which
is then the relinquishment of control over the
asset to the extent of that mortgage, the
land, it could be land and improvements,
whatever it is.
The parties proceeded to trial on the remaining issue of intent.
At the conclusion of trial, the judge reiterated his prior ruling:
I had held earlier that as a matter of law two
of the [gift] elements were shown. In other
words, delivery, was it clear that the
mortgage was turned over by defendant to the
plaintiff and quite candidly I don't think
that was ever in dispute? And two, did it
come out to an absolute and irrevocable
relinquish[ment] of ownership and dominion in
defendant over the object given?
The judge then made findings concerning Cutler's lack of
credibility, specifically commenting on Cutler's attempt to
obfuscate the issue of his intent by claiming he never had the
intention to give her the money:
For Mr. Cutler, ... I was not at all confident
in defendant's recitation of his past state of
mind. And I arrived at that conclusion for
several reasons. First of all, he's indicated
he's a builder and yet he says he didn't
believe, in essence, that a mortgage created
... a protective lien. He's a mortgagee or
was a mortgagee and yet he didn't think there
was protection by the creation of a mortgage
lien.
* * *
[H]is knowledge had to be reinforced by [his
awareness the mortgage would be recorded as a
lien on the property]. [He] was aware of the
financial information requested of him so a
determination could be made of any equity in
the Elliot Drive property. From that, he had
to have been aware that the giving of the
mortgage was something more than just a
symbol.
Another thing of influence to me was the fact
that the documents were notarized. There's a
certain formality to all of this....
* * *
He never said to anyone else at the time, my
intent is other than what everything else
shows.
Mr. Cutler is not a babe in the woods. He's a
sophisticated businessman. And I am unwilling
to accept in his instance the application of
the old song title, I didn't know the gun was
loaded. All of these lead me to the
conclusion to satisfy me clearly,
convincingly, thoroughly that there was an
intent on the part of Mr. Cutler to give the
lien, the mortgage and he knew full well what
his consequences were. (emphasis added)
Thus, the judge concluded that regardless of Cutler's
unexpressed intentions when he delivered the mortgage and note to
Jennings, Cutler unequivocally manifested his intent to make a gift
of the $150,000 mortgage to Jennings, subject only to the
possibility of defeasance if 32 Elliot Drive were not sold, or if
sold, did not generate sufficient equity to completely satisfy the
mortgage. The trial court found Cutler's testimony regarding his
secret intent was not credible, and rejected Cutler's belated
attempt to set aside a clearly executed agreement, impliedly
finding that the parties "intended the mortgage to secure payment
of $150,000 if and when the property was sold and ... [if]
sufficient equity [existed] to satisfy the obligation."
Accordingly, the judge concluded the mortgage was a valid
enforceable inter vivos gift and entered judgment in the sum of
$150,000 plus interest and costs in favor of Jennings, but denied
Jennings' claim for attorneys' fees. We agree and affirm.
The three elements required to establish an inter vivos gift are (1) a donative intent on the part of the donor; (2) an actual
or symbolic delivery of the subject matter of the gift; and (3) an
absolute and irrevocable surrender by the donor of ownership and
dominion over the subject matter of the gift, at least to the
extent practicable or possible, considering the nature of the thing
to be given. In re Dodge,
50 N.J. 192, 216 (1967); accord Pascale
v. Pascale,
113 N.J. 20, 29 (1988); see Basse v. Raab,
138 N.J. Eq. 432, 433 (E. & A. 1946).
These elements are interrelated. To constitute an inter vivos
gift, not only must the donor have a clear intention to give a
gift, but the gift must be completed. Clearly, Cutler had the
intent to give the mortgage to Jennings. Although Cutler may not
have wanted to make a present gift of $150,000 to Jennings, and
even may have secretly regretted giving Jennings the mortgage on 32
Elliot Drive, nonetheless Cutler clearly manifested his intent to
make a gift of the mortgage. His intent is reflected in his
undated letter to Ridgway, instructing Ridgway to "draw up an
agreement ... [which] will guarantee [Jennings] payment of this
[$150,000] gift at the settlement ... of 32 Elliot Drive," and
emphasizing he had "been clear with [his] intentions in the
matter." Additionally, his intent is revealed by the formal manner
in which his intentions were memorialized: that is, he accepted
that the agreement would be embodied in the form of a mortgage,
engaged his employee, a real estate expert, to assure the legality
of the document and explain its legal significance to Jennings, and
then executed the mortgage as presented. All of these actions
manifested Cutler's intent to give Jennings the mortgage as a gift.
Moreover, once Cutler executed the mortgage in recordable form and
delivered it to Jennings, knowing it would be recorded, he
irrevocably relinquished his interest in the mortgage subject to
its defeasance by Cutler upon sale of the property.
