Opinion
10-17-1892
HAZELHURST et al. v. SEA ISLE CITY HOTEL CO. et al.
Edward Dudley and M. P. Grey, for complainants. S. W. Beldon and William Gorman, for defendants.
Bill by Edward Hazelhurst and others against the Sea Isle City Hotel Company and others for an injunction against the sale of land under a judgment. Injunction issued.
Edward Dudley and M. P. Grey, for complainants.
S. W. Beldon and William Gorman, for defendants.
PITNEY, V. C. The complainants are three several firms who occupy the same position and claim the same relief against the defendants. Their bill alleges that the defendant the hotel company, in 1888, erected an hotel on a tract of land—which is described—in the borough of Sea Isle City, Cape May county, N. J. ; that in erecting said hotel the defendant became indebted to the complainants severally in considerable sums of money, which are set out; that the complainants filed their several mechanic's lien claims in due time, and in the proper office, against the hotel company as builder, the defendant John H. Williams as owner, the defendant James P. McGuigan as the holder of a mortgage, and the defendants John J. O'Neill and George H. Becker jointly as holders of another mortgage, upon the land upon which the building was erected, claiming in their several claims of lien that the mortgages of these several mortgagees were made and recorded subsequently to the accrual of the several liens of the complainants, and were subsequent to them in order of priority; that suit was I seasonably brought on each of the said lien claims in the Cape May circuit court, and the several defendants just named brought in as defendants; that pleas were filed by the hotel company, by John H. Williams, claiming to be the owner of the lands, and by the said several mortgagees, viz., the general issue, and the statutory plea that the land was not liable to the debts claimed to be liens thereon; that issues were joined on these pleas, and their trial by consent came on before the judge of the Cape May circuit, without a jury, with the result that the court made a report in each of the causes in favor of the complainants, fixing the amount due upon their several claims of lien, but reporting and determining that only the building in the several plaintiffs' declarations described was liable to the amount of their said several debts, and that the estate of the defendant John H. Williams who not liable, but that only the building and the estate of the defendant the Sea Isle City Hotel Company in said lot of land were subject to the lien provided by the act; that these reports and determinations of the court came to the possession and knowledge of the complainants only the day before they filed their bill. There is no allegationthat formal Judgments had, as yet, been entered upon them. The bill further alleges, in substance, and it is admitted by the answer hereafter to be referred to, that at the time of the erection of the building the title to the land was in the defendant McGuigan; that on the 6th of September, 1888, and after the erection of the building had been completed, or nearly so, McGuigan conveyed the land to Williams, and that Williams gave McGuigan back the mortgage in question for the sum of $8,740, and on the same day Williams gave a mortgage to the defendants O'Neill and Becker to secure the sum of $35,000. The bill does not allege that the judge of the Cape May circuit had made any adjudication as to the claim of priority of the complainants' liens over these mortgages. The bill then proceeds to set out that the firm of J. K. Petty & Co. were also lien claimants upon a mechanic's lien against the hotel company as builder, and Williams as owner, and had duly filed and prosecuted their claim of lien, but did not make McGuigan, O'Neill, and Becker, mortgagees, parties thereto; that they brought suit on their lien claim against the hotel company and Williams only, and that those defendants filed pleas thereto; that before the trial of the issues raised by the pleas Petty & Co. transferred their lien claim to the defendant William Gorman, who has also acted as counsel in behalf of the Sea Isle City Hotel Company and the mortgagees McGuigan, O'Neill, and Becker; that subsequently judgment on relicta was entered in Petty's suit on both issues therein raised, whereby it was adjudged that the Sea Isle City Hotel Company did undertake and promise, as Petty & Co. had alleged, fixing the amount due them, and that the lot of land described in said lien, the title to which was in the name of said Williams, was liable to the said debt; that execution was issued on the said Judgment of said Petty & Co., and that the hotel building and lot of land had been advertised for sale under it by the sheriff of Cape May county for Monday, the 29th day of February, three days after the filing of the bill; and that in the advertisement of sale it was declared that the lot of land and premises were to be sold subject