B. J. I. Corp. v. Larry W. Corp.

• Decision Date: 14 January 1982
• Parties: B. J. I. CORP., a New Jersey Corporation, Plaintiff, v. LARRY W. CORP., a corporation of the State of New Jersey; State of New Jersey; George C. Barile and Theresa J. Barile, husband and wife; and Charles Elin, individually, Defendants.
• Court: New Jersey Superior Court

Page 310

183 N.J.Super. 310

443 A.2d 1096

B. J. I. CORP., a New Jersey Corporation, Plaintiff, v. LARRY W. CORP., a corporation of the State of New Jersey State of New Jersey; George C. Barile and Theresa J. Barile, husband and wife; and Charles Elin, individually, Defendants.

Superior Court of New Jersey, Chancery Division Somerset County.

Decided Jan. 14, 1982.

Peter G. Sheridan, Princeton, on motion, for plaintiff. (McCarthy & Hicks, Princeton, attys.).

Vincent T. Bisogno, Basking Ridge, on motion, for defendants Barile. (Bisogno & Loeffler, Basking Ridge, attys.).

DREIER, J. S. C.

This case comes before the court on cross-motions for summary judgment. Plaintiff B. J. I. Corp. seeks to foreclose the $105,000 mortgage it holds on two lots, ¹ shown on a map as "Ivy Hill" in Hillsborough Township, which are owned by defendant Larry W. Corp. & George and Theresa Barile, also named defendants in this action, hold a docketed judgment in the amount of $21,700 recovered in an earlier Chancery Division action against Larry W. Corp.

The sole remaining issue here is one of priority: ² both B. J. I. Corp. and the Bariles assert that their interest in the mortgaged premises is superior to the other's claim, and both seek a declaration to this effect. The resolution of this apparently straightforward issue, however, requires a reconsideration of New Jersey's lis pendens statute, N.J.S.A. 2A:15-6 et seq., in light of recent decisions dealing with its constitutionality, and a determination of the validity and scope of a general subordination clause in a residential real estate sales contract.

A brief chronology of events will be helpful.

In September 1978 George and Theresa Barile entered into a contract with American Dream Builders Group (American Dream) for the purchase of a lot in "Ivy Hill" on which American Dream agreed to construct a single-family home. The contract was never recorded, despite a provision therein expressly appointing each party agent for the other for the purposes of recording and filing the contract in the event of a dispute or repudiation.

In December of the same year American Dream informed the Bariles that it was cancelling the contract and would return the Bariles' deposit of $7,100. The deposit was returned to the Bariles' attorney in February 1979. Because the Bariles at that time were considering bringing suit against American Dream for specific performance of the contract, the refund check was deposited in their attorney's account, in trust for them.

On March 30, 1979 the Bariles filed suit against American Dream and against Larry W. Corp. as well, since investigation revealed that the land which the Bariles had contracted to purchase, and on which their home was to be built, was in fact owned by Larry W. Corp. The Bariles' complaint, alleging that Larry W. Corp. was an agent and affiliate of American Dream, sought specific performance of the contract to construct a home, conveyance of the lot in question to the Bariles or the declaration of a constructive trust in their favor as to the property described in the contract, and damages for breach of the contract.

On May 25, 1979 the Bariles filed a notice of lis pendens.

On June 19, 1979 Larry W. Gardner, registered agent for both American Dream and Larry W. Corp., was personally served with the summons and complaint.

On June 26, 1979 Larry W. Corp. executed a $105,000 mortgage to B. J. I. Corp., whose president and principal is Larry W. Gardner. This mortgage covered three lots in the "Ivy Hill" development, one of them the lot which was the subject of the Bariles' action for specific performance. ³ On July 3, 1979 B. J. I. Corp. recorded its mortgage.

By the fall of 1979 the Bariles had determined that they could not wait the year or more it would apparently take for the resolution of their suit, the conveyance of the property to them and the construction of a home. As a result, they closed title on another home in October 1979, at which time the deposit previously refunded by American Dream and held in trust for them by their attorney was released to the Bariles.

On December 12, 1979 the Bariles took a default judgment in their suit against American Dream and Larry W. Corp., recovering $21,700. An abstract of judgment was filed on December 20, 1979.

On May 4, 1981 B. J. I. Corp. brought this foreclosure action against Larry W. Corp., naming the Bariles as defendants by reason of their notice of lis pendens and subsequent judgment.

