Knickerbocker Trust Co. v. Carteret Steel Co.

• Citation: 79 N.J.E. 501,82 A. 146
• Parties: KNICKERBOCKER TRUST CO. v. CARTERET STEEL CO. et al.
• Decision Date: 17 January 1912
• Court: New Jersey Court of Chancery

82 A. 146

79 N.J.E. 501

KNICKERBOCKER TRUST CO.

v. CARTERET STEEL CO. et al.

Court of Chancery of New Jersey.

Jan. 17, 1912.

On exceptions to a Master's report in a foreclosure suit by the Knickerbocker Trust Company against the Carteret Steel Company, John P. Jones, and others. Exceptions overruled, and report confirmed.

On January 10, 1898, the Carteret Steel Company owned an undivided interest in property in Morris county, known as the "Copperas Mine Tract," which it mortgaged to the complainant, as trustee, to secure an issue of bonds aggregating $100,000. The mortgage contained a provision that it should cover after-acquired property, and a note of this provision was inserted in the bonds secured thereby. Some, if not all, the bonds secured by this mortgage were negotiated on behalf of the Carteret Company. On January 1, 1899, the Carteret Company made another mortgage to the complainant, as trustee, which described the same lands, to secure an issue of bonds aggregating $500,000. This mortgage also contained a provision covering after-acquired property, and a note thereof is contained in the bonds secured thereby. There was a reservation of $125,000 of the second bond issue with which to take up and pay off the bonds of the first issue. Some, if not all, of the second issue, excepting the above-named reservation, were negotiated on behalf of the Carteret Company. There was at that time an undivided one-half interest in the mortgaged premises, which was held by one Condit, as trustee of the Cobb estate, and also an outstanding life estate during the life of Sarah J. Bell. On November 29, 1898, an agreement was entered into by the Carteret Company for the purchase of these two outstanding interests for $30,000, of which sum $10,000 is said to have been the purchase price of the life estate. While these outstanding interests were controlled by different persons, it is quite certain that their purchase was considered by all parties to be a single transaction. The agreement for the sale of these outstanding interests was performed on January 29, 1899, by the conveyance thereof to the Carteret Company. At the time the contract was performed, $10,000 was paid in cash to Mrs. Bell for her life estate; but the purchase price of the undivided half interest in the laud was not paid or satisfied to Condit, trustee, the vendor. He took, as security for its payment, the bond of the company, guaranteed by the defendant John P. Jones, for $31,000, and bonds of the second issue of the Carteret Company, aggregating $62,000. Subsequently Condit sued Jones on his guaranty of the bond of the Carteret Company, and recovered judgment for the amount thereof, which judgment "Jones subsequently paid. By virtue of this transaction, he claims to be subrogated to any right which Condit, trustee, may have had in the premises. The defendant Jones did not answer the original bill, but allowed a decree pro confesso to be taken against him. Three or four years later he filed an answer to a supplemental bill in the cause, setting up (1) that, by virtue of the conveyance from Condit, trustee, to the Carteret Company, on January 29, 1899, without payment of the purchase money, a vendor's lien arose in Condit's favor which, notwithstanding the provision in the trust mortgages to the complainant, by which the lien thereof was attempted to be attached to after-acquired property, took precedence over the said mortgages, and was a first lien upon the land conveyed, and that, not only did the lien arise by operation of the principles of equity jurisprudence, but that there was a positive oral agreement between the vendor and the Carteret Company that such lien should be created and established; (2) that, inasmuch as he was obliged to. pay to Condit the purchase money evidenced by the company's bond, on which he was surety, he became subrogated to all the rights of the vendor to a vendor's lien, and he therefore insists that he is entitled to a first and prior lien on the half interest in the said tract of land which was conveyed to the company by Condit, and also upon the life estate to which the company derived title from Mrs. Bell. It may be said that there was a further outstanding interest in the title to the lands in question which was got in about the same time.

The issues in the case were submitted, by consent of parties, to the master, to whom the cause was referred. To his report, exceptions were filed; subsequently the Jones claim appeared, and it was referred to the master with the other issues. The master reported upon the rights of the parties, and against the claim of Jones. To his original and supplemental report, exceptions are filed. The only point that was argued was the validity of the Jones claim.

John B. Humphreys, for complainant. John W. Harding, for defendant John P. Jones. Frederick W. Hope and William J. Leonard, for certain bondholders.