to the mortgages thereon. The claim of the bill is that upon this statement of the case the complainants are entitled to judgment on the findings of the judge in their favor, to the effect that their several lieu claims are liens upon the building and the estate, whatever it is, of the Sea Isle Hotel Company in the lands prior to the said several mortgages. The bill further sets out that the hotel company, in the course of the building of the hotel, incurred several debts to other persons for work and materials furnished in its construction, so that several other lieu claims were filed against it, setting them out; that on some of these claims suits had been begun, but no judgments entered; that in some of them the mortgagees were made parties, and that in some they were not; that among them is one by Lewis W. Gould against the hotel company and Williams, owner, McGuigan, O'Neill, and Becker as mortgagees, for up wards of $1,200, in which judgment was entered in November, U89, for the sum of thirteen hundred and odd dollars. This judgment would seem to be, like that of Petty & Co., against the land as well as against the building, but, unlike that of Petty & Co., and like those or the complainants, it is prior to the mortgages. The bill further alleges that the defendant Gorman and other persons, unknown to complainants, and represented by him, (Gorman,) have acquired the control and ownership of all the lien claims against the building, except those of the complainants; that the defendant Gorman, as assignee of the lien claim of Petty & Co., and as counsel for the Sea Isle City Hotel Company, and for the defendants McGuigan, O'Neill, and Becker, procured the prosecution of the Petty lien claim to be managed in such a manner that, although it was entitled to the same priority over the mortgages that the complainants' lien claims and that of Gould had, yet the mortgagees were not made parties, and the lien was declared to be upon the land as well as the building, but not prior to the mortgages, and that Gorman is now using it for the purpose of selling the lands under such circumstances as to prevent complainants from reaping the just fruits of their prosecutions; and the prayer is that the sale of the property may be restrained, and that the rights, equities, and priorities of the parties Interested in the building and lot of land, the amounts severally due on the several liens against the buildings may be ascertained, established, and decreed in this suit in this court, and that this court may direct such sale of the land and building as may be necessary to protect the rights, interests, and equities of all parties; and it prays also that the building may be sold separately and apart from the land, and that it may be declared to be free and clear of the lien of the mortgages, but that, if the mortgages are prior liens, the amount due upon them may be ascertained, etc.
The defendants McGuigan, O'Neill, Becker, and Gorman have joined in an answer in which they admit the prosecution of the several liens of the complainants in the manner above set out, but say, "We are advised in law, and therefore deny, that the mortgages are subsequent to either of the lien claims riled by the complainants;" but do not deny the facts upon which complainants rely for priority, nor set out any facts which tend to show why they are not prior to the mortgages, except that the mortgage of McGuigan was given for consideration money. They aver that the hotel company never had, nor now has, any estate which could be subjected to the lien of the complainants, without setting out what estate it had. They admit that the conveyance from McGuigan to Williams was made after the building was substantially all built. They admit the suit by Petty & Co., and" that they did not make McGuigan, O'Neill, and Becker, mortgagees, defendants in their suit; and admit that judgment was entered upon their suit as Bet out in the bill, and that Gorman purchased the I claim from Petty for an adequate consideration,and that Petty & Co. have no further Interest in it. They deny that Gorman purchased the claim for or on behalf of the Sea Isle City Hotel Company, or with their funds or securities, or that the hotel company in any way, manner, or form, directly or indirectly, is interested in the claim or its proceedings thereon. The answer does not state for whom, or with whose money, Gorman did purchase the Petty lien claim or any of the other claims, but denies that he acted in that purchase for the mortgagees named; admits the advertisement of the lots for sale subject to the mortgages. The defendants deny that Petty's claim is being used by the defendant Gorman or anybody else for the purpose of defeating the complainants, or any of them, or preventing their receiving any benefit to which they are or may be entitled as against the said building in anyway. But they do not state why the property was ordered to be sold under the Petty judgment rather