Benario, Lenore

English

St. John's University School of Law

St. John's Law Review Volume 21 Number 2 Volume 21, April 1947, Number 2 Article 17 July 2013 Amendment of the Civil Practice Act Relating to the Awarding of a Vendee's Lien Upon His Rescission of the Contract Lenore Benario Follow this and additional works at: https://scholarship.law.stjohns.edu/lawreview Recommended Citation Benario, Lenore (1947) "Amendment of the Civil Practice Act Relating to the Awarding of a Vendee's Lien Upon His Rescission of the Contract," St. John's Law Review: Vol. 21 : No. 2 , Article 17. Available at: https://scholarship.law.stjohns.edu/lawreview/vol21/iss2/17 This Recent Development in New York Law is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in St. John's Law Review by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact selbyc@stjohns.edu. CURRENT LEGISLATIONAMENDMENT OF THE CIVIL PRACTICE ACT RELATING TO THEAWARDING OF A VENDEE'S LIEN UPON HIS RESCISSION OF THECONTRACT.-A vendee of land, having made a down payment on thepurchase price and thereafter discovering that the contract had beeninduced by fraud or by a material mistake of fact, was unable torescind the contract in equity, if he wished to be awarded a lien inthe land as a security for the repayment of the advancements made.1If, however, he had rescinded by self-help and then sued at law formoney had and received, he would in equity have been entitled to alien.2 Such was the state of the law in New York before March 10,1947; for on that day Section 112-h 3 of the Civil Practice Act be-came effective, and New York joined the ranks of those jurisdic-tions which granted a vendee's lien whenever the vendee petitionsfor one irrespective of the remedy requested by him.4In arriving at this singular conclusion, the Court of Appealstook a narrow view not only of the remedy of rescission but also ofthe vendee's lien. Rescission has as its primary purpose the reliev-ing of the defrauded or mistaken party of an onerous burden whichhe would not have assumed if the facts had been as they finally ap-peared to be.5 This result is reached by returning the parties as faras possible to the status quo ante, and in doing so acting as if thecontract had never been entered into.6 The law on the other hand,not to be 'Outstripped by equity, reached the same result by permit-1 Flickenger v. Glass, 222 N. Y. 404, 118 N. E. 792 (1918); Davis v.Rosenzweig Realty Co., 192 N. Y. 128, 84 N. E. 943 (1908).2 Elterman v. Hyman, 192 N. Y. 113, 84 N. E. 937 (1908); Garrett v.Cohen, 63 Misc. 450, 117 N. Y. Supp. 129 (Sup. Ct. 1909).3 N. Y. Civ. PRAc. AcT § 112-h. Vendee's lien not to depend upon formof action. When relief is sought in an action or proceeding or by way of de-fense or counterclaim, by a vendee under an agreement for the sale or ex-change of real property, because of the failure, invalidity, disaffirmance orrescission of such agreement, a vendee's lien upon the property shall not bedenied merely because the claim for relief is for rescission, or is based uponthe rescission, failure, invalidity, or disaffirmance of such agreement.4Tudor v. Raudebaugh, 278 Fed. 254 (D. C. Mont 1922) (rescission);Aday v. Echols, 18 Ala. 353, 52 Am. Dec. 225 (1850) (as a counterclaim toan action for specific performance); Montgomery v. Meyerstein, 186 Cal. 459,199 Pac. 800 (1921) (rescission); Wolfinger v. Thomas, 22 S. D. 57, 115 N. W.100 (1908) (rescission); Delano v. Saylor, 113 S. W. 888 (Ky. 1908) (de-fective title); Gayle v. Troutman, 31 Ky. L. R. 718, 103 S. W. 342 (1907)(rescission); Larson v. Metcalf, 201 Iowa 1208, 207 N. W. 382 (1926)(rescission); Goldstein v. Ehrlick, 96 N. J. Eq. 52 124 Atl. 761 (1924) (defectin title); Cleveland v. Bergen Bldg. & Imp. Co., 55 Atl. 117 (N. J. Eq. 1903).r WIsrox, CoNn ACrs, § 1455 (rev. ed. 1937).6 Dooley v. Stillson, 46 R. I. 332, 128 AtI. 217, 218 (1925).ST. JOHN'S LAW REVIEWting the injured party to rescind by self-help, i.e., a one-sided dis-affirmance, and thereafter sue at law for money had and received.7As can readily be seen the result attained is identical, in