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ENGEL v. TINKER NATL. BANK

May 25, 1967

Edward V. Engel and John M. Cavalier, Plaintiffs,
v.
The Tinker National Bank, Dorothy Carroll Zimmerman, United States of America, Industrial Commissioner of the State of New York, New York State Tax Commission, John T. Mather Memorial Hospital, Louis Traub, d/b/a Cinder Supply Service, Royal Indemnity Co., Brown Brothers Contractors Inc., Cooper Tire & Rubber Co., Makousky Bros., Walter C. Eichacker, Long Island White Trucks, Inc., Defendants


Weinstein, District Judge.


The opinion of the court was delivered by: WEINSTEIN

WEINSTEIN, District Judge

This case, involving liens and priorities on real property, was removed to this court from the New York Supreme Court, Suffolk County, on the petition of the United States. See 28 U.S.C. Sec. 2410 (United States may be made party in State court action to quiet title) and Sec. 1444 (removal to Federal court of action brought against the United States pursuant to Sec. 2410).

 I. Facts

 The basic document is an unrecorded conditional sales contract for two small houses in Selden, New York. It was executed on December 1, 1957 by plaintiffs (hereafter sometimes referred to as the contract vendees) and defendant Zimmerman (hereafter referred to as the contract vendor).

 Contract vendees agreed to make a $1,000 down payment and to pay the balance in equal monthly installments of $63.30 for a period of eight years commencing January 1, 1958, with the right to accelerated payments. They were required to pay taxes and assessments and to maintain specified insurance coverage. As is customary in this kind of conditional sale - a mode of acquiring real property now happily falling into disuse - a deed was not to be delivered until the final payment had been made.

 Acting pursuant to the agreement exactly as would any purchasers of a new home, contract vendees, upon making their down payment, obtained the keys and entered into immediate possession. Each occupied one of the houses.

 Their possession and occupation has been open and well known in the community continuously from December 1, 1957 to the present. Plaintiff Engel, working in conjunction with local contractors and the local bank, made substantial improvements; he added rooms, and installed fencing, heating, plumbing, electrical wiring and tiles. Plaintiff Cavalier installed a new roof. Each had a mail box with his name on it. They spent their weekends and vacations with their families improving and enjoying the premises. Beginning in July 1960 plaintiff Engel and his family made their house a permanent residence and the children attended local schools.

 During the years when the contract vendees were regularly making payments and improving their homes, the contract vendor was increasingly beset by creditors, one of them being the United States. On December 1, 1958, the contract vendor assigned her contract with the plaintiffs to defendant Tinker National Bank (hereafter referred to as the bank) as collateral security for loans then in default. As consideration for the extension of additional credit, on June 24, 1959 she executed a quitclaim deed to the defendant bank. The deed was recorded on June 26, 1959.

 In compliance with a demand that all further payments pursuant to the contract be made to the bank, the contract vendees made their regular monthly installments to the bank from July 1, 1959 through October 1, 1962. They then notified the bank that they wished to exercise their right to pay the balance due on the contract - which then amounted to $2,220.32 - and to have the property conveyed to them. On the ground that the deed was held solely as collateral security and that it was unable to convey title, the bank refused to issue a deed.

 Thereupon, on December 12, 1962, the contract vendees instituted an action in the New York Supreme Court, Suffolk County, against the bank seeking specific performance of their contract. That court, in an opinion by Tasher, J., denied plaintiff's motion for summary judgment without prejudice on the ground that the judgment creditors and lienors of the contract vendor "should be joined as parties defendant and the various priorities and interests litigated in a single action." Engel v. The Tinker National Bank, Supreme Court, Suffolk County, Index No. 97063. The court cited with apparent approval an earlier County Court decision involving the contract vendor, contract vendees, bank, and a judgment creditor of the contract vendor which had characterized the bank's interest as a "collateral mortgage to secure a debt." Brown Brothers Contractors, Inc. v. Carroll Material Corp. et al., County Court, Suffolk County, Index No. 73833-1961. In April 1964, plaintiffs amended their complaint in the Supreme Court action and joined additional defendants. The defendants are shown on the table below with the nature and amount of the claims against the contract vendees and their position in this court. In May 1964, on motion of the United States Attorney, the action was removed to the United States District Court for the Eastern District of New York. TABLE OF DEFENDANTS' CLAIMS Nature Position in this Date Defendant Amount of claim action 5/20/57 Long Island White $4,000.00 Mortgage Defaulted Trucks entered into (ap- parently satisfied) 2/10/59 Valley Stream Na- 997.14 Judgment Appeared at tional Bank & docketed trial Trust Co. (Assigned to United States 11/59) 6/24/59 Industrial Com- 213.63 Lien Appeared but missioner of New docketed waived notice of York all proceedings except sale 6/26/59 Tinker National 568.00 Deed Appeared at Bank recorded trial 8/12/59 Eichacker, 76.70 Judgment Defaulted Walter docketed 9/25/59 New York State 919.73 Lien Appeared but Tax Commission docketed waived notice of all proceedings except sale 1/13/60 New York State 400.00 Lien Appeared but Tax Commission docketed waived notice of all proceedings except sale 1/25/60 John T. Mather, 331.88 Judgment Defaulted Memorial Hospital docketed 6/13/60 Louis Traub d/b/a 1,101.74 Judgment Appeared at Cinder Supply docketed trial Service 9/27/60 Royal Indemnity 709.39 Judgment Defaulted Co docketed 4/21/61 Brown Brothers 4,600.77 Judgment Appeared in ac- docketed tion but wish to discontinue; did not appear at trial 7/6/61 Cooper Tire and 771.09 Judgment Appeared but Rubber docketed waived notice of all proceedings except sale 9/28/61 Industrial Com- 80.20 Judgment Appeared but missioner of New docketed waived notice of York all proceedings except sale 10/5/61 United States 378.07 Tax lien Appeared at docketed trial 2/21/62 United States 728.45 Tax lien Appeared at docketed trial 4/27/62 Makousky Bros. 2,783.41 Judgment Appeared but docketed waived notice of all proceedings except sale Dorothy C. Zimmerman Contract Defaulted vendor

 II. Law

 To unravel this tangle, it is necessary to consider plaintiffs' position with respect to all the defendants and the defendants' rights vis-a-vis each other. New York Law governs all priorities except those arising from United States tax liens which are controlled by federal statutes. Under the law of both jurisdictions, plaintiffs' rights are superior to those of defendants.

 A. New York Law

 Upon execution of the contract and payment in part, a contract vendee becomes "equitable owner pro tanto " of the property he contracts to purchase. Elterman v. Hyman, 192 N. Y. 113, 125, 84 N.E. 937 (1908). The lien of the judgment creditor "is subordinate to this outstanding equitable interest." 3 Powell on Property para 479 (1966). See also id. at para 450. Even without recording, the rights of a contract vendee are superior to all except bona fide purchasers for value - a ...


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