Wallace T. Bruce, Inc. v. Najarian

• Decision Date: 21 February 1957
• Docket Number: No. 36912,36912
• Citation: 81 N.W.2d 282,249 Minn. 99
• Parties: WALLACE T. BRUCE, Inc., Appellant, v. Harold Vernon NAJARIAN et al., Respondents.
• Court: Minnesota Supreme Court

Page 282

81 N.W.2d 282

249 Minn. 99

WALLACE T. BRUCE, Inc., Appellant, v.Harold Vernon NAJARIAN et al., Respondents.

No. 36912.

Supreme Court of Minnesota.

Feb. 21, 1957.

Syllabus by the Court.

1.For an order to be appealable under M.S.A. § 605.09(3), which allows an appeal from an order involving the merits, the order must finally determine the action or some positive legal right of appellant relating thereto.

2.A homestead is not exempt as to a creditor's claim for work done or materials furnished in the construction, repair, or improvement of the same.Neither by the provisos of Minn.Const. art. 1, § 12, nor by any statute is the creditor restricted to any particular form of remedy for the collection of his debt out of the homestead or other exempt property.

3.A statutory lien, such as a mechanic's lien, or other lien, paramount to an exemption claim, such as Minn.Const. art. 1, § 12, affords, may be acquired and perfected notwithstanding the pendency of bankruptcy proceedings.A statutory requirement that an inchoate lien shall cease unless proceedings in court be commenced within a limited period does not convert such a lien, perfected by available legal means or within the statutory manner, within four months of bankruptcy, into a lien acquired by judicial proceedings, in the manner and as defined in the Bankruptcy Act, § 67, sub. a 11 U.S.C.A. § 107, sub. a, and made subject to mullification therein.

4.The local law of the place where the exempt property is located governs as to whether the creditor is entitled to his lien, and if the plaintiff herein proves itself entitled to its lien under Minn.Const. art. 1, § 12, and it is established and perfected before the discharge in bankruptcy, even though the action to recover on the debt was instituted after bankruptcy, it becomes an enforcible lien against the exempt property of the defendants pursuant to the constitutional mandate unaffected by the bankruptcy proceedings.

5.Plaintiff, upon the record submitted, is entitled to a vacation of the stay of proceedings entered below so that it may proceed to trial on the merits, and, if entitled to recover on its claim, may reduce its claim to a lien against the homestead of defendants prior to a discharge of the debtor bankrupt.The plaintiff will be required to make application to the bankruptcy court to withhold the discharge of the bankrupt until its lien rights have been perfected.

Carl F. Dever, Minneapolis, for appellant.

Samuel Saliterman and James P. Larkin, Minneapolis, for respondents.

NELSON, Judge.

Plaintiff, a Minnesota corporation, commenced its action against defendantsNovember 21, 1955, to recover for labor, work, and material furnished during the month of November 1953 for the improvement of the homestead of defendants in constructing thereon a garage and a porch.It was alleged that these items were furnished at the defendants' special instance and request that defendantHarold Vernon Najarian, to show his good faith, on January 1, 1954, executed a promissory note in the amount of $852.43 payable at the rate of $30 per month with interest at 6 percent per annum; and that defendant paid $90 on the note and defaulted.Relief was sought for the balance with interest and for such other relief as the court deemed just and equitable.

Defendants alleged that the note was accepted by plaintiff as full payment and that plaintiff thereby waived its right to acquire a lien on the premises; that since plaintiff failed to file its statutory mechanic's lien, all lien rights of plaintiff, if any did exist, have expired.Defendants further alleged that defendant, Harold Najarian, was adjudicated a bankrupt in the United States District Court, 4th Division, State of Minnesota, and that plaintiff's claim was listed in schedule A--3 of said proceedings as an unsecured creditor and that plaintiff had notice.Defendants finally Prayed that all proceedings under plaintiff's action be stayed for a period of one year from the date of adjudication and upon discharge in bankruptcy that plaintiff's action be dismissed with prejudice.

Plaintiff's action was not commenced until November 21, 1955.Plaintiff served its notice of motion for summary judgment dated December 29, 1955, demanding relief under Minnesota Rules of Civil Procedure, Rule 56, upon the grounds that the joint answer of the defendants contained no genuine issue of fact pertaining to any defense that would defeat plaintiff's claim; defendants moved for summary judgment claiming no genuine issue existed as to any material fact and therefore defendants were entitled to summary judgment in their favor as a matter of law.