HOWELL, V. C. (after stating the facts as above). The question was raised in limine that the defendant Jones was not in a position to assert any right whatever, for the reason that he could not be subrogated to Condit's rights. I think, however, that it is quite clear that Jones, by virtue of the doctrine of subrogation, is entitled to stand in the shoes of Condit, and to assert any claim which Condit might have asserted, and to litigate the same. He was a surety for the vendee, and, having paid the vendee's debt, he is entitled to the place which the vendee had. This is justice, and it is supported by the cases. Meux v. Smith, 11 Sim. 410; Nottingham Building Society v. Thurstan (1903) A. C. 6; Sheldon on Subrogation, § 97.

The doctrines concerning vendors liens are firmly established in our jurisprudence. They give to the grantor or vendor who has parted with the title to his property an equitable lien on the property conveyed, to secure the payment of the purchase money. It is not a right which necessarily arises out of contract; it is rather an equity raised out of the circumstances, on the ground of a constructive trust, to protect the vendor to such extent as may be necessary; and it is difficult to see how, as between the parties, the force or effect of the Hen could be enhanced by a mere agreement that a vendor's lien should be reserved. Graves v. Coutant, 31 N. J. Eq. 763; Stickle v. High Standard Steel Company, 78 N. J. Eq. 549, 80 Atl. 500. This lien, however, may be lost by a distinct waiver of it, or by a transfer of the title by the grantee to a purchaser for value and without notice. A grantee or mortgagee from the vendee who has notice, or is in such circumstances as that he is put upon inquiry, would take title to or a lien upon the premises, subject to the lien of the vendor. These principles are very clear and plain. Vandoren v. Todd, 3 N. J. Eq. 397; Butterfield v. Okie, 36 N. J. Eq. 482.

The situation, however, in this case is complicated by the fact that the vendor's lien and the lien of the mortgage, hostile to each other as they are, arise simultaneously and out of the same transaction. It is the deed from the Cobb estate to the Carteret Company which gives rise to the vendor's lien, and which also places the property within the purview of the mortgages. There thus appears to be at the outset a conflict of liens, each of which is struggling for priority. The situation, however, is not singular. Similar circumstances have been dealt with by our courts in important cases. The first case that I have been able to find in this state which concerns conflicting liens of the character of these in this suit is Williamson v. New Jersey Southern Railway Company.

(1877) 28 N. J. Eq. 277. The proceeding in that case was for the foreclosure of a mortgage on the New Jersey Southern Railway, which mortgage contained a provision that it should cover future-acquired property. One of the controversies related to the priority between the mortgage and certain mechanic's lien claims. The mortgage was made and recorded long before the work and materials were done and provided; the property liable for the mechanics' liens was conveyed to the company before the mechanics' liens were actually filed, and so came within reach of the mortgage provision—a situation very similar to the one at bar. Chancellor Runyon held that a mortgage which was intended to cover after-acquired property only attached to such property in the condition in which it came to the mortgagor's hands; that if it was already subject to mortgages or other liens the general mortgage would not displace them, although they might be junior in point of time. The authority cited for this proposition is New Orleans, etc., Railroad v. Mellen, 12 Wall. 302, 20 L. Ed. 434. The chancellor, by his decree, gave priority to the mechanics' liens. The report of the case on appeal is found in 29 N. J. Eq. 311

(1878) . It was there stated, in the opinion of Mr. Justice Depue, to be a principle of law that, where after-acquired property comes into the hands of the mortgagor, subject to incumbrances or liable to liens, the mortgage attaches to the property in the condition in which it comes to the mortgagor's possession, subject to such liens and incumbrances as are then on it. The decree below was reversed; but not on this point.

Chancellor Runyon held the same rule in United New Jersey Railroad & Canal Companies v. Long Dock Company (1887) 42 N J. Eq. 547, 9 Atl. 586, and it was dealt with again by the Court of Errors and Appeals, in Campbell v. Roddy (1888) 44 N. J. Eq. 244, 14 Atl. 279, 6 Am. St. Rep. 889, and there applied to the case where an engine and boiler were made subject to a chattel mortgage, which was never registered. The chattels were annexed to the real estate upon which the mortgagor had previously given a mortgage. It was held that the lien of the chattel mortgage should be protected, so far as it would not diminish the security which the real estate mortgage would have had, if the annexation had not...