| New York Court of Chancery | Mar 15, 1905
As the bill was originally filed, the complainant in this case sought to have the surplus money arising under the foreclosure sale decreed to be subject to and applicable for the payment of the lien claims, not only of the complainants, but also of such other lien claims as might be adjudged to be valid liens against the mortgaged premises, without disputing the validity of thé defendants’ lien claims, or seeking for the complainants any preferential consideration in the application of the surplus money. The original bill dealt with the surplus in the foreclosure suit as if it were the proceeds of a sale under mechanics’ lien, and it asked a pro rata distribution among all the lien claimants such as is contemplated by section 29 of the Mechanics’' Lien act. P. L. 1898 p. 550.
When the answer of the defendants, Morse AVilliams Company, came in, with a cross-bill appended, praying that the complainants, Stiles & McClay, might account for the moneys they received from their foreclosure sale, the complainants changed their position by amending their bill of complaint as above recited.
By their amendment to their bill the complainants set up their filed contract for the construction of the building, and assert for themselves the position and preference of such a-contractor under the Mechanics’ Lien act. P. L. 1898 p. 538 § 2. They further insist by their amendment that none of the lien-claimant defendants in this_ cause -are entitled to participate or share in the proceeds of the foreclosure sale, the complainants contending that they only should be decreed to be paid the amount claimed by them to be due on their lien claim.
The fund which the complainants, Stiles & McClay, seek to affect by this suit is the surplus money remaining after satisfying-a decree made in this court in a foreclosure suit wherein they (Stiles & McClay) were complainants, and Mary S. Galbreath, the mortgagor, and other parties, who were mortgagees, were made defendants. None of the lien claimants who are parties defendant to the suit at bar were made defendants in that foreclosure suit, for the reason that on December 13th, 1901, when the complainants, Stiles & McClay, filed their bill to foreclose
Section 78 of the Chancery act (1 Gen. Stat. p. 387) provides that in any foreclosure suit, persons claiming liens upon the mortgaged premises, which by any provision of law could be recorded, but which are not recorded when the bill to foreclose-was filed, shall be bound by tire proceedings in the foreclosure suit, &c.
The complainants contend that the operation of section 7S (now section 58 of the Chancery act of 1902) is not only to- cut off the unfiled liens as charges on the mortgaged lands, but also absolutely to destroy their claims, so that they cannot be asserted against the surplus purchase-money arising from tire foreclosure sale. Under this construction of that statute the complainants insist that they alone are entitled to the whole of the surplus money of the foreclosure sale and the defendant lien claimants to none of it.
The terms of that statute apply to the situation existent when the bill to foreclose was filed. Materialmen, who, by the statute, then had inchoate liens for material furnished to the building which they had not advanced to the stage of filed claims, are, under the terms of that statute, so bound by the foreclosure decree that they cannot make any further claim against the mortgaged property.
But the claims of the defendants in the present suit are not asserted against the mortgaged premises. The act, by both its terms and its intention, served only to relieve the mortgaged premises from the operation of unrecorded or unfiled liens. It does not deprive the lien claimants of their equitable rights in the proceeds of the sale.
This construction is entirely equitable for the reason that the lien claimants are not parties to the foreclosure suit. For- the convenience of the mortgagee the mortgaged premises are by the statute discharged from their liens, but they have never, as between them and the mortgagee, had their day in court. Whatever disputes might exist or arise between the mortgagee and the lien claimants touching their respective rights, they have never been presented or passed upon by any tribunal. To construe
The words of the statute also indicate that it is not intended to destroy the equities of the holders of unrecorded lien claims, for it binds them only “so far as the property is concerned,” and while it enables the lien claimants to apply to be admitted as defendants in the foreclosure, it nowhere declares that if they do not so apply their rights in the surplus money shall be forfeited.
This effect of the statute is recognized by our courts. In Raymond v. Post, 25 N. J. Eq. (10 C. E. Gr.) 452, the statute is discussed, and its purpose is plainly indicated to be to enable a proceeding relating to real property to be prosecuted to judgment in a manner to bind, “so far as the property is concerned” (p. 452), all persons whose liens are existent when the bill of complaint is filed, but which are not then registered or recorded.
The statute is one of convenience only, and does not determine ultimate rights. It relieves the complainants from any obligation to make parties of persons holding liens against the mortgaged property not of record, and binds those parties from thereafter asserting claims against that property, but it does not destroy their equitable interest in the proceeds of the sale, nor deprive them of the right thereafter to present them to any competent court for determination.