The law is well settled: For a gift to be complete, "one
[person must] renounce[] and another ... immediately acquire[] all
title and interest" in the subject matter of the gift, and the
strongest and most essential" evidence of completion is "delivery
of possession" of the item given. Egerton v. Egerton,
17 N.J. Eq. 419, 421 (Prerog. Ct. 1864). Hence, a valid inter vivos gift
requires "a subject capable of passing by delivery, and an actual
delivery at the time of the alleged gift." Ibid.
In Egerton, the court declined to recognize as valid a gift by
the donor to his wife of the privilege of subscribing for a new
issue of stock in a company in which the donor already held shares.
Although the stock had been subscribed for in the name of the
donor's wife, the stock had not been issued or paid for by the
donor before he died. The court held "[t]he gift must have been
either of the stock, or of the money to purchase the stock." Ibid.
Since the stock had not yet issued, the donor did not own and,
therefore, could not give it as a gift. The court determined there
was no gift "capable of passing by delivery," but instead "a mere
contract to pay." Id. at 422. The instant case is materially
different because the subject of the gift, the mortgage, was
capable of delivery, and was, in fact, delivered.
Nonetheless, defendants argue that the gift of the mortgage is
like the gift of a promissory note which merely represents a
promise to pay money in the future and, therefore, cannot
constitute a completed gift. We disagree. The giving of a
mortgage, unlike a note, does not merely represent a promise to pay
money in the future. Although satisfaction of the mortgage must
abide a future event such as sale of the property for a sufficient
price, that contingency does not render the gift incomplete.
Unlike the gift of a note which is "the delivery of a promise only,
and not the thing promised," Voorhees v. Woodhull, 33 N.J.L. 494,
498 (E. & A. 1869), here the "thing promised" and delivered was the
mortgage conveying to Jennings a present-existing legal interest in
real estate. Moreover, once Cutler delivered the mortgage to
Jennings, he relinquished all power to affect its validity except,
of course, to obtain its cancellation upon sale of the property.
As for defendant's argument that lack of consideration voids
the gift, on its face this argument appears unsound because by
definition "a gift is a transfer without consideration," Herr v.
Herr,
13 N.J. 79, 88 (1953). However, the fact that a mortgage is
the subject matter of the gift adds another dimension to the
analysis. Commentators disagree concerning whether consideration
is required when a mortgage is intended as a gift. Great Falls
Bank v. Pardo,
263 N.J. Super. 388, 400 & nn.7-8 (Ch. Div. 1993)
(discussing various court decisions and commentaries); see also 29
New Jersey Practice, Law of Mortgages § 32, at 104-08 (Roger A.
Cunningham & Saul Tischler) (1975). Professor Cunningham and Judge
Tischler discuss the problem that arises when parties agree "to
create an enforceable personal obligation gratuitously, without any
consideration at all, and to secure its performance by a mortgage."
29 New Jersey Practice, supra, § 32, at 104. Although they
acknowledge that "[i]n New Jersey, ... a promissory note, without
consideration and not under seal, intended as a gift, cannot be
made the basis for recovery either at law or in equity," id. at
105-06 n.40 (citing Egerton v. Egerton, supra,
17 N.J. Eq. 419 and
Voorhees v. Woodhull, supra, 33 N.J.L. 494), they, nonetheless,
conclude that a mortgage given to secure performance of such a
promise, though lacking in consideration, should be valid provided
it is not a sham and the parties intend the mortgage as security
for the obligation. Id. at 106-07 & n.43. Professor Osborne
agrees, stating:
There is no reason why a mortgage without a
personal obligation should not be permitted.
This is important in several types of cases
[including] ... where the transaction is
intended as a gift.
* * *
In the gift cases, a suggested test of
validity is whether the parties intended the
mortgage to secure a debt or other personal
obligation.
[Osborne, Handbook on the Law of Mortgages §
104, at 162 (2d ed. 1970), quoted in part in
29 New Jersey Practice, supra, § 32, at 107
n.46 (emphasis added).]
See also, 1 Glenn, Mortgages, Deeds of Trust and Other Security
Devices as to Land § 5.6 (1943). But see Tiffany, Treatise on the
Modern Law of Real Property, § 1401, at 278 (3d ed. 1939) ("Even
though a consideration is not necessary to the validity of [a]
mortgage .... [the] mortgage [is] invalid, not because it [is] not
supported by a consideration, but because the obligation secured by
it was not so supported.").
