Case Name: Daniel Mahoney, Respondent, v. James McWalters and Others, Appellants; P. E. Mathews, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1896
Citations: 3 A.D. 248
Docket Number: 
Parties: Daniel Mahoney, Respondent, v. James McWalters and Others, Appellants; P. E. Mathews, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 3
Pages: 248–252

Head Matter:
Daniel Mahoney, Respondent, v. James McWalters and Others, Appellants; P. E. Mathews, Respondent.
MecTwnic's lien— a mortgage, fraudulent as to creditor's, giren for the use of the contractor — assignment of the mortgage to a bona fide creditor—priority among lienors.
In an action brought to foreclose a mechanic’s lien and to set aside a mortgage, it appeared that the defendant James McWalters erected a house ón tiré lands of the defendant Reddington, who paid a part of the contract price, and oh the 26th day of September, 1894, executed a mortgage for the balance, viz., §4,000, to the defendant Mary McWalters, who was the wife of the defendant James McWalters.
On October 2, 1894, the defendant Orr & Co. filed a mechanic’s lien against the property for §849.72 (James McWalters at the time owing them on another account §324.45), and on October 10, 1894, Mary McWalters assigned the Reddington mortgage to Orr & Co. as security to them for both these sums.
On October 9, 1894, the defendant P. E. Matthews filed a lien, and on October 17, 1894, the plaintiff filed a lien, and on October 22, 1894, James McWalters made a general assignment to the defendant John Alexander; on the.same day Mary McWalters assigned to the defendants Fitzpatrick and McCauley, who were creditors of James McWalters, the Reddington mortgage, subject to the lien of Orr & Co.
Thereafter the plaintiff brought this action to foreclose his lien and to have the Reddington mortgage declared fraudulent and void.
Held, that as the plaintiff had acquired a specific lien on. the particular property, he could maintain the action;
That while the mortgage given by Reddington was fraudulent as to the creditors of McWalters, it was entirely valid as between the parties to it, and as Orr & ■ Co. were not parties to the fraud, and the mortgage by its assignment to them was appropriated to the class of persons in whose interests alone it could be avoided, that the assignment of it to Orr & Co. was valid;
That the assignment to Orr & Co. was not rendered invalid, as to the' creditors ' whose liens were subsequently filed, by the fact that the assignment was made, .not only to secure the Claims for material furnished on this property, but also for other indebtedness, inasmuch as a creditor who has the right to file a mechanic’s lien on property has not, until his lien is filed, any superior equity over general creditors;
.That, as to creditor's whose liens had been filed, the,subsequent assignment of the mortgage by Mary McWalters to the defendants Fitzpatrick 'and McCauley was void, as Mary McWalters, a fraudulent mortgagee, could not give the mortgage vitality by its assignment even to bona fide creditors of James McWalters after the rights of the prior lienors had become Vested.
Appeal by the defendants, James McWalters and others, from a judgment of the Supreme Court in favor of the plaintiff and the ^defendant P. E. Mathews, entered in the office of the clerk of the county of Queens on the 8th day of June, 1895, upon the decision of the court rendered after a trial at the Queens County Special Term, and by the defendants, John 0. Orr and others, from said judgment, except so much thereof as gives them judgment foi$849.72 and interest, and establishes their lien for that sum.
This action was brought to foreclose a mechanic’s lien and to have a mortgage upon the premises covered by the lien declared to be fraudulent as to creditors and void.
Charles L. Pashley, for appellants Reddington and McW alters.
Cannon & Atwater and Alfred B. Cruilcshanlc, for appellants John C. Orr & Co.
Michael J. Scanlon,, for appellants.Fitzpatrick and McCauley.
Pobert J. Mahon, for the plaintiff, respondent.