The defendants, some of them, insist that as the complainants, Stiles & Me Clay, knew when they filed their bill to foreclose, of the defendants’ outstanding but unfiled lien claims, they were bound to have made those lien claimants parties to the foreclosure suit.
I thipk the terms of the statute apply to make the foreclosure decree binding “so far as the property is concerned,” irrespective of the knowledge of the complainants of the existence of the outstanding lien claims, and that all the defendants are bound by the foreclosure suit, but only to the extent indicated by the
No other construction can be given to that statute. The foreclosure srtit cannot be held to have adjudicated adversely to the lien claimants their present contention against Stiles & McClay, for in that foreclosure suit no pleading even suggests that there were any lien claims against any part of the mortgaged premises, or that there could be any such charges on it. The complainants in that ■ foreclosure suit did not make the lien claimants defendants to it, nor bring them into court in any way, nor ask any relief against them, nor does the decree in that suit pass on their equities. It is therefore impossible to ascribe to that decree the effect of res adjudícala. The utmost operation that can be given to the statute is to hold that the foreclosure sale removed the unrecorded charges as liens on the land “so far as the property was concerned,” and left them to assert their rights against the proceeds of the sale.
The surplus money affected by this suit arises from the foreclosure sale. The proceedings in that cause are here produced in evidence. They show that the mortgage foreclosed by the complainants, Stiles & McClay, covered two lots of land in Atlantic City, one situate on Pennsylvania avenue, which was sold ijor $5,300 to Caleb James Coatsworth; the other, located at the southwest corner of New York and Pacific avenues (which was sold for $39,000 to Stiles & McClay, complainants in the foreclosure suit), on which stands the Galbreath building.
The first point to be considered, it seems to me, is from which lot did the surplus money here in dispute arise? The admitted facts show that of the two lots included in the mortgage foreclosed the lot situate at the southwest corner of New York and Pacific avenues was the one against which the lien claims were filed, and that the building known as the “Galbreath Apartment House,” thereon erected, was the building, the major part of which was constructed by Stiles & McClay, under their filed contract with Mrs. Galbreath, the owner, and was that building in which were constructed the elevators, plumbing, electric lights and gas fixtures, wall' decorations, &c., which are the subject-matter of the other lien claims.
The complainants, Stiles & McClay, holders of the mortgage foreclosed, were therefore in the position of a creditor who has a lien upon two funds of the debtor, upon one only of which other creditors of the same debtor have liens. The rule in such a case is that the assets should be marshaled, and the creditor who has a lien upon two funds shall be primarily related in the making of his money to that fund in which the other creditors have no lien, provided that corxrse is not injurious to ainy other party whose equity is superior to the claimants upon the single fund. Reilly v. Mayer, 12 N. J. Eq. (1 Beas.) 55; Mechanics’ Building and Loan Association v. Conover, 14 N. J. Eq. (1 McCart.) 225.
The surplus in this case must therefore be held to have arisen wholly from the proceeds of the sale of that lot in the mortgage, which was situate at the corner of New York and Pacific avenues, against which the lien claims were filed.
The next question raised is, the complainants claim that they are entitled to the whole surplus money because they axe the only lien creditors of Mrs. Galbreath, whose claim has been established by final judgment, on which execution might issue.
This claim is untrue in point of fact. All of the defendant lien claimants have filed their lien claims, and all except two have entered final judgments thereon. One of them, the Albert-son & Young Company, entered their judgment more than a month before the complainants entered theirs.
It is not necessary, however, that a final judgment be entered on a mechanics’ lien claim in order to make a debt a lien upon the building and lands, &c. The very first section of that act (P. L. 1898 p. 538) declares'that the debt contracted and owing to any person for labor performed or materials furnished for the erection and construction of any building “shall be a lien on such building and on the land whereon.it stands.”
Every debt having the statutory characteristics becomes a lien instantly that it becomes a debt by the express words of the act. The filing of the claim, the suit and judgment thereon, are proceedings to apply the property upon which the debt has already
Nothing appears or is shown which indicates that the defendants’ claims are disputed as valid lien claims as between any other persons than the several lien claimants themselves and the complainants, Stiles & McClay. All the elements of those disputes have been litigated, presented in evidence and in argument in this suit. When tire questions here mooted are here determined, nothing will remain which affects the rights of the parties. The prosecution of the lien suits to final judgment in the law court would therefore result simply in useless delay and expense.
