Monroe Sav. Bank v. First Nat. Bank of Waterloo
| Decision Date | 09 January 1976 |
| Citation | 50 A.D.2d 314,377 N.Y.S.2d 827 |
| Parties | MONROE SAVINGS BANK, Plaintiff, v. FIRST NATIONAL BANK OF WATERLOO, Appellant, Tri-Bro Supply Co., Inc., et al., Respondents. |
| Court | New York Supreme Court — Appellate Division |
Bonney & Nicit, Waterloo (Sam C. Bonney, Waterloo, of counsel), for appellant.
Sheldon G. Kall, Syracuse, for respondent Tri-Bro Supply Co., Inc.
Joseph G. Caito, Geneva, for respondent Gersh Electrical Supplies, Inc.
Robert E. Horton, Seneca Falls, for respondent Camp.
Before MARSH, P.J., and MOULE, CARDAMONE, SIMONS and WITMER, JJ.
This is an appeal from an order of the Supreme Court, Seneca County confirming the report of a referee in a surplus money proceeding following a mortgage foreclosure and sale. On appeal appellant, The First National Bank of Waterloo (Bank), contends that the confirmation order incorrectly granted priority to five mechanics liens filed after the Bank's second mortgage and further erroneously granted priority to the entire amount of the lien claim by Tri-Bro Supply Company (Tri-Bro).
Early in 1971 Stark Center Corporation (Corporation) attempted to secure financing for construction of four apartment buildings on land which it owned in the Town of Waterloo, Seneca County. Commencing about July 2, 1971 the Bank advanced loans to the corporation for interim financing for said construction. These loans were evidenced by time notes and secured by the guarantees of the officers of the corporation and by an assignment of accounts receivable executed by the Corporation to the Bank. The June, 1971 security agreement did not contain a trust fund covenant. The last advance by the Bank to the Corporation was made on January 13, 1972. Eventually the Bank loan to the Corporation totalled several hundred thousand dollars.
On September 17, 1971 the Corporation and the Monroe Savings Bank entered into a building loan contract and mortgage in the amount of $448,000. The building loan contract was filed and the mortgage recorded on September 17, 1971. The mortgage contained a trust fund covenant in compliance with section 13 of the Lien Law.
Appellant Bank notified the Monroe Savings Bank that it held a security interest in any proceeds payable to the Corporation pursuant to the security agreement given by the Corporation to the appellant Bank and requested that any remittance be forwarded to appellant. Thereafter, over $200,000 of the mortgage monies advanced to the Corporation by the Monroe Savings Bank were applied against the Corporation's indebtedness and forwarded to the Bank.
Early in 1972 the Corporation encountered financial difficulties and the first of several mechanics liens was filed. 1 On April 1, 1972 the Corporation executed and delivered to the Bank a second mortgage on the same property as that mortgaged to the Monroe Savings Bank securing the sum of $180,000 still owed by the Corporation to the Bank. The mortgage contained a trust fund covenant in compliance with section 13 of the Lien Law.
In January, 1972 the Corporation was in default on the first mortgage held by the Monroe Savings Bank. Monroe Savings Bank foreclosed on the mortgage, the property was sold, and on November 13, 1973 a referee was appointed to hear and report in a surplus money proceeding. The referee found that since no advance had been made by the Bank after its mortgage was recorded, the Bank was not entitled to a priority over the five mechanics liens filed subsequent to the recording of the mortgage. The referee further found that the appliances provided by Tri-Bro did in fact constitute 'material for the improvement of real property' as defined in the Lien Law and therefore Tri-Bro was entitled to priority over the Bank's mortgage. By order entered January 2, 1975 the Supreme Court confirmed the referee's report in its entirety.
Appellant Bank appeals from the order confirming the referee's report insofar as it granted priority to the mechanics liens filed after recording of the Bank's mortgage and allowed the full claim of Tri-Bro for materials which appellant contends are not lienable. Respondent Tri-Bro's motion to dismiss the appeal insofar as it deals with the lienability of the appliances because the Bank made no mention of the issue in its papers opposing confirmation of the referee's report was denied with leave to renew upon argument of this appeal.
The main question presented on appeal is whether the Bank, which is in technical compliance with section 13 of the Lien Law, should be granted a priority over subsequently filed mechanics liens when the mortgage secured only antecedent debt. Section 13 of the Lien Law provides in part:
'(2) When a building loan mortgage is delivered and recorded a lian shall have priority over advances made on the building loan mortgage after the filing of the notice of lien; but such building loan mortgage, whenever recorded, to the extent of advances made before the filing of such notice of lien, shall have priority over the lien, provided it or the building loan contract contains the covenant required by subdivision three hereof, and provided the building loan contract is filed as required by section twenty-two of this chapter. Every mortgage recorded subsequent to the commencement of the improvement and before the expiration of four months after the completion thereof shall, to the extent of advances made before the filing of a notice of lien, have priority over liens thereafter filed if it...
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