A. M. c& G. Card, for respondent P. E. Mathews.

Opinion:
Cullen, J.:
The defendant Reddington made a contract with the defendant McWalters by- which the latter was to erect a house on the land -of the former for the sum of $6,000. During the progress of the work Reddington paid McWalters $2,000. McWalters performed his contract. Reddington, finding himself unable to pay the remainder of the contract price, by an arrangement with McWalters on September 26, 1894, executed to McWalters' wife, the defendant Mary McWalters, a mortgage foz* $4,000, the balance due. On October 2, 1894, the defendants Orr & Co. filed a mechanic's lien against Reddington as owner, and McCauley as contractor, for $849.72. At this time McWalters owed Orr & Co. on another account, not connected with the premises in suit, $324.45.-On October tenth the defendant Mai'y, wife of McWalters, assigned the Reddington mortgage to Orr & Co. as security for the whole debt of her husband to them, $1,174.20. On October ninth tiré defendant Mathews filed a mechanic's lien against Reddington and McWalters for $252.49. On October seventeenth plaintiff fíléd his lien against the same parties for $521. On October twenty-second McWalters made a general assignment for the benefit oí creditors to the defendant John Alexander, and on the same day Ifary McWalters assigned to the defendants Fitzpatrick and McCauley the Reddington mortgage, subject to the lien of Orr & Co. Fitzpatrick and McCauley were creditors of McWalters for moneys paid by them to discharge a mechanic's lien on other property j and this assignment was made to secure such indebtedness. Thereafter the plaintiff instituted this action to foreclose his lien, and in it sought to have the Reddington mortgage declared fraudulent and void. The trial court adjudged this mortgage and tile assignments of it to Orr & Co., and to McCauley and Fitzpatrick void, and decreed a sale of the property,' and that out of the proceeds Orr & Co., Mathews and the . plaintiff be paid the several amounts of their liens according to their respective priorities, and that the surplus should be paid over to the general ' assignee. From that decree Orí- & Co., Reddington and McWalters, and Fitzpatrick and McCauley appealed. .
We entertain no doubt that the plaintiff can maintain this action to set aside the mortgage to Mary McWalters. His standing is not that merely of a general. creditor, who must first obtain á lien on the property of the debtor by the recovery of a judgment and issue of execution. The lien of the plaintiff is perfect on complying with the requirement of the statute, and it is a. specific lien on the particular property, similar in all respects .to- a mortgage. This conclusion brings us to an examination of the merits of the judgment appealed from.
The trial court justly held that the mortgage Was fraudulent and void as to the creditors of McWalters, both general creditors and those who might be entitled to file mechanics' liens. McWalters was insolvent, and Reddington knew that McWalters had not paid his creditors. It is not pretended that any consideration proceeded from Mrs. McWalters. The mortgage was, therefore, fraudulent as to creditors, but was entirely valid as between the parties, for Reddington owed the $4,000 and the mortgage was given for that indebtedness. Orr & Co; were' nowise parties to this fraud. When, therefore, the mortgage was appropriated to the very persons or class of persons in whose interests -alone it could be avoided, the title acquired by such persons was not subject to .be defeated. I think in this respect the case is the same in princi ple as that of Murphy v. Briggs (89 N. Y. 451). At the time of the assignment to Orr & Co., neither the plaintiff nor the defendant Mathews had filed any notice of lien and, therefore, the rights of no creditors had intervened. It is true that the assignment to Orr & Co. was to secure not only their claim for material furnished on this property, but for other indebtedness. Brit it has been distinctly held that a creditor, who may have the right to file a mechanic's, lien on property, has not, until his lien is filed, any superior equity over general creditors, or any right to have the property or the amount due from the owner of the property to the contractor-applied to the satisfaction of his claim in preference to those of other creditors. (McCorkle v. Herrman, 117 N. Y. 291 ; Stevens v. Ogden, 130 id. 182.)
"We, therefore, conclude that the assignment to Orr & Co. was. valid and that those defendants are'entitled to be first paid out of the proceeds of the whole amount of their claim. Before the assignment to the defendants Fitzpatrick and McCauley, the liens of the. defendants Mathews and the plaintiff had been filed. The mortgage, except so far as pledged to Orr & Co., being void as to these lienors, the fraudulent mortgagee could not give it vitality and effect: by assignment even to bona fide creditors after the rights of the. lienors had become vested. (Schafer v. Reilly, 50 N. Y. 61.)
These liens must, therefore, be paid out of the proceeds of the: sale next after payment to Orr & Co.
We do not see that we should now determine the respective: rights of the general assignee and those of the defendants Fitzpatrick and McCauley.. The question between those parties is not the-same as between them and the lienors. 'The answers of the defendants do not raise, as between themselves, the issues, the determination of which is necessary to decide their rights. Any surplus that may arise on the sale, after paying the claims of the plaintiff, of Mathews and of Orr & Co., should be depositéd to the credit of the action, and the rights of the other parties should be determined in proceedings to obtain the surplus. Of course, the property is not-liable for any greater sum than $4,000 and interest, the amount due-on the contract. If there should be a surplus in excess of that sum,, it should go to Reddington, the owner of the fee, or any party-claiming under him.
The judgment appealed from should be modified in accordance with this opinion and, as modified, affirmed, with costs to defendants Orr & Co. payable out of the property.
All concurred.
Judgment modified in accordance with opinion, with costs of appeal to defendants Orr & Go. payable out of the property.