than under the Gould judgment. They set up that the entire amount, to wit, $8,740, is due to McGuigan on his mortgage, and $27,000 is due to O'Neill and Becker on their mortgage. They admit that Gorman has purchased all of the lien claims mentioned in the complainants' bill, except those of the complainants, and that an assignment thereof has been made to him, and deny that Gorman holds any of the claims for the benefit of the hotel company. The answer further alleges that after what, presumably, was the verbal announcement by the judge of his conclusions in the suits on the complainants' lien claims, the complainants insisted in the circuit court that, if the hotel property should be sold pending an appeal, which they declared themselves about to take, their claims would be put in jeopardy; whereupon the court ordered that the proceedings under said Petty claim should stay, and afterwards, it being further represented to the court that great loss and injustice would be done to the remaining creditors by reason of the stay of proceedings, the court, upon further hearing, ordered that, if sufficient security should be given satisfactory to the complainants to secure the payment of the full amount of complainants judgments in case of a reversal, the stay of proceedings for the sale of the hotel should be vacated, and that complainants agreed thereto, and bonds were so given and filed, and the said stay-was vacated; whereupon the execution and the sale so authorized by said court, and agreed to by complainants, were proceeded with, and it is the same sale now restrained by this court. This answer is without oath. An affidavit was presented by Mr. Gorman, in which he swears that upon the "trial of the cause wherein the said complainants were plaintiffs, and the said hotel company defendants, the trial judge found the said hotel company to be indebted to the plaintiffs in a certain sum, and that the liens did bind only the buildings; and it being represented to the said trial judge that the complainants would appeal, and during the pendency of said appeal, and before determination, injustice would be done by allowing a sale to be had, said judge made an order staying proceedings for the sale of the said hotel until the plaintiffs might have opportunity to have their appeal heard; and thereafter considerable time having elapsed, and no appeal having been taken, and it being represented to the said trial judge that a great injury and injustice would be done to the other lien creditors and creditors of the said hotel company by said order to stay, it was so therein proceeded that the said trial judge made an order upon the said complainants to show cause why the order restraining the sale of the said hotel should not be revoked; and upon the hearing of the said rule or order the court did revoke the order so made, staying proceedings for the sale of the said hotel on condition that security should be entered for the payment of the said complainants' claims in full, should the court reverse the order of the lower court upon appeal; and security was thereupon entered, and it was then agreed by the complainants, through their counsel, that the sale of said hotel should be allowed to proceed." In this affidavit Mr. Gorman further says "that it is untrue and false that he is making use of said Petty claim for the purpose of depriving the complainants, or any of them, or preventing their receiving any benefit to which they are or may be entitled." This is all the explanation he makes, and all the reason he gives for advertising the property under the Petty claim instead of under the Gould claim. An offer was made to assign to the complainants the several claims which he purchased and owns, upon the repayment to him of the amount of money he has invested in them.
With regard to the allegation of the answer and affidavit that the complainants agreed to the discharge of the order made in the circuit court staying the sale upon condition that the defendants should give security for the payment of the complainants claim in full, in case the court of errors and appeals should reverse the action of the circuit judge, two observations may be made: First, it is new matter, not in response to any of the allegations or charges of the bill; the answer and affidavit were produced and filed and were first seen by counsel at the hearing; under these circumstances, the well-settled rule forbids me to rely upon it without giving the complainants opportunity to answer it; and, second, that it is supported only by the affidavit of the defendant Gorman, without producing the record of the proceedings in the circuit court, or any copy thereof, or the agreement, or any copy thereof, or of the bond filed as security. Such affidavit does not amount to proof, and must be laid out in view. This renders it unnecessary to consider whether, if the alleged agreement were properly proven, it would furnish any answer to complainants' equity.