spite of thedifferent means used to attain the end.Equity, in addition to its remedy of rescission, sought to relievethe injured party, who in reliance upon a contract has paid part ofthe consideration required and who through no fault of his own hasbeen unable to receive what he bargained for, by giving him a lienon the land equivalent to his monetary outlay." A lien, as inter-preted by the courts, "is a charge upon property which exists infavor of a person to whom another owes a debt or duty." 9 Themajority of the courts award the lien, which has been recognizedsince the time of Blackstone,'0 through their application of either thetrust theory 11 or on purely equitable principles to prevent unjustenrichment.1 2  Under the trust theory, the courts of equity merelyextended their policy of regarding the vendee of land as the owner,even though the vendor still held the legal title. As the vendee'sequity increased through his payment of the purchase price, moreand more land was held in trust for him by the vendor, and whenthe whole purchase price had been paid, equitable conversion wascompleted and the legal title was only an empty right, for in equitythe vendee could at any time after the law date compel the vendorto convey it to him.13 Where, however, the vendee did not wishto accept title because of its unmarketable 14 or defective character,' 5or where the contract had been induced by fraud or mistake, 16 thevendee was entitled to the return of his money together with the in-terest earned from the time of the discovery of the fraud 17 or thedate of default.' 8 Since the vendor might have dissipated the fundsand might have become financially irresponsible, the court would7 Cory v. Freeholders of. Somerset, 47 N. J. L. 181 (1885).8 First Savings Bank of Albany v. Linnhaven Orchard Co., 89 Ore. 354,174 Pac. 614 (1918).9 Marshall v. C. S. Young Const. Co., 94 Fla. 11, 113 So. 565, 566 (1927).10 Burgess v. Wheate, 1 Win. Blacks. 123, 96 Eng. Rep. 67 (1759).11 See Gray, J., dissenting in Davis v. Rosenzweig Realty Co., 192 N. Y.128, 139, 84 N. E. 943, 945 (1908).12 Whitbread & Co., Ltd. v. Watt, [1902] 1 Ch. 835.13 Jennison v. Leonard, 21 Wall. (U. S.) 302, 22 L. ed. 539 (1874); seeGray, J., dissenting in Davis v. Rosenzweig Realty Co., 192 N. Y. 128, 139,84 N. E. 943, 945 (1908).24 Wetmore v. Bruce, 118 N. Y. 319, 23 N. E. 303 (1890); Feldblum v.Laurelton Land Co., 151 App. Div. 24, 135 N. Y. Supp. 349 (1st Dep't 1912).15 Delano v. Saylor, 113 S. W. 888 (Ky. 1908); Goldstein v. Ehrlick, 96N. J. Eq. 52, 125 Atl. 761 (1924).16 Montgomery v. Meyerstein. 186 Cal. 459. 199 Pac. 800 (1921); Wittev. Hobolth, 224 Mich. 286, 195 N. W. 82 (1923).17 Griffith v. Depew, 3 A. K. Marsh. 177, 13 Am. Dec. 141 (Ky. 1820).18 Everett v. Mansfield, 148 Fed. 374 (C. C. A. 1st 1906).[ VOL. 21CURRENT LEGISLATIONpermit the vendee to have the original land sold to satisfy the obli-gation of the vendor 11 or if he preferred, he could remain in posses-sion of the land until paid.20In spite of the logic behind this reasoning, New York turnedits back on the trust theory and maintained that the vendee's lienwas one of the rights arising out of the contract of sale.21  In thelogical application of this theory, the court inevitably was compelledto hold that where the vendee came into a court of equity prayingfor rescission of the burdensome contract, he could not be the recipi-ent of the vendee's lien, for by his choice of action and of remedyhe was of necessity alleging that no contract had ever existed,22 anda fortiori rights which could arise only from a contract could notarise from a nullity.23 Therefore, unless the vendee actually suedfor the vendee's lien or counterclaimed for one, he would only re-ceive a judgment for the money debt, no security to insure its sat-isfaction being awarded. The result of this arbitrary holding wasthat the vendee affirmed the contract no matter how much fraud wasinvolved and sued to recover a lien on the land as well as the downpayment, for then only did he receive the complete relief to whichhe was entitled.Where the vendee's lien is