The court below, on January 16, 1956, entered its order denying plaintiff's motion for summary judgment, staying all proceedings for 12 months from the date of the adjudication.The order provided that after defendant has obtained his discharge in bankruptcy the action may then proceed to trial and further denied all relief prayed for by defendants in their countermotion.From this order only, plaintiff appeals.

Plaintiff asserts that it has a constitutional right to a lien against the homestead of defendants; that accepting a note from the defendants upon the terms it did, only as evidence of the good faith of the defendants in meeting the payment of the indebtedness, is not a bar to the enforcement of its claim under Minn.Const. art. 1, § 12, which in 1888 was amended, M.S.A. as follows:

'* * * Provided, however, that all property so exempted shall be liable to seizure and sale for any debts incurred to any person for work done or materials furnished in the construction, repair or improvement of the same, and Provided further, that such liability to seizure and sale shall also extend to all real property for any debt incurred to any laborer or servant for labor or service performed.'

Plaintiff claims that it is entitled to perfect its lien under Minn.Const. art. 1, § 12, prior to the discharge in bankruptcy of defendant; that under the various provisions of the Bankruptcy Act, § 67, 11 U.S.C.A. § 107, if the state law gives a lien or a priority, it will be recognized; and that nothing contained in the Bankruptcy Act prevents enforcement of plaintiff's right, under the constitutional amendment of 1888, of its lien for debts incurred, for services or materials so furnished in the repair or improvement of defendants' homestead; that the homestead improvements having been requested by defendants and furnished by the plaintiff in good faith within the exceptions of the Bankruptcy Act, § 67, the local law of the place where the property is situated governs as to whether or not there is an enforcible lien.

Plaintiff assigns error as follows: 'The Court erred in staying further proceedings in the matter until after respondentHarold Vernon Najarian had obtained his discharge in bankruptcy.'

The legal issues to be met are whether the state court, in which plaintiff commenced its action, may, without a hearing on the merits, issue an order that will deprive it as a creditor of the right to perfect its lien against the exempt property of the defendants prior to the discharge in bankruptcy, providing the debt incurred was for work done or materials furnished in the repair or improvement of defendants' homestead and subject to the provisos of Minn.Const. art. 1, § 12, the action brought being one to recover an in personam judgment which the plaintiff may have docketed and imposed as a lien upon the bankrupt's homestead.

Defendants contend that no authority exists by statute or otherwise in Minnesota for establishing that the order of the court below, entered herein for a stay of proceedings, is one from which an appeal may be taken to this court citing 27 M.S.A. Supreme CourtRule VIII, subd. 3(b), 222 Minn. xxxiii, which provides that the statement in appellant's brief concerning the order sought to be reviewed 'must make it appear, in cases of appeal, that the order sought to be reviewed is appealable.'They further contend that, since it is the duty of the plaintiff to establish its right to appeal, its appeal should be dismissed unless this duty is met.

In face of the stay of proceedings effective until after defendant obtains his discharge in bankruptcy, the remedy of the creditor who has not yet perfected the necessary lien under Minn.Const. art. 1, § 12, to support its lien claim is in fact completely destroyed by the discharge in bankruptcy when and if obtained.See, H. E. Westerman Lbr. Co. v. Raschke, 172 Minn. 198, 215 N.W. 197.

1. M.S.A. § 605.09 provides that an appeal may be taken to the supreme court by the aggrieved party in the following cases:

'(3) From an order involving the merits of the action or some part thereof;

'(5) From an order which, in effect, determines the action, and prevents a judgment from which an appeal might be taken;

'(7) From a final order, affecting a substantial right, made in a special proceeding, or upon a summary application in an action after judgment.'

The question is whether the plaintiff as a creditor being protected on his debt by Minn.Const. art. 1, § 12, as to certain lien rights has been prejudiced by the order entered by the court below.For an order to be appealable under § 605.09(3), which allows an appeal from an order involving the merits, the order must finally determine the action or some positive legal right of the appellants relating thereto.It can hardly be denied that the order appealed from involves the merits of some part of the plaintiff's action if not the merits of the action itself.Unless plaintiff obtains relief from the order staying the proceedings in the instant case and is permitted to perfect his lien prior to the discharge in bankruptcy, under the rules announced in H. E. Westerman Lbr. Co. v. Raschke, supra, his claim would be completely destroyed.Thus whether there exists a right to appeal either under subsection (5) or subsection...