Wartux Associates v. Kings College
| Decision Date | 28 June 1994 |
| Citation | 616 N.Y.S.2d 417,161 Misc.2d 733 |
| Parties | WARTUX ASSOCIATES, Plaintiff, v. The KINGS COLLEGE, Bankers Trust Company, Tara Circle, Inc. and the Servicemaster Company Limited Partnership, Defendants. |
| Court | New York Supreme Court |
Benjamin Zelermyer, Serchak & Zelermyer, White Plains, for plaintiff.
Jonathan S. Sanoff, Whitman, Breed, Abbott & Morgan, New York City, for Kings College.
Joel D. Sharrow, Moses & Singert, New York City, for defendant Bankers Trust.
Carl Stahl, Cerrato, Sweeney, Cohn, Stahl & Vaccaro, White Plains for defendant Tara Circle.
Philip Goldstein, Ross & Hardies, New York City, for defendant Servicemaster.
In July 1991 the plaintiff and defendant The Kings College (hereafter the "College") negotiated an agreement whereby the College was to purchase and plaintiff to sell real property located in the Town of Warwick, Orange County for approximately $12,000,000. The property was encumbered by two mortgages: a first lien in favor of Bankers Trust Company in the sum of $11,000,000 and a second lien in favor of Barclay's Bank in the sum of $3,000,000. The second mortgage was assigned to Bankers Trust. On October 19, 1991, plaintiff, the College and Bankers Trust executed a Mortgage Consolidation, Assumption, Extension, Spreader and Modification Agreement (the "Modification Agreement"). That agreement consolidated and reduced the principal balance on both mortgages to the sum of $11,454,788.76, which the College agreed to pay to Bankers Trust and also agreed to pay $1,003,153.21 in real estate taxes due on the Orange County property. As additional security Bankers Trust was given a lien against real property the College owned in Westchester County. The College has a contract to sell a portion of the Westchester property for $1,500,000 and a contract with Tara Circle Inc., to sell the balance for $14,000,000. However, the College is in default and has failed to make the payments called for in the Modification Agreement.
On December 19, 1993 plaintiff conveyed the Orange County property to the College by bargain and sale deed. In a second amended complaint plaintiff asserts four causes of action: (1) to foreclose a vendor's lien on the Orange County property; (2) to foreclose an equitable lien on the Westchester County property; (3) damages for breach of the Modification Agreement; and (4) damages for breach of a subsequent agreement, the Settlement Agreement. The latter agreement was made by plaintiff, the College and Bankers Trust in May 1993 after the College failed to make the payments required under the Modification Agreement. The Settlement Agreement made a revised schedule of payment by the College and required plaintiff to pay the bank $2,550,000, which was done. An additional agreement between plaintiff and the bank called for plaintiff to make an additional payment of $250,000 in consideration of six months' forbearance in payment of the revised debt. Prior thereto the bank obtained separate judgments against plaintiff's partners and plaintiff's predecessor in interest in the amount of $14,007,593.05.
Plaintiff has filed lis pendens on the Orange and Westchester County properties. The College moves to dismiss each cause of action in the complaint and to cancel the notices of pendency. Defendant Servicemaster, which holds a mortgage on the Westchester property, joins in the motion to dismiss the complaint insofar as the second cause of action is concerned. Similarly, defendant Tara Circle, the contract vendee of the Westchester property, joins in the motion to dismiss the second cause of action.
Defendant Bankers Trust Company cross-moves to dismiss the complaint on grounds unique as to it including the pendency of a prior action in the Supreme Court, New York County where the lien of plaintiff will be fixed; possible prejudice to it if it is forced to foreclose the consolidated mortgage in this action by reason of RPAPL §§ 1301 and 1354; the potential for an in rem proceeding in Orange County for failure to pay real property taxes and the pendency of another action in this Court by other parties to foreclose senior liens on the Westchester property. Cross-movant argues that it would be futile and waste judicial time to ascertain the debt owed to it in this action and, in any event, actual foreclosure subject to superior liens or possible in rem proceedings will not produce significant bids. As will be seen, it is not necessary to address these specific concerns as resolution of the controversy really turns on the recognition or not of a vendor's lien herein.
However, Bankers Trust makes two cogent arguments in support of the College's motion in that respect. First, all that the College agreed to do regarding the Orange County property was to assume the mortgage debt owed to Bankers Trust and Barclay's Bank (as well as pay real estate taxes). It has performed that promise, urges Bankers Trust, by its agreement to do these things, in default of which recourse may be had by plaintiff from the College for indemnification, but there is nothing left unpaid for a vendor's lien to attach to. Second, Bankers Trust vigorously contends that the extension of its lien to the Westchester property was to benefit only it (and induce it to enter into the agreements initially), and if the Court finds that plaintiff does have an equitable lien on the Westchester property, then plaintiff has waived its implied vendor's lien by extracting additional security for the debt owed it.