Our review of the issue persuades us that the validity of a
mortgage given as a gift should be determined based on the
existence of the three elements required to prove a valid inter
vivos gift, without reference to a contractual consideration for
the conveyance. This is because, assuming intent to give the
mortgage is demonstrated, "an enforceable mortgage requires only
two things, `(1) an executed conveyance and (2) a condition on the
conveyance....an agreement between the parties to defeat the
conveyance upon some future act usually of the mortgagor.'" 29 New
Jersey Practice, supra, § 32, at 106 & n.42 (quoting Clapp,
Consideration is Not Necessary for a Mortgage,
58 N.J.L.J. 145, 148
(1935), and relying on Judge Clapp's analysis that "a mortgage is
an executed conveyance" with an "executing conditional limitation
on the fee").
In the instant matter, the conveyance was complete upon
Cutler's delivery of the mortgage in recordable form, subject to
defeasance upon Cutler paying the underlying obligation of $150,000
from the proceeds of sale or demonstrating there was insufficient
equity in the property to pay Jennings from the sale. Under the
terms of the mortgage, Cutler had no personal liability to Jennings
to pay the $150,000. Consequently, had the property sold for less
than any outstanding superior liens, Jennings would not have
received anything. The record reflects that what Jennings obtained
as a gift was a present interest in real property subject to
defeasance when the property was sold. The fact that Jennings may
never have received the $150,000 secured by the mortgage because
the property may not have been sold, or if sold, may not have
generated sufficient proceeds to pay off the mortgage, does not
invalidate the gift although it may have disappointed Jennings'
expectations.See footnote 2
Finally, we note the trial judge relied on Basse v. Raab,
supra, 138 N.J. Eq. at 433, where our highest court held that a
gift of an assignment of an existing mortgage given by the
mortgagor to a third party upon advice of counsel was valid because
"there was an intent to make a gift[,] ... actual delivery of the
subject matter of the gift, and a relinquishment by the donor of
all dominion over it." Since the factual predicate for that
holding is unclear and the court in Basse did not expressly hold
that consideration is not required for a mortgage to be the subject
of an inter vivos gift, we are reluctant to base our decision
solely on Basse.
However, to the extent Basse can be so interpreted, we rely
upon it and here expressly hold that a mortgage given as a gift
(ergo without consideration) is enforceable where donative intent
is shown and the mortgage is executed in recordable form by the
mortgagor and delivered to the mortgagee, thus evidencing an
irrevocable relinquishment of the mortgagor's dominion and control
over the mortgage, subject, of course, to his or her right to
obtain its release in accordance with the terms of the mortgage.See footnote 3
The note contained a provision requiring payment of reasonable attorney fees in the event of default. The judge denied plaintiff's request for attorney's fees finding that Jennings had an opportunity to present proof of the services rendered and the reasonableness of their value during trial but failed to do so. He rejected Jennings' counsel's request at the close of trial for permission to file an affidavit of services after defense counsel opposed the request.
We note that a claim for attorney's fees pursuant to a contractual provision is not "the award of counsel fees under R. 4:42-9, but instead is an element of damages, which ordinarily must be proved "in the same manner as ... any other item of damages." Cohen v. Fair Lawn Dairies, Inc., 86 N.J. Super. 206, 216 (App. Div.), aff'd, 44 N.J. 450 (1965). There, our Supreme Court observed that plenary proof of the reasonableness of the services rendered may not be required where:
the proceeding before the trial court dealt mainly with other substantive issues and only incidentally with the matter of counsel fee, an affidavit of services had been filed by the attorney for the plaintiffs, ... the attorney
for the defendants-appellants voiced no
objection to this procedure[,] ... [and] the
affidavit of services[] is sufficiently
complete to enable [the trial court] to reach
a fair determination as to the extent of the
legal services rendered and the reasonable
value to be paid pursuant to the contractual
provision.
[Cohen v. Fair Lawn Dairies, Inc., supra, 44
N.J. at 452.]
Although we recognize the instant proceeding focused mainly on
the substantive issues concerning the validity of the mortgage as
a gift with only incidental reference to the attorneys fees
Jennings paid to prosecute the action, nevertheless, the record
indicates Jennings did not meet the requirements of Cohen. Thus,
the trial judge did not err in excluding attorney's fees as part of
damages, nor did the judge abuse his discretion in declining to
reopen the record to permit the admission of further proofs.
Affirmed.
Footnote: 1 The title company was dismissed from the case following entry of an order directing it to place the escrowed funds with the Clerk of the Court. That order is not the subject of this appeal. Footnote: 2 The fact that Cutler was able somehow to prevent the title company from paying Jennings from the proceeds of sale is irrelevant to our view of the gift as completed. Footnote: 3 We note, however, a gift of a mortgage compliant with the requisite elements nevertheless may not be enforceable if the transaction is a sham. See 29 New Jersey Practice, supra, § 32, at 106 n.41) (criticizing Risley v. Parker, 50 N.J. Eq. 284 (Ch. 1892) for approving a mortgage gift although a sham transaction).