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February 7, 1952

Application of ROSS DEVELOPMENT CO., Inc.

The opinion of the court was delivered by: BYERS

These cross motions are addressed to the Referee's report of January 2, 1952, granting the petition of David Megur to follow into the funds of the debtor's estate in the trustee's hands and to impress a lien thereon, the sum of $ 6,100, representing $ 6,000 being a down payment on a contract of the debtor to convey certain real estate to be improved by the erection thereon of a one-family dwelling; plus $ 100 being 'the reasonable expense for the examination of title to the said premises' under an appropriate provision of the contract. That item is not deemed to have been established by proof that the title was examined for the vendee.

The balance of the clause upon which petitioner relies is: 'All sums paid on account of this contract and (as above quoted) are hereby made liens thereon (i.e., said premises), but such liens shall not continue after default by the purchaser under this contract.' There was no such default.

 The opposition of the trustee to the report and of the Committee of General Creditors, does not warrant the criticism voiced at argument; it is the duty of the trustee to advance every legal consideration that will test the soundness of the Referee's conclusions, in behalf of correct administration; and of course the General Creditors are necessarily alert to secure for themselves the greatest possible participation in the avails of the debtor's property.

 The business of the debtor was to sell real estate, cf. D.C., 98 F.Supp. 872, and any plan must endeavor to effectuate that purpose, which means that sales made during administration assume the aspect of carrying on the debtor's business rather than liquidation as such.

 The petitioner's Exhibit 1 is his contract of October 6, 1949. It could not be commended to law students for coherence, nor as an example of craftsmanship in the field of conveyancing; it is awkwardly and stumblingly sufficient, however, to expose with obvious difference, the purpose heretofore stated.

 That purpose in turn will support the petitioner's asserted lien upon $ 6,000 now in the trustee's hands, unless the opposing arguments overcome the presumptive showing of validity.

 Those contentions will be found to be:

 1. Since the $ 6,000 was on account of the $ 34,000 named in the contract as constituting 'the price for all the work included in this contract', it cannot be said to have been a down payment on the real estate itself as distinguished from so much of the entire sum as was intended to cover the cost of erecting the building; this being so, the lien, if any, would attach to after-acquired property, being the uncompleted residence which was on the property when sold at public sale by the trustee, and hence would be subordinate to the claims of general creditors; that to the extent that the lien is asserted against the said structure it 'presents the aspect of a building loan and not having been filed * * * (Lien Law (Mck. Consol. Laws, c. 33), Sec 13, Sub. 2) it is subordinate to valid mechanic's liens against the premises'.

 It is true that the contract does not allocate part of the price to the land, and the balance to the contemplated building. This calculated duplicity was commented upon in the earlier opinion above cited, and its most flagrant manifestations have since led to successful criminal prosecutions in the County Court of Nassau County for grand larceny, against the two Rosses, and this debtor.

 There is no apparent reason to construe the contract so as to avoid its common-sense purpose. It was made in October of 1949, and title was to pass in April of 1950; during the interval the property was to be improved by the erection of a dwelling so that on the closing date the vendor would convey and the vendee would receive title to land and building exactly as though the latter had been in existence when the contract was signed.

 Had the contract called for the clearing away of an existing structure, or ruins, so that a vacant parcel would ultimately be acquired by the vendee, a down payment would encounter no obstacle under the lien clause; it is the present belief that in principle the cases would be the same and that this petitioner's asserted lien is not to be avoided because the building was to be erected between the date of the contract and law day. Of course if no building had ever been started, the lien could have been asserted as to the full down payment; the partial erection of a residence did not change the basic relations of the vendor and vendee.

 Moreover, when this public sale was had (in connection with several parcels containing houses in various stages of completion), the presence on this lot of a partially built house (i.e., one that was 'all framed out; the studding was in; the roof was up, and it had tar paper covering') added an element of potential value to the property as a whole, and it fetched $ 9,300 (subject to the lien of a first mortgage), out of which releases from two other mortgage liens were to be deducted.

 That public sale was intended to promote the ultimate interests of all creditors and is deemed to have done so, and the down payment made by this petitioner must have found its way in part into that partially completed structure which Green acquired.

 The nature and status of a vendee's lien in New York is expounded in Elterman v. Hyman, 192 N.Y. 113, 84 N.E. 937; see also Interboro Operating Corp. v. Con. Sec. & ...

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