While these motions were pending the lis pendens was lifted as to a portion of the Westchester property so that the President's house could be sold. The proceeds were used towards payment of senior mortgage debt on the Westchester property.
New York recognizes the concept of a vendor's lien on real property. 91 N.Y.Jur.2d, Real Property Sales & Exchanges, § 157; 1 Rasch, New York Law & Practice of Real Property (2d ed.), § 23:28; 6 Warren's Weed, New York Real Property, Vendee and Vendor, § 6:05; see 92 CJS, Vendor & Purchaser, §§ 377-78, 380(a); 77 Am.Jur.2d, Vendor & Purchaser, § 431. It is the counterpart of the vendee's lien and is governed by like principles. Flickinger v. Glass, 222 N.Y. 404, 409, 118 N.E. 792 (1918). It is often treated like an equitable mortgage. Chase v. Peck, 21 N.Y. 581 (1860); 3 Powell on Real Property, p 450[2]; Osborne, Mortgages (2d ed. 1970), § 48.
A vendor's lien is a valid predicate for filing a lis pendens under CPLR 6501. Sobieski v. No. Div. Holding Corp., 39 Misc.2d 403, 240 N.Y.S.2d 843 (Supreme Ct. Albany 1963); see RPAPL 1501(4); Garden City Country Club v. Aldworth, 19 Misc.2d 352, 187 N.Y.S.2d 726 (Supreme Ct. Nassau 1959); 16 Carmody-Wait 2d, Compelling Determination of Claims, § 101:14.
Apart from express reservation of a vendor's lien (McKillip v. McKillip, 8 Barb. 552 [Supreme Ct.1850]; Anno. 64 ALR 1250 [1930], Deed In Consideration of Support), or where the vendor actually retains title and lets the vendee in possession (Bean v. Walker, 95 A.D.2d 70, 464 N.Y.S.2d 895 [4th Dep't 1983]; see Charles v. Scheibel, 128 Misc. 275, 218 N.Y.S. 545 [Supreme Ct. Onondaga 1926], aff'd on opn. below 221 App.Div. 816, 222 N.Y.S. 784 [4th Dep't 1927]; General Obligations Law § 5-1311 [], the law implies a vendor's (or grantor's) lien where no security was given for the purchase price. Franklin Sav. Bank v. Ascension Memorial Church, 55 N.Y.S.2d 808, 814 (Supreme Ct. New York 1945), 13 Uniform Laws Annotated, Uniform Land Transactions Act, § 2-508(a); Anno. 91 ALR 148 (1934), Different Classes of Vendor's Liens. This "equitable vendor's lien" (Zeiser v. Cohn, 207 N.Y. 407, 413, 101 N.E. 184 [1913] or "so-called grantor's lien" (Birnbaum v. Rollerama, Inc., 232 N.Y.S.2d 188, 191 [Supreme Ct. Onondaga 1962], is a fiction incorporated from civil law in England. 27 RCL, Vendor & Purchaser, § 310. "The real basis for the existence of the lien, therefore, seems to be the broad equitable principle that a person having gotten the estate of another outright ought not, in good conscience as between themselves, to be allowed to keep it and not pay the consideration money." Id., § 313, p. 572. While distinctions may exist between a vendor's lien and a grantor's implied lien (4 Pomeroy's Equity Jurisprudence [5th ed.], § 1249) for purposes of this motion the vendor's lien will be deemed to include the implied grantor's lien. 1 Rasch, supra, § 23:46.
The Court of Appeals has defined the lien in question: "That where a vendor delivers possession of an estate in land to a vendee without receiving the purchase price, equity gives the vendor a lien upon the land therefor, although there was no special agreement for that purpose ..." Hubbell v. Henrickson, 175 N.Y. 175, 178, 67 N.E. 302 [1903]. "[T]he fundamental principle underlying the lien is that it would be unconscionable for the vendee to hold the land and not pay for it." Zeiser v. Cohn, supra, 207 N.Y. 407, 420, 101 N.E. 184. The implied lien is valid against all persons with notice, actual or constructive. Seymour v. McKinstry, 106 N.Y. 230, 12 N.E. 348 (1887), reh. den. 106 N.Y. 241, 14 N.E. 94.
However, if the vendor takes back security upon the real property sold or upon other property or "any security independent of the personal liability of the vendee to respond for the consideration--money", the implied lien is waived. Payne v. Wilson, 74 N.Y. 348, 353 (1878). That is, no lien is recognized "when it is obvious that the parties contemplated a different security for the purchase money." 1 Rasch, supra, § 23:33, p. 760; 77 Am.Jur.2d, Vendor & Purchaser, §§ 438, 440. Nonetheless, the lien is not affected where the vendor takes back evidence of the indebtedness, such as a note, even where co-signed by another. Herrman v. Jeffe, 223 N.Y. 523, 119 N.E. 1048 (1918), rearg. den. 223 N.Y. 636, 119 N.E. 1048. The issue whether the vendor has waived the lien...
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