McCorkle v. Herrman — 27 N.Y. St. Rep. 333

Majority

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William McCorkle, Receiver, App’lt, v. Morris S. Herrman, Resp't.^[1]

(Court of Appeals,

Filed November 26, 1889.)

Headnote

1. Supplementary proceedings—Priority op receiver’s title— Mechanic’s lien.

As between a judgment creditor of a contractor, who has duly commenced supplementary proceedings on his judgment terminating in the appointment of a receiver, and laborers and material men, who, subsequent to the commencement of the supplementary proceedings, and within the time allowed by law, have filed notices of lien to reach the debt due the contractor from the owner, the receiver has the superior claim.

2. Same—Pleading—Demurrer.

An answer interposed by the owner in an action by said receiver for the amount due the contractor, setting up the liens as a defense, and that they were filed and in existence “ at and prior to the commencement of this action,” is demurrable.

Appeal from judgment of supreme court, general term, first department, affirming judgment of special term overruling demurrer to answer and directing judgment for defendant.

The complaint alleges the appointment of the plaintiff as receiver of the property of John J. Murphy in proceedings supplementary to execution, December 4, 1886, and that the order for the examination of Murphy, the judgment debtor in said proceedings, was served November 27, 1886. It further alleges that on September 26, 1886, an agreement was entered into between Murphy and the defendant, by which the former was to complete ■a building for the latter in the city of New York, and furnish the work and materials for the same for the sum of $3,000, and to ■accept the sum of $2,500 for extra work and materials previously furnished thereon, which the defendant agreed to pay. It alleges performance by Murphy, and that there is due and owing by the ■ defendant on the contract the sum of $1,400, which balance the

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plaintiff, as receiver, has duly demanded of the defendant, but. which the defendant has refused to pay,- and the plaintiff demands; judgment therefor.

The defendant, in his answer, admits the appointment of plaintiff' as receiver, and the filing of a bond by him as receiver, as alleged in the complaint. The defendant, in his sixth answer or defense,, alleges that the claim set forth in the complaint has, by due proceedings under the statutes of this state, been subjected to liens-under the mechanics’ lien law in favor of various persons named, creditors of Murphy, for labor and materials furnished for said building, which liens are subsisting, and that the amount owing by the defendant on the contract with Murphy is chargeable under said liens with the amount thereof prior to the alleged claim of the plaintiff, and that such liens were filed and in existence “ at and prior to the commencement of this action.” The answer further alleges that the liens were for valid debts owing by Murphy to the several lienors, and that the amount of said debts exceeds the balance due from the defendant under the contract, and that such balance is payable to the lienors and not to the plaintiff, and that a suit has been commenced to foreclose said liens, and that the plaintiffs and defendant in that action are necessary parties to this action. The answer concludes by demanding that the complaint be dismissed, or for such further judgment as may be just or the nature of the case may require.

The plaintiff demurred to the sixth defense for insufficiency. The demurrer was overruled at the special term and final judgment entered for the defendant dismissing the complaint. The judgment was affirmed by the general term and the plaintiff appeals to this court

Howard R. Bayne, for app’lt; Francis C. Reed, for resp’t

The defendant has taken no proceedings in the nature of an interpleader under § 820 of the Code of Civil Procedure, and the sufficiency of the sixth defense or answer must be determined by the test, whether it alleges facts which on their face show that the plaintiff has no right of action. The plaintiff’s right, as receiver, to recover the amount owing by defendant under the contract with Murphy, at the time the receiver was appointed, in the absence of any valid prior liens upon the fund in favor of other persons, is undisputed. By § 2468 of the Code of Civil Procedure the property of a judgment debtor is vested in a receiver appointed in supplementary proceedings, who has duly qualified, “from the time of the-filing of the order” appointing him, except that in case of real property the vesting only takes place from the time the order is filed in the county where the real property is situated, and in case of a debtor who at the time the order is filed resides in another county, his personal property is vested when the order is filed in the county where he resides. By § 2469,. where an order for the debtor’s examination has been served,, the receiver’s title, when vested pursuant to § 2468, “extends back so as to include the personal property of the judgment

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debtor at the time of the service of the order,” except as against bona fide purchasers, or against creditors who have meanwhile received payment from their debtor in good faith and without notice. The words, “ personal property,” in this section include money, chattels, things in action and evidences-of debt Section 3343. Section 2469 is a new provision, not found in the former code, and appears to have been inserted, to change the rule declared in Becker v. Torrance, 31 N. Y., 631 , to the effect that no equitable lien was acquired by a creditor on the property of his debtor by the commencement-of supplementary proceedings, and that when a receiver is appointed his title relates to the date of his appointment and is-subject to any lien on the debtor’s property acquired by third persons intermediate the commencement of the proceedings and the appointment of the receiver.

The defendant in the answer demurred to alleges the existence-of liens on the debt acquired under the mechanics’ lien law, and in substance that such liens were prior to the claim of the plaintiff. But the answer does not state at what date the notices of liens were filed, the only averment on that point being that the liens, were filed and in existence “ at and prior to the commencement, of the action.” The action was commenced March 16, 1887, several months after the commencement of the supplementary proceedings. In view of the allegations in the answer that the alleged liens were filed at and prior to the commencement of the-action, no other lien being mentioned, it cannot we think be intended in support of the pleading that the filing of the notices of lien antedated the commencement of the supplementary proceedings. From all that appears they may have been filed subsequent, to that time. If the defendant had averred generally that the-claim sought to be recovered had been duly subjected to liens-under the act of 1885, prior to the accruing of any right in the-plaintiff, which were subsisting and valid, exceeding the amount-of the debt owing by the defendant, it may well be, as held by the general term, that the pleading would not be objectionable on demurrer on the ground of the omission to aver with more definiteness the precise dates or steps in the process by which the liens-were created. But when the pleader in connection with these-general averments proceeds to fix the time of the filing of the liens. “ at and prior to the commencement of the action,” no liberality in construing pleadings permits an inference that the pleader intended to aver that they were filed prior to the commencement of the supplementary proceedings. The real question presented by the-demurrer relates to priority of lien as between a judgment creditor of a contractor, who has duly commenced supplementary proceedings on his judgment terminating in the appointment of a. receiver, and laborers and material men who subsequent to the-commencement of the supplementary proceedings, and within the time allowed by law, filed notices of lien to reach the debt owing-the contractor, under a contract with the owner of a building for its construction.