This court will entertain them as statutory liens, the holders whereof claim to be entitled to share in the surplus monejr, and will pass upon and adjudicate their rights in disposing of that fund.
The complainants, Stiles & McClay, also contend that the surplus fund did not arise from any sale under the Mechanics’ Lien law, and they insist that it is only when proceeds of a sale are so raised that'the liens are concurrent (citing section 29 of the Mechanics’ Lien act).
This arguinent is another contention which would make the words of a statute defeat its purpose and effect. The first section of the act prescribes the circumstances under which the debt shall become a lien. The intent and object, as expressed in all its sections, show that all holders of such debts shall share
FTothing in the statute declares that the concurrency of the lien claims and the ratable distribution of the proceeds shall occur only when there is a sale of the building and lands, &e., by proceedings under the lien law, and that in all other cases of sale of those lands the liens shall not be concurrent, and the distribution of proceeds shall not be ratably among the lien claims.
It remains to inquire whether the defendants had, as lien claimants, the statutory lien given by tire Mechanics’ Lien law against the building and lands, &c., from which their liens are now discharged, the sale of which has produced the purchase-money in dispute. The complainants insist that they are entitled to the whole surplus money under their lien judgment because of their filed contract for the construction of the Galbreath building on the mortgaged land. The proof shows, substantially without dispute, that neither the contract of Stiles & McClay nor the specifications thereunder included those articles of the equipment and finishing of the building which were supplied by the lien claimants who are defendants in this suit.
Mr. Adams, -the architect, who drew up the complainants’ specifications, plans and agreements, and superintended or inspected the construction of the building, expressly declares (and he is not contradicted) that there were other contracts for parts of the building not provided for in the specifications of Stiles & McClay. lie specifically mentions a hot-water heating plant furnished by the defendant Devlan; the elevator by Morse Williams Company; electric lights and electric bells by the Albert-son & Young Company; tile work and mantels by Sharpless & Watts; wall paper was also not included in the Stiles & McClay contract, and this was furnished by the defendant Pettet. There is no dispute whatever in the testimony that the work done and materials furnished by the defendants above named were not included within the work agreed to be done or mate
The declaration in the second section of the Mechanics’ Lien act (P. L. 1898 p. 538), making the building and lands liable to lien by the contractor alone, when he has filed his written contract, is limited to liens which are for work done or materials furnished in pursuance of such filed contract. Stiles & McClay, the complainants, had the exclusive right (having filed their contract) to maintain and enforce their lien on all work done and materials furnished pursuant to that contract. Every other person having a debt contracted and owing to him for labor performed or materials furnished outside of the matter included within the contract of Stiles & McClay is also entitled to file his lien under the terms of section 1 of the statute. The debts arising because of all these separate and independent contributions to the erection of the building become concurrent liens against the whole structure, entitled to', the benefits secured to them under the Mechanics’ Lien act, and to the equities which attend upon the enforcement of any mode of sale of the premises charged with those liens. The equities of the parties remain the same, whether the property liened upon Be sold by the enforcement of the lien claims in the mode prescribed by the statute, or by the foreclosure of a mortgage, as in the present case, which may discharge the liens so far as the property is concerned, and relegate them for their remedy to the purchase-money arising from such a sale.
The issues joined between the complainants on their bill as amended and the answers of the defendant lien claimants thereto must be determined against the complainants’ contention that they alone are entitled to all of the surplus money. The liens of the complainants and also of the defendants, lien claimants, are concurrent charges upon the surplus money entitled to be paid pro rata.
The remaining question arises upon the cross-bills filed by the defendants against the complainants, Stiles & McClay. By their ■cross-bills the defendants insist that the mortgage given by Mrs. G-albreath to Stiles & McClay upon the building under construction, and the lot whereon it stands, was in truth given as
The complainants, in answer to these cross-bills, deny that their mortgage was taken to secure, as collateral security, their lien claims; they deny that no money was advanced by them, and explicitly aver that the full consideration-money named in the mortgage was actually advanced and paid to the mortgagor; they deny all knowledge of the existence of the defendants’ liens at the time the foreclosure suit was instituted; they deny that the defendants performed labor or furnished materials in the erection of the building; deny that the building and lands are liable for the defendants’ claims, and also deny, that the proceeds of the sale of land derived from the foreclosure of complainants’ mortgage should be applied fro rata to the satisfaction of the several lien claims against the building and lands.