granted, the court includes withinits scope all monies paid under the terms of the contract, 24 intereston the purchase price,23 together with money expended for improve-ments and taxes,26 but it does not include money spent in the titlesearch,28 nor for attorney's fees, 29 nor for loss in profit through thefailure to make a subsequent resale of the land,3 0 for these latterexpenses were not stipulated for in the contract of sale. No posses-sion of the land, constituting the subject matter of the contract ofsale, need be shown today, although formerly the vendee needed this19Tudor v. Raudebaugh, 278 Fed. 254 (D. C. Mont. 1922); FRY, SPEcIFIcPERFORMANCE, § 1176 (6th ed. 1921).20 Griffith v. Depew, 3 A. K. Marsh. 177, 13 Am. Dec. 141 (Ky. 1820).21Elterman v. Hyman, 192 N. Y. 113, 84 N. E. 937 (1908); Davis v.Rosenzweig Realty Co., 192 N. Y. 128, 84 N. E. 943 (1908); Flickenger v.Glass, 222 N. Y. 404, 118 N. E. 792 (1918).22 Davis v. Rosenzweig Realty Co., 192 N. Y. 128, 84 N. E. 943 (1908);Garrett v. Cohen, 63 Misc. 450, 117 N. Y. Supp. 129 (Sup. Ct. 1909).2 3 Diven v. Ashbaugh, 121 Misc. 213, 200 N. Y. Supp. 634 (Sup. Ct. 1923).24 CAL. CIV. CODE (Deering, 1937) § 3050; Montgomery v. Meyerstein,186 Cal. 459, 199 Pac. 800 (1921); Coleman v. Floyd, 131 Ind. 330, 31 N. E.75 (1892) ; Craft v. Latourette, 62 N. J. Eq. 206, 49 Atl. 711 (1901).25 Wolfinger v. Thomas, 22 S. D. 57, 115 N. W. 100 (1908).28 Aday v. Echols, 18 Ala. 353, 52 Am. Dec. 225 (1850); Gibert v. Peteler,38 N. Y. 165, 97 Am. Dec. 785 (1868).27 Montgomery v. Meyerstein, 186 Cal. 459, 199 Pac. 800 (1921).28 Occidental Realty Co. v. Palmer, 117 App. Div. 505, 102 N. Y. Supp.648 (1st Dep't 1907), aff'd inemr., 192 N. Y. 588, 85 N. E. 1113 (1908).29 Ungrich v. Shaff, 119 App. Div. 843, 105 N. Y. Supp. 1013 (1st Dep't1907).3 Holden v. Efficient Craftsman Corp., 234 N. Y. 437, 138 N. E. 85(1923).1947 ]ST. JOHN'S LAW REVIEWadditional equity,31 for the payment of the money pursuant to thecontract gives the vendee the right to a lien.3 2 As has become ap-parent, the vendee is permitted to have his lien only to the extentof his actual expenditures; therefore, he is not accorded one coveringthe value of those improvements which were on the land when heentered into possession. Since they had always belonged to the ven-dor, the court does not favor a result which would compel the vendorto pay twice for his property, once for its construction and again tothe vendee as damages. 83 The court of equity does not penalize thevendor, beyond returning to the vendee those rights which he sur-rendered in reliance upon performance of the contract, and to whosereturn he became entitled upon the vendor's default. In line withthis policy, the vendee has never been the recipient of the lien wherehe was the defaulting party, nor where the vendor's failure to per-form was attributable to the vendee's prior default.34 Therefore, thegranting of the lien is not inconsistent with the remedy of rescission,for equity would only be giving an additional proof of its ability togive the fullest relief possible.The new amendment to the laws of New York has abolished theold distinctions between the remedies available to the vendee, wherethe vendor was in default. It will therefore be immaterial whetherthe vendor had an unmarketable title, or owned less land than hehad contracted to sell, or had committed fraud, for in all instancesthe vendee, unless he was the cause of the default, may receive a lien.This amendment, therefore, brings New York in line with themajority. But will New York go as far as other common law juris-dictions in its application? Some courts have held that the vendeewas entitled to the lien even though he exercised an option givenin the contract to rescind.3 5 This relief was given in spite of thevendor's not being in active default. The court's departure from thestrict law was made upon the theory of mutuality of remedy, i.e., ifthe option had been for the benefit of the vendor, and had been exer-cised by him, the vendee would, because of the vendor's default, havebeen entitled to one, and the court did