
    American Mortgage Company, Plaintiff, v. Merrick Construction Company and Others, Defendants, Impleaded with Yellow Pine Company, Appellant, and George Moore Smith, Respondent.
    First Department,
    June 7, 1907.
    Mechanic’s lienpreference on foreclosure of trust mortgage.
    When the owner of lands uncter'course of improvement executes a trust mortgage for the benefit of creditors, persons filing mechanics’ liens after the execution of the mortgage-for material furnished before.its execution w.ho do not elect'to take under the mortgage are entitled to a preference, in the surplus on' foreclosure.
    Ingraham, J.,'dissented, with opinion.
    Appeal by the defendant, the Yellow Pine Company, from an order of. the. Supreme-Court, made' at the Mew York Special Term -vand entered'in the Office of the clérk of the county of Mew York' on the 17th day of May, 1906, confirming the. report of a referee' and directing the payment of surplus moneys to the defendant George Moore Smith.
    
      James A. C. Johnson, for the appellant.
    
      Albert R. Hager, for the respondent.
   Lambert, J.:

The surplus here under consideration arose from the sale of- the ■ .premises Mos. 23 and 25 East Twenty-first street, in the city of Mew York, under foreclosure. The amount of this surplus is $10,852.73. The appellant, claimant, the Yellow Pine Company, claims payment of its lien first out of this fund, and under the law as announced by the highest courts of this State, we are of opinion that this contention is right, and that the order appealed, from must be reversed.

The Merrick Construction Company, a corporation organized under the laws of this State, was the owner of the premises, and had about completed a building, which it.desired to dispose of for the purpose'of paying its obligations. On the 31st day of May, 1904, while owing large sums of money for labor and materials, this corporation made and. delivered a mortgage covering the said premises to George Moore Smith for $42,500. This mortgage was .recorded on the morning of June 1, 1904. Mr. Smith was not a creditor of the corporation,.and it is claimed by him that the mortgage, with the accompanying bond, was given to secure all of the creditors who in any way performed work on said premises. It is conceded that simultaneously with the giving of the bond and mortgage Mr. Smith executed to the corporation a document in the nature of: a declaration of trust, in which he stated that he held the mortgage for the benefit of the creditors named in the document. It is claimed that at the time of giving this rhortgage the Merrick Construction Company ivas, insolvent, • but in the view we take of the question this is not material. The Yellow Pine Company was one of the creditors of the Merrick Company, for materials furnished, and on the fourth day of June, without accepting any rights under the mortgage, this company filed a mechanics’ lien for $2,704.16. This lien, and the amount thereof, is not questioned, the contention being that the trust mortgage has priority over this claim, and that the. appellant must accept an equal division of this surplus with the other creditors. In determining this question we must look to the substance of what has been done, and it seems to.me.that the giving of the trust mortgage, concededly for the purpose of giving all of the creditors an equal standing,, was in effect a general assignment of any interest of the Merrick Construction Company in the premises for the benefit of creditors, and the fact that all of the creditors, were materialmen or laborers does not affect the case, for'each of them had an equal right with the appellant to file liens, the law giving preference in the order of perfecting such liens. The effect being as we have stated, the case comes squarely .within the spirit of the decision in. John P. Kane Co. v. Kinney (114 N. Y. 69), where it was held that under a general assignment for the benefit of creditors made by a general contractor, who has furnished and'provided labor and materials for and towards the erection- of a building, for which moneys are due, or to become due, to him,, the assignee takes the title to such -moneys subject to liens filed by laborers, mechanics:, materialmen or sub-contractors subsequent to the assignment but within the ninety days prescribed by statute. In Crane Co. v. Pneumatic Signal Co. (94 App. Div. 53) the .principle was applied to..the case of a trustee in bankruptcy, and the court say : “ The underlying question in this case is whether a materialman who furnishes to a contractor materials used in the construction of a building acquires thereby and therefor'an inchoate interest .or lien which is superior •to áiid not cut off by a general assignment for the benefit of creditors or voluntary bankruptcy proceedings occurring after the mate- • rials were furnished but before the notice of lien has been filed,” and it is -further said: “We regard the main question first above outlined to be authoritatively decided by the Court of' Appeals - in ’ the case of John P. Kane Co. v. Kinney (114 N. Y. 69).” That case was affirmed, sub ñom. Crane Co. v. Smythe (182 N. Y. 545), on opinion below, and unless we are to distinguish between a trust mortgage given to effect the same purpose which would be accomplished by a general assignment or the transfer, of the property to a trustee in .bankruptcy, from the facts involved in the cases cited, the appellant is entitled to relief here. We áre clearly of opinion that this cannot be done. The .apipellant, by refusing to accept rights under the mortgage and filing its lien, gained all of the rights intended to be conferred by the Mechanics’ Lien- Law, and this right could not-be divested by any voluntary'act ón the part of the Merrick Construction Company, no matter how praiseworthy might be their object toward other creditors. ' Thé policy of the Lien Law is to give priority to the diligent creditor, and while ‘the appellant might-have consented to take through the mortgage, and the mortgage is doubtless valid as to those who accepted under the trust, it-is not valid as against the lien which was duly perfected by the filing of the statutory notice, and the appellant must not b.e denied the right thus secured.

The order appealed from should be reversed, with costs, and an order entered directing that the lien of the Yellow Pine Company, with interest, should be first paid out of the surplus.

Laughlin, Clarke and Scott, .JJ., concurred; Ingraham, J., dissented.

Ingraham, J. (dissenting):

I think this order should be affirmed. By the mortgage to Smith for the benefit of specific creditors the payment of their claims was postponed for one year from the date of the mortgage, and upon acceptance by the creditors of this mortgage for their benefit they waived their right to file mechanics’ liens or to enforce their claims against the mortgagor until the mortgage became due. There was, therefore, I think, a good consideration for the mortgage. ' The case is entirely different from assignments for the benefit of creditors where the creditors are not parties to the assignment and part with notiiing as a consideration for the transfer. I think this case must stand upon exactly the same condition as if the mortgagor had made a mortgage to each creditor to secure his claim, payable one year from date, which had been accepted by the creditor, and in such a case I think the mortgage is superior to a mechanic’s lien subsequently fled. The appellant occupied before the mortgage was executed the same relation to the mortgagor that the creditors who •were subsequently secured by the Sniith mortgage occupied. The creditors parted witíi a valuable right on the faith of this mortgage, and I think they should be protected.

Order reversed, with costs, and order directed as stated in' opinion. Settle order on notice. 
      
      Laws of 1897, chap. 418, art, 1.—[Rep,
     