The testimony submitted at the hearing of this cause shows, without contradiction, that no money whatever was advanced or paid at any time by Stiles & McClay upon the mortgage which was given to them by Mrs. Galbreath, which they subsequently foreclosed.
The evidence discloses the transaction to have arisen and to have taken place as follows: Mrs. Galbreath was not able to make the payments on the Stiles & McClay contract at the time when, according to the contract, they came to be due. Mr. McClay obtained the mortgage from her as collateral to secure
Notwithstanding the complainants, in their answers to the defendants’ cross-bills, assert that the full consideration named in their mortgage was actually advanced and paid to the, mortgagor, they ofiered no testimony in denial or explanation of the evidence of Mrs. Galbreath and her architect, Mr. Adams, showing the mortgage to have been given as a collateral security, nor did they even cross-examine those witnesses on that point.
Section 15 of the Mechanics’ Lien act applies to the taking of such mortgages, and declares that they shall have priority over the lien claims to the extent of the money actually advanced and paid by the mortgagee and applied to- the erection of the building, provided the mortgage be recorded before the filing of such claim.
The mortgage taken by Stiles & McClay from Mrs. Galbreath and foreclosed by them was, it is true, recorded before the filing of the defendants’ lien claim, but the uncontradicted proofs show that no money whatever was either advanced or paid by them on account of the mortgage, and that no such money was applied to tire erection of Mrs. Galbreath’s building. That mortgage was in truth given as a collateral to secure to Stiles & McClay the debt owing to them under their contract to build the Galbreath apartment house. On this building, and the land whereon it is erected, they were entitled to have a'mechanics’ lien which should be concurrent with those filed by the defendant lien claimants, all sharing ratably in the values which might proceed from the application of the building and lands to the payment of all the debts incurred for work and material supplied to the building.
By taking their mortgage on the Galbreath house to secure solely their own debt, Stiles & McClay sought to withdraw that property from its liability to be applied to' pay ratably all the concurrent liens held by themselves and other lienholders, and to appropriate it exclusively to pay their own lien.
When two or more creditors have concurrent liens upon a fund which stands to pay all of their claims ratably, no one of those creditors can, by any procedure, equitably take the whole fund
In the present case the complainants have prosecuted their wrongfully taken mortgage to a foreclosure sale, have bought in the building and lands under it, have credited the amount of the purchase-money on account of the contract price due them for their work and material in erecting the building, and now ask that the whole of the surplus money be given exclusively to them to satisfy the residue of their contract price.
The mortgage taken by Stiles & McClay was good as between the mortgagor, Mrs. Galbreath, and the complainants, Stiles & McClay, as a security for the payment of the debt, the contract price which Mrs. Galbreath, the mortgagor, owed them for building the Galbreath apartment house.
The complainants have themselves bought in the Galbreath apartment house at their own foreclosure sale, and have held title thereto during this litigation. Their ownership may in the meanwhile have become charged with their 'debts, or by some disposition of the title. It will be much more to the advantage of all the parties interested that the complainants shall be directed to account for the foreclosure purchase-money arising from the sale of the Galbreath apartment house than that their mortgage should be declared subject to the defendants’ liens and the building and lands be directed to be sold again under the foreclosure lien judgments.
The cross-bills claim that the defendants are entitled to participate with the complainants not only in the surplus moneys, but also in the proceeds of the sale, and pray that the complain
The complainants by invoking the aid of this court to administer equitable relief have put themselves in a position to be required to do what is equitable to- the defendants regarding the transaction under consideration.
This will oblige the complainants to account for the whole proceeds of the foreclosure sale of the building and lands which 'were liable to the concurrent liens of the complainants and the defendants under the Mechanics Lien law, which the complainants have diverted from their proper application.
The result is that the proceeds of the foreclosure sale of that lot which was not subject to the defendants’ liens should be first applied to the payment of the debt which Mrs. Galbreath owed Stiles & McClay; that the residue arising from the sale of the Galbreath apartment house, &c., against which the complainants and defendants had their concurrent mechanics’ liens, and all of the purchase-money received by or credited to the complainants from the proceeds of the foreclosure of the mortgage on the latter-named property, should be applied to pay and satisfy those liens ratably, according to the equity of the Mechanics’ Lien statute.
A decree will be advised, in accordance with the views above expressed. If the parties can agree upon a decree definitely fixing the amounts to be accounted for and the ratable proportions of their distribution, I will advise it. If not, the matter may be referred to a master for ascertainment, statement of account and report.