Let us now see what the case is. The hotel company builds an hotel on lots of land the title to which is in the defendant McGuigan, and in so doing incurs an indebtedness to divers material men. After this indebtedness is incurred McGuigan conveys the property to Williams, andtakes back a mortgage for consideration money. Williams gives another mortgage at the same time to O'Neill and Becker. Lien claims are filed against Williams as owner; the hotel company as builder; McGuigan, O'Neill, and Becker as mortgagees. The trial judge finds that the plaintiffs have a lien against the building and the interest of the hotel company, whatever it may be, in the land, but not as against the estate of Williams. In order to arrive at that conclusion, he must have distinguished the case from that of Babbitt v. Condon, 27 N. J. Law, 154, where the lien claim was filed against Condon as builder, and Daniel G. Mason as owner, and it turned out that Daniel G. Mason had no interest whatever in the lands; but that, while he contracted with Condon to build the house, his father, Lowell Mason, was the actual owner and incurred the expense of building the house. It was held that no lien could be enforced. Here the judge must have found, and the circumstances developed in the pleadings in this court warranted him in finding, that the hotel company was in possession under Rome sort of an equitable right upon which these liens could attach, and which would be recognized by a court of equity in distributing the proceeds of a sale of the whole premises. In the next place, it is to be observed that the complainants' several lien claims, as between them and the mortgages, stand in this wise: As between the lien claims and the mortgage of McGuigan, which was given for purchase money, the lien claims are second. Bank v. Sprague, 20 N. J. Eq. 13, Strong v. Van Deursen, 23 N. J. Eq. 369; Macintosh v. Thurston, 25 N. J. Eq. 242, at page 246. As between these lien claims and the mortgage of O'Neill and Becker, the lien claims will be first in order of priority. Laying out of view the other lien claims, in this state of affairs the complainants equity in the premises would be wrought out; in this wise: Upon a sale of the whole of the premises,—land and buildings,—the court would ascertain the relative value of the land and buildings, and would thereby ascertain how much of the proceeds of the sale were due to the land and how much to the buildings, and would pay McGuigan's mortgage out of so much of the proceeds of the sale as was due to the value of the land, and, if that were insufficient for the purpose, then the balance out of so much of the proceeds of the sale as was due to the value of the buildings, and then would next pay the complainants' claims out of the balance. Whitenack v. Noe, 11 N. J. Eq. 413; Cement Co. v. Morrison, 13 N. J. Eq. 133; Whitehead's Ex'rs v. First Me. Church of Newark, 15 N. J. Eq. 135. The bill and affidavits, and answer and affidavit, herein, deal with the question whether or not the building could be removed from the land, and the prayer of the bill is framed with the view that it could be removed. The cases above cited render it unnecessary to deal with that question here.
Now, let us see what is the effect of the use which the defendant Gorman is about to make of the judgment on the Petty lien claim. The Mechanic's Lien Law (Revision, p. 673, § 24) provides "that all lien claims for erecting the same building shall be concurrent liens upon the same, and the land whereon the same is erected, and shall be paid pro rata out of the proceeds thereof, when sold by virtue of this act; and, for the purpose of distribution, the sheriff or other officer shall pay such proceeds to the clerk of said circuit court, to be by said court distributed among such claims filed, or as shall be filed, according to this act," etc. And section 25 provides for a stay of suit upon all lien claims except the first, and contemplates the entering of but a single judgment and the issuing of but a single execution. The result of this legislation is that all these lien claims will be discharged by the sale of the premises under an execution on one of them, and each must be content with a pro rata share of the proceeds. Now, whether the defendant Gorman is responsible or not for the omission by Petty & Co. to make the mortgagees parties, it is quite certain that he has all the time owned, and still owns, not only that lien claim, but that of Gould, which went to judgment, in which the mortgagees were made parties, and in which the priority of Gould over the mortgage of O'Neill and Becker was presumably established; and he had the choice between the Petty judgment and the Gould judgment in the issuing of execution for the sale of the premises, and deliberately chose that judgment which would not disturb the priority of the O'Neill and Becker mortgage. He denies that he has done this for the purpose of depreciating the security of the complainants, and he alleges that they are trying to force him to pay them more for their claims than he thinks they are worth or is willing to pay. He denies that he is acting herein for the benefit of the mortgagees, but he is found joining with them in an answer, appearing by the same solicitor, and he deliberately proposes to sell the property in such a manner as to reduce the security of all the lien claims to the extent of the $27,000 which he says is due to O'Neill and Becker on their mortgage. In other words, he is maneuvering in the interest of these mortgages as against the lien claims of complainants. His denial that he is not acting in their interest is futile in the face of the facts. Complaint was made at the argument of the great delay that had occurred in bringing this property to a sale so that it could be put to a beneficial use, and the litigation over these lien claims was sought to be held responsible for it. But it was not suggested that such litigation in any wise tied the hands of the mortgagees, and prevented them from proceeding to for close their mortgages, and having all the liens ascertained and marshaled in this court, whose machinery is especially adapted for that purpose. This, I think, can be done in this cause.
The injunction must issue.