
    Julius Lipman et al., Resp’ts, v. The Jackson Architectural Iron Works, Imp’ld, App’lt.
    
    
      (Court of Appeals,
    
    
      Filed June 2, 1891.)
    
    Mortgages—Mechanic’s lien—Priority.
    Plaintiffs made a builder’s loan, secured by mortgage, and had ad, vanced fourteen instalments, when defendant filed a mechanic’s lien. "Whereupon an agreement was made that plaintiffs were to accept orders in défendant’s favor, payable when the mortgagors were entitled to the fifteenth and sixteenth instalments, and the lien was to be postponed until such instalments were paid. Subsequently it was agreed that further advances were to be made by plaintiffs for specified work, and that defendant’s lien should be paid out of the latter advances, and the lien be subocdinated to the entire amount of the mortgage. The entire amount was advanced, but the mortgagors never carried the building to the point which entitled them to the fifteenth and sixteenth instalments. Held, that in the foreclosure of plaintiffs’ mortgage defendant could not set up its lien, and had no defense.
    Appeal from judgment of the New York commdn pleas, general term, affirming judgment of foreclosure and sale, entered upon report of referee.
    
      H. R. Beekman, for app’lt; E. A. Jacob, for resp’ts.
    
      
       Affirming 36 N. Y. State Rep., 743.
    
   Finch, J.

We need not consider the question whether the contracts between the parties destroyed the effect of the mechanic’s 'lien filed by the creditor company, or merely subordinated that lien to the plaintiffs’ further advances and preserved to the lienor a right to participate in a surplus resulting from the sale, because in either event we are required to affirm the judgment. The lienor has been defeated upon the ground that, as against the mortgagees, its debt is not yet due and payable, since the express condition upon which payment was promised has not been fulfilled. The contract of the mortgagees with the owners was to make the advances in specific instalments, dependent upon different stages of work done in the construction of the building. That building was to be the main and chief security for their loan, and it was necessary to their safety that the advances in general should not outrun the progress of the work, but should keep always behind it, in order that there might be existing value mortgaged at each added instalment of the loan. Two of these instalments were numbered the fifteenth and sixteenth.

By the terms of the former the sum of $6,000 was to be advanced “ when the plumbing work is nearly completed, all doors hung, elevators and steam apparatus nearly completed, and all sashes in.” By the terms of the latter $5,000 was to be advanced “when railings and balusters completed, hardware all in, glazier’s work completed, front area work done, sidewalks and yards laid, and cellars concreted.” The whole advances originally contemplated amounted to $55,000. Before the fifteenth and sixteenth instalments had been earned, and when the advances amounted to about $40,000, the appellants filed their lien. In presence of that emergency the advances stopped and the mortgagees declined to continue them until some arrangement of the incumbrance was made. The three parties thereupon executed the first contract. Under its provisions the mortgagees were made safe by the agreement of the lienors to subordinate their lien to the further advances to be made under the protection of the mortgage; and the lienors were provided for by the mortgagees’ promise to pay the amount of the lien when the fifteenth and sixteenth instalments should be earned by the builders and become due to them. This last arrangement took the form of an order drawn by the builders upon the mortgagees directing them to pay “ out of the moneys growing due to us ” $800 “ out of the fifteenth instalment, payable according to the terms of said contract,” and $2,079 “ out of ’’ sixteenth instalment,” and which was accepted by the mortgagx “ payable as above.” Their promise, therefore, was explicit conditioned upon the earning of the two instalments by the builers, which could only be done by completing the work in accordance with the specified requirements.

Now that work has never yet been done. The builders have not earned the fifteenth and sixteenth instalments or become entitled to receive the sums for which they provided. If nothing else had happened it would follow inevitably that the fund out of which the lienors were to be paid as a fund due and payable to their debtors never in fact accrued or came into existence; and since the lienors, in making their lien subordinate, had accepted the promise of the mortgagees to pay only when the two instalments became due according to the terms of the building contract, the latter were bound to pay only when those terms were fulfilled.