I

The first issue to be resolved is the validity of the Bariles' notice of lis pendens. Once a notice of lis pendens is filed, it "serves as constructive notice to the world that an action involving real property is pending, so that any subsequent purchaser or lienor of that property will take subject to the outcome of the litigation." United S. & L. Ass'n v. Scruggs, 181 N.J.Super. 52, 54, 436 A.2d 559 (Ch.Div.1981), interpreting N.J.S.A. 2A:15-7. Under this section of the New Jersey lis pendens statute ⁴ the Bariles' judgment, recovered against American Dream and Larry W. Corp., would take precedence over B. J. I. Corp.'s mortgage.

To overcome this obstacle, and in support of the motion for summary judgment declaring its mortgage superior to the Bariles' judgment, B. J. I. Corp. argues that the Bariles' initial filing of the notice of lis pendens was void since the primary object of their suit was money damages. B. J. I. Corp. cites N.J.S.A. 2A:15-6 which provides:

In every action ... the object of which is to enforce a lien ... or to affect the title to real estate or a lien or encumbrance thereon, plaintiff or his attorney shall, after the filing of the complaint, file ... a written notice of the pendency of the action, which shall set forth the title and the general object thereof, with a description of the affected real estate.

No notice of lis pendens shall be filed under this article in an action to recover a judgment for money or damages only.

Garfield v. Elmwood Stores, 17 N.J.Super. 513, 86 A.2d 308 (Ch.Div.1952); Grabowski v. S. & N. Constr. Co., Inc., 72 N.J.Super. 1, 177 A.2d 576 (Ch.Div.1962).

Although title to the lot was in Larry W. Corp., the Bariles' contract was with American Dream only. Thus, plaintiff argues, there could be no legitimate claim for specific performance to convey the property as against Larry W. Corp. In addition, because American Dream was never in the chain of title, the Bariles' suit on the contract with American Dream could not "affect the title to real estate" as required by N.J.S.A. 2A:15-6.

In the alternative, B. J. I. Corp. argues that when the Bariles abandoned their claim for specific performance by taking a default judgment against Larry W. Corp., this operated as an election of money damages as an exclusive remedy. Thus the Bariles waived any interest they may have had in the real property itself, and are estopped from asserting any rights claimed under their notice of lis pendens.

In response, and in support of their cross-motion for summary judgment, the Bariles allege that Larry W. Gardner, as principal of the mortgagee B. J. I. Corp., and as registered agent of American Dream and Larry W. Corp., had actual notice of their suit seven days before B. J. I. Corp. took the mortgage from Larry W. Corp. Since its principal knew of the existence of litigation affecting the subject property, the Bariles argue that B. J. I. Corp. must be charged with the same knowledge; thus the sufficiency of the notice of lis pendens is immaterial. Wood v. Price, 79 N.J.Eq. 620, 623, 81 A. 1093 (E. & A.1911); Thatelbaum v. Neidorf, 100 N.J.Eq. 236, 135 A. 57 (Chan.1926).

Larry W. Gardner denies such actual knowledge of the Bariles' suit. ⁵ The question of actual notice would become relevant, however, only if the Bariles' notice of lis pendens is found to be invalid. To the contrary, this court finds the Bariles' initial filing of the notice of lis pendens to be valid, and further that its validity was not defeated nor its protection diminished by the later abandonment of their claim for specific performance.

A

The Bariles had a legitimate claim for specific performance against American Dream and Larry W. Corp. jointly. The contract between the Bariles and American Dream provided for more than the construction of a home. American Dream expressly agreed to sell, and the Bariles to buy, the real property described therein, and the contract itself specified that "possession will be given by delivery of Deed." ⁶ Nor was their claim for specific performance included as mere surplusage in the complaint. The primary relief they sought was the construction of a residence and conveyance of the property, as called for in the contract. Such relief was actively pursued for many months until it became clear that satisfactory resolution of their claim, culminating in conveyance of the "Ivy Hill" lot and completion of construction of their new home, would take at least another year. It was only then that the Bariles abandoned their claim for specific performance by purchasing another home.

The Bariles notice of lis pendens, therefore, was not filed initially "in an action to recover a judgment for money damages only," thereby violating the strictures of the lis pendens statute; rather it was properly grounded in an "action ... the object of which is to ... affect the title to real estate..." N.J.S.A. 2A:15-6 (emphasis supplied). Further, when such a notice of lis pendens is filed, based as this was on a legitimate claim to the relief of specific performance of a contract to convey real property, its effectiveness will not be defeated should the plaintiff later make a reasoned choice to abandon the claim under which the notice was properly filed, after diligently prosecuting such claim over a period of many months. ⁷

B

The determination that the Bariles' filing of a notice of lis pendens was valid under N.J.S.A. 2A:15-6 resolves the issue of the priority of...