The first section of the lien law, chap. 342 of the Laws of

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1885, which governs the'right of the lienors in this case, prescribes that upon “filing the notice of lien," a lien shall be acquired, etc. The filing of the notice originates the lien. Anterior to this act the laborer or material man has no preferential right to be paid for his labor or materials out of the sum which is due from the owner of the building to the contractor but stands in the same position as other creditors. He may subject the debt to a lien in his favor on filing the • notice and taking the proceeding prescribed by the act. But if before this has been done other creditors, pursuing the usual remedies for the collection of debts, have acquired a legal or equitable right to have the debt applied in satisfaction of their claims, the right is not overreached by liens subsequently filed under the act, unless priority is given by the provisions of the act itself. This general principle was declared in Payne v. Wilson, 74 N. Y., 348 . It was there said: He, the lienor, acquires a specific lien when he files his notice, but up to that time he is a general creditor with no greater equities than other general creditors. Hence he is affected by all equities existing in favor of those dealing with his debtor, and when he acquires his specific lien against the debtor it attaches to no more than the estate or interest of the debtor as it then exists, which is no more than is left to the debtor after the satisfaction of these equities.” The lien law of 1885, in its fifth section, gives a lienor who has filed his notice priority over any conveyance or judgment not recorded or docketed at the time of filing the notice, and over advances subsequently made on any mortgage on the premises and also over the claims of general creditors under a general assignment for the benefit of creditors, made within thirty •days before the filing of notice of lien. Ho other priorities are given by the act. It is well settled that dealings in good faith between the owner of a building and a contractor for its construction, before the filing of a notice of lien, are protected.

The second section of the act of 1885 protects persons entitled to file notice of lien against collusion and fraudulent payments made or incumbrances created by the owner to defeat the purposes ■of the act, although notice of lien had not then been filed. This section recognizes the rule, which has been frequently declared, that the owner is protected in respect of payments to the contract- or made bona fide before the filing of notice of lien, and this although the notice was filed within the statutory time; and an obligation to pay a third person is regarded as equivalent to payment to the extent of the obligation. Carman v. McIncrow, 13 N. Y., 70 ; Crane v. Genin, 60 id., 127 ; Gibson v. Lenane, 94 id., 183 ; Lauer v. Dunn, 115 id., 406; 26 N. Y. State Rep., 412. In the present case there has been no payment and the point in controversy is whether the owner is bound to pay the plaintiff, the receiver in the supplementary proceedings, or the lienors, the receiver representing a creditor of the contractor and the lienors being his immediate creditors. The status of the respective parties may be briefly stated. The creditor whom the plaintiff represents by the commencement of supplementary proceedings acquired under §. 2469 of the Code an equitable lien on the debt then owing by the

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■defendant, which on the appointment of the receiver became a legal ■title in the receiver to the claim of the contractor against the defendant as of November 27, 1866, the date of the service of the -order in the supplementary proceedings. Subsequent to the service of the order the liens were filed. Which of the claimants have the prior right? We think the plaintiff, as receiver, has the superior claim. He stands as the assignee of the claim of the contractor against the defendant by a title which antedates the filing of the notices of lien. When the liens were filed there was a debt owing by the defendant. If the proceedings instituted by the •creditor, whom the plaintiff represents, had been abandoned, the liens would have had priority, but not having been abandoned and the equitable lien existing when the liens were filed having been •converted into a legal title as of a time anterior to the filing of the liens the right to the debt as between the plaintiff and the lienors vested in the former.

The plaintiff, we think, stands in as good a position at least as if prior to the filing of the liens the contractor had in good faith assigned his claim against the defendant to the creditor in the supplementary proceedings as security for his debt. The assignee under such an assignment, according to the general current of authorities, would take precedence over lienors under liens subsequently filed. Superintendent, etc., of Schools v. Heath, 15 N. J. Eq., 22 ; Craig y. Smith, 37 N. J. Law, 549 ; Dorestan v. Krieg, 66 Wis., 604 ; Copeland v. Manton, 22 Ohio St., 398 . We understand the general rule to be that lienors on filing notices -of lien take their liens subject to any rights theretofore acquired by third persons in good faith from or under the contractor, and that whatever rights such persons may assert against him or the owner, in or to the debt, whether such rights spring from voluntary arrangement or contract, or are acquired by operation of law, may also be asserted against persons who, as laborers or material men, might have previously filed notices of lien, but omitted to do so.

We are of opinion that the sixth answer failed to show a •defense, since neither expressly, nor by reasonable intendment, •does it show that the alleged lienors filed notices of lien before the commencement of the proceedings supplementary to execution.

Our decision relates to a case of money due or earned at the time those proceedings were instituted.

The judgment of the general and special terms should be reversed, and judgment ordered for the plaintiff on the demurrer, with costs in all courts.

All concur.