Pulawski Sav. & Loan Ass'n v. Aguiar

• Court: Superior Court of New Jersey
• Writing for the Court: DREIER
• Citation: 415 A.2d 365,174 N.J.Super. 42
• Parties: PULAWSKI SAVINGS & LOAN ASSOCIATION, a corporation of the State New Jersey, Plaintiff, v. Joseph AGUIAR et al., Defendants.
• Decision Date: 22 February 1980

Page 42

174 N.J.Super. 42 415 A.2d 365 PULAWSKI SAVINGS & LOAN ASSOCIATION, a corporation of the
State New Jersey, Plaintiff,
v.
Joseph AGUIAR et al., Defendants. Superior Court of New Jersey, Chancery Division,
Hunterdon County. Feb. 22, 1980.

[415 A.2d 366]

Page 44

Jack L. Wolff, Morristown, for defendant-petitioner R. A. Bartola Advertising, Inc. (Scerbo, Kobin & Wolff, Morristown, attorneys.

Martin L. Duyk, Edison, for defendant-petitioner St. Laurie, Ltd.

David A. Rosenberg, New Brunswick, for defendant-petitioners Johnnie Carson Apparel, Inc., Aetna Factors Corp., Ltd., Factors Corp. Ltd., and Thane Mills, Ltd. (Rosenberg & Saloman, New Brunswick, attorneys).

Benjamin Weiss, Maplewood, for petitioner Coventry Agency, Inc. (Successor to defendant Patricia Aguiar) (Zucker, Goldberg & Weiss, Maplewood, attorneys).

Gerard F. Long, Somerville, for defendant Joseph P. Aguiar (Johnson & Long, Somerville, attorneys).

Israel Gazek, Scotch Plains, for defendant-petitioner Yanni Sfinias.

DREIER, J. S. C.

The motion before the court seeks distribution of surplus monies remaining after payment to plaintiff, the foreclosing mortgagee. Distribution of these funds requires an adjudication of priorities among various judgment creditors, a purchaser and mortgagee. Although this is not a case of first impression, the circuity problem presented herein has not been directly considered in a reported opinion in the last 75 years.

Defendants Joseph Aguiar and Patricia Aguiar (allegedly married) took title to the premises in question on September 23, 1975 as tenants by the entirety. Prior to plaintiff's sheriff's sale defendant Patricia Aguiar conveyed her interest to defendant

Page 45

Coventry Agency, Inc., converting the tenancy to a tenancy in common, irrespective of its former status. ¹

The surplus monies total $55,191.66, or $27,595.83, for each of the cotenants. The attached chart shows such of the various claims by the mortgagee and judgment creditors as are relevant to this motion.

In another action defendant Bartola obtained a county district court default judgment against defendant Joseph Aguiar and had levied on this judgment. Thereafter, this default was vacated and an interlocutory appeal to the Appellate Division was [415 A.2d 367] denied. Here, defendant Bartola has by certification asserted that after the county district court trial, whatever the results may be, it intends to appeal the vacation of the default. It therefore requests this court to withhold distribution of an amount sufficient to satisfy the original default judgment so that it can be paid if Bartola is successful on its appeal and the earlier levy is reinstated. This court has decided to withhold distribution of $3,045.68 as requested. It would be inequitable fully to distribute the surplus monies at this time and eliminate any remedy for Bartola if it is successful on appeal. See Reilly v. Perehinys, 33 N.J.Super. 69, 76, 109 A.2d 449 (App. Div. 1954), and Wethling v. Weinstein, 2 N.J.Misc. 750 (Sup.Ct. 1924). The issue remains as to which parties should suffer the potential loss of the $3,045.68 distribution at this time. In other words, over whom will Bartola have priority if it is successful in its appeal?

The legal problem arises out of the application of N.J.S.A. 2A:17-39 (the arcane language of which should make the statute a prime candidate for redrafting):

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Whereas, other judgments, and recognizances, besides those, or some of those, by virtue whereof the sale aforesaid was made, might affect the real estate so sold, if no provision be made to remedy the same, and whereas, the persons who have not taken, or will not take out executions upon their judgments, or recognizances, ought not to hinder or prevent such as do take out executions from having the proper effect and fruits thereof, therefore, in any such case, the purchaser, his heirs and assigns, shall hold the lands, tenements, hereditaments, and real estate by him or her purchased as aforesaid, free and clear of all other judgments and recognizances, whatsoever, on or by virtue of which no execution has been taken out and executed on the real estate so purchased.

As judicially construed, this statute grants to a levying judgment creditor a super-priority over senior nonlevying judgment creditors, but not over senior mortgagees. Application of the statute here creates a classic circular priority problem: the mortgagee has priority over the levying junior judgment creditor who has priority over the nonlevying senior judgment creditors who, in turn, have priority over the mortgagee.

In the mid-19th Century the former Court of Chancery resolved this issue by a priority rule which interpreted the statute as: first, applying to all judgment creditors, not only purchasers at execution sales; and, second, giving any mortgagee who had priority over such levying judgment creditor a similar priority over all nonlevying judgment creditors. Clement v. Kaighn, 15 N.J.Eq. 47 (Ch. 1862). This second aspect of the case was followed in a few additional trial court opinions around the turn of the century (see, e. g., Andrus v. Burke, 61 N.J.Eq. 297, 48 A. 228 (Ch. 1901), and Meeker v. Warren, 66 N.J.Eq. 146, 57 A. 421 (Ch. 1904)), after seeming approval by the Court of Errors and Appeals in Hoag v. Sayre, 33 N.J.Eq. 552 (E. & A. 1881).

In Hoag (treating a different circular priority problem) the court acknowledged the existence of the Clement rule but applied a different rule which was noted as "development of the principle maintained...