But something else did happen. The mortgagees advanced to the builders not only the full $55,000, but some part of $10,000 more, and yet with all that assistance the latter never carried the building to the stage of completion which made due and payable the fifteenth and sixteenth instalments. But the lienor’s claim that those instalments having been paid to the builders must be deemed to have become due and payable, and that the prior completion of the work represented by those instalments was waived by the mortgagees. There is some force in that contention, and if it should turn out that the mortgagees never advanced of the final $10,000 the full amount less the lienor’s claim as was agreed, it might with even more force be argued that if such advances had been made the work in arrears would have been performed, and that the mortgagees could not stop their promised aid and resort to a foreclosure so as to prevent the completion of the work and yet rely on that failure of completion to avail performance of their promise.

But while they may be liable on their acceptance, and we do not determine that question either way, I am convinced that the remedy of the lienor is not in this action, and that the judgment rendered was right It orders a foreclosure, cuts off the lien of the creditor, gives to the mortgagees a preference of payment from the proceeds to the full amount of the $55,000 and interest, and orders any surplus arising on the sale to be brought into court. To all that the lienors explicitly agreed, for they consented that their lien should be subordinated to that of both mortgages, and that the whole $55,000 should be advanced under the shelter of that consent Beyond that they consented to the further advance of $10,000, less the amount of their claim, to be used for some of the very purposes covered by the fifteenth and sixteenth instalments of the building contract," for these also respected the plumber’s work and trim of the building. So far the appellant cannot successfully question the judgment,' for it is in exact accord with the contract and awards only the relief which it agreed should be given. It is the mortgage for $55,000, and that alone, which is being foreclosed, and against that the appellant has no lien and no defense. Whatever may prove to be its rights in the proceeds of sale they must necessarily exist only against a possible surplus, and nothing in the judgment cuts off any such rights or bars the appellant from an application to share in its distribution.

It is true that the counterclaim pleaded was dismissed, but that result was necessary because, whatever its merits, it was not a permissible counterclaim in the action for foreclosure. It set up a legal cause of action on the acceptance and against the acceptors as such, and asked a money judgment against them. Assuming, which we do not decide, that the plaintiffs were thus liable on their acceptance, the debt was not the subject of a counterclaim in the equity action. The plaintiffs demanded no personal judgment against the appellant and so the claim of the latter could in no manner lessen or limit or cut down the relief which the plaintiffs sought and to which they were clearly entitled. The Code of Civil Procedure requires that the counterclaim must tend in some way to diminish or defeat the plaintiffs’ recovery (§ 501), and enacts in this respect the doctrine of National Fire Ins. Co. v. McKay, 21 N. Y., 191.

The defendant’s plea has and can have no such effect Its alleged lien as a lien was subordinate to that of the plaintiffs, and its debt as a debt could not diminish or defeat the plaintiffs’ relief upon their cause of action. The lien was no defense and the debt no counterclaim. Proof of the latter could only result in an independent judgment for money, having no effect whatever upon the foreclosure. The application of the doctrine is well illustrated in Hunt v. Chapman, 51 N. Y., 555. In that case the counterclaim was allowed, but because the plaintiff asked a judgment upon the bond for a deficiency against the defendant asserting the counterclaim, and the claim of the latter became simply contract against contract,- and if allówed would defeat or diminish the plaintiff’s recovery. Here no personal judgment is sought against the appellant and there is nothing upon which its claim can be applied or which it can possibly affect.

It is said that plaintiffs, not having demurred to the counterclaim or specifically objected to it by answer, have waived the objection. The section of the Code providing for such waiver relates only to defects in the complaint and a waiver by the defendant Sections 498, 499. The appellants requested a finding of law awarding judgment on the counterclaim, which the referee refused The respondents may defend that refusal upon the ground asserted, as well as that upon which the referee seems to have acted

For these reasons the judgment should be affirmed, with costs.

All concur.  