Merritt v. Dansmith Corp.

240 A.D. 338, 270 N.Y.S. 675, 1934 N.Y. App. Div. LEXIS 10647

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: March 15, 1934
• Status: Published

Opinion

Hill, P. J.

The decision of this appeal involves a determination as to the priorities between hens for material, for labor, and that arising through the delayed recording of a mortgage given for the purchase price of the real property upon which a building was erected. The chronological sequence: July 9, 1932, defendant Fontana conveyed the unimproved real estate to the Dansmith Corporation. The deed was recorded two days later. Plaintiffs’ hen for materials used in the erection of the building was filed November ninth. A mortgage bearing date November third, from the grantee in the deed to the grantor to secure the entire purchase price of the real estate, was recorded December fifth. Four hens, conceded to be for wages, were filed the 9th and 10th of January, 1933. The decision and judgment of the Special Term direct a sale of the property and the distribution, after costs and expenses, first, to the plaintiffs on account of their hen for materials; second, to the mortgagee; lastly, to the labor henors.

The vendor’s mortgage, through his neglect and delay, lost the priority given purchase-money mortgages, and became a hen at the time it was recorded, and subject to hens of earlier record. “ The general rule stated apphes more particularly to cases where it is sought to enforce an equitable hen for the purchase money, which has never been put on record as against subsequent mortgagees or purchasers in good faith and for a valuable consideration. In such a case it is too clear to admit of any question that the rights of the person claiming such equitable hen should yield, by reason of his neglect, to the claims of subsequent incumbrancers or purchasers, and it may well be asserted that a prior claimant for the purchase money under such circumstances has, by his silence or neglect, yielded his right.” (Spring v. Short, 90 N. Y. 538, 543.) “A purchase-money mortgage is as much subject to the Recording Act as any other.” (Ebling Brewing Co. v. Gennaro, 189 App. Div. 782, 786.) The priority of a purchase-money hen arises when there is a simultaneous execution of the deed and the mortgage where-under the vendee and mortgagor is seized only of such a beneficial interest as is not reconveyed by the mortgage. While plaintiffs’ lien, filed before the mortgage was recorded, is prior thereto (Lien Law, § 13), the labor liens filed later are subsequent.

A difficult and anomalous situation is presented when we consider the priorities thus established, in connection with the statutory provision that there shall be no priority on account of the time at which notices of hen are filed, but that ah shall be on a parity, except that laborers for daily or weekly wages shall have preference over ah others. (Lien Law, § 13.) This preference was disregarded by the Special Term in its decision because if the labor hens were preferred over that for material, they would be preferred also over the mortgage hen, in violation of the Recording Act. Authority in support is found in Giant Portland Cement Co. v. Barber A. P. Co. (187 App. Div. 581; affd., 232 N. Y. 395). There the action involved the distribution of a fixed amount of money due under a pubhc contract. A hen for material was first filed, followed by an assignment and this by a labor hen. Here the amount for which the premises will seh is unknown. Should the sum available for distribution amount to not more than plaintiffs’ hen for material, preference could be given the labor hens without affecting the rights of the mortgagee. • The opinion in the Appellate Division in the Cement Co. case says (p. 585): “ Clearly the labor hens would be entitled to be paid first if there had been no assignment, regardless of priority of fifing of the material hens, and that might be so if the fund did not exceed the amount of hens filed before the fifing of the assignment, because if there was no surplus there would be nothing to assign.” The determination made by the Appellate Division was affirmed by the Court of Appeals, but as therein stated, while the same conclusion was reached, it was for different reasons (p. 409). “ Of course the statute of priority for laborers’ hens does not provide or mean that such hens are hens on or payable out of the hens and claims thereunder of materialmen. It simply provides and means that such laborers’ hens shall be paid out of the fund before the hens of materialmen. Therefore, if priority of claims against the fund was given to these laborers’ hens over those of the materialmen the result would simply be that the hens of the latter would be pushed farther down on the fund and that there would be less balance apphcable to the payment of the bank under its assignment. The only practical effect of such priority would be visited upon the bank and its claim under its assignment would be made subordinate to these additional hens. This result cannot be permitted under the statute. It has been held that this right of priority of laborers’ hens does not exist as against an assignment by the contractor of moneys due or to grow due on his contract. (Riverside Contrg. Co. v. City of New York, 218 N. Y. 596.)”

Thus the Court of Appeals seems to have determined that the statute does not permit an application of the labor priority provision of the Lien Law in the event it would or might subordinate the mortgage hen to after-filed hens.' Should this property sell for a sum not greater than plaintiffs’ hen, and costs, the mortgagee’s rights will not be involved, and the lien for material will be given preference over labor. This is in harmony with the construction by the Court of Appeals in the Cement Co. case, that labor hens are not “ payable out of the hens ” for material.

The judgment should be affirmed, without costs.

McNamee, Crapser, Bliss and Heffernan, JJ., concur.

Judgment affirmed, without costs.