not incline to deprive thevendee of the remedy which was only in the nature of security forthe repayment of money, even though the option was for his benefit.36Whether the New York courts, in their interpretation of Section31 CAj CIV. CODE (Deering, 1937) § 3050; Elterman v. Hyman, 192 N. Y.113, 84 N. E. 937 (1908); Occidental Realty Co. v. Palmer, 117 App. Div.505, 102 N. Y. Supp. 648 (1st Dep't 1907), aff'd mem., 192 N. Y. 588, 85N. E. 1113 (1908).32 Elterman v. Hyman, 192 N. Y. 113, 84 N. E. 937 (1908).33 Merrill v. Merrill, 103 Cal. 287, 35 Pac. 768 (1894), aff'd, 103 Cal. 287,37 Pac. 392 (1894).34 Griffith v. Depew, 3 A. K. Marsh. 177, 13 Am. Dec. 141 (Ky. 1820).35 Whitbread & Co., Ltd. v. Watt, [1902] 1 Ch. 835; Wilson v. SunnysideOrchard Co., 33 Id. 501, 196 Pac. 302 (1921).36 Whitbread & Co., Ltd. v. Watt, [1902] 1 Ch. 835.[ VOL. 21CURRENT LEGISLATION112-h of the Civil Practice Act, will follow this holding has yet tobe seen, as the statute makes no provision for this eventuality. It issubmitted that there appears to be no reason for not granting thevendee's lien, where he exercised the right of rescission given himin the contract. Since the parties successfully bargained for the rightto rescind, the statute, which has as its aim the enlargement of theremedy's scope, should not be narrowly construed.In another aspect the statute has not altered the common law,namely where the vendor purported to sell land to which he had notitle. By definition, the lien is a mere right, through the medium ofthe court, to charge the land. It is not a title to or an estate in theland, neither a jus in re nor a jus in ren.37  Therefore, if the ven-dor's default consisted in agreeing to sell land to which he had notitle, the court can not give the vendee a lien for there is no landto which it could attach.38 This set of facts would prevent the courtfrom giving complete relief, and the obstacle exists irrespective ofthe remedy sought by the vendee. By necessity, since the lien isgiven as security for the down payment it can attach only to thespecific land contracted for and not to other parcels owned by thevendor.39 In such a situation, therefore, the vendee must of coursebe satisfied with a money judgment on which he can later issueexecution.40  Before the passage of this amendment, the court couldattach the vendee's lien to personalty owned by the vendor,41 as longas the rights of other creditors had not intervened,42 but by the termsof the new section it may be a charge only on reality.In accordance with its policy of returning to the vendee thoserights of which he had been wrongfully deprived, the courts haveconsidered the vendee's lien as paramount to and prevailing over allpurchasers and incumbrancers from the vendor with notice of itsexistence.43  Like all equitable rights, it can be defeated only by abona fide purchaser for value without notice. Hence, since it hasbeen held that the lien is in the nature of an equitable mortgage,44there should be some provision made for its recording, even thoughthey are not interests in land. In New York today, liens may be7 Arnold v. Porter, 122 N. C. 242, 29 S. E. 414, 416 (1898).38 Robinson v. Campbell, 222 Mich. 111, 192 N. W. 644 (1923).3 9 See Gray, J., dissenting in Davis v. Rosenzweig Realty Co., 192 N. Y.128, 139, 84 N. E. 943, 945 (1908); Galbreath v. Reeves, 82 Tex. 357, 18S. W. 696 (1891).40 Robinson v. Campbell, 222 Mich. 111, 192 N. W. 644 (1923).41 Witte v. Hobolth, 224 Mich. 286, 195 N. W. 82 (1923); Giarranto v.McIlwain, 215 App. Div. 644, 214 N. Y. Supp. 582 (3d Dep't 1926).42 Giarranto v. McIlwain, 215 App. Div. 644, 214 N. Y. Supp. 582 (3dDep't 1926).43 Larson v. Metcalf, 201 Iowa 1208, 207 N. W. 382 (1926); Lowe v.Maynard, 115 S. W. 214 (Ky. 1909); First Savings Bank of Albany v. Linn-haven Orchard Co., 89 Ore. 354, 174 Pac. 614 (1918).44 Wickman v. Robinson, 14 Wis. 493, 80 Am. Dec. 789 (1861); Eltermanv. Hyman, 192 N. Y. 113, 125, 84 N. E. 937 (1908).1947 ]ST. JOHN'S LAW REVIEWregistered under Section 417 of the Real Property Law,45 but nocase has been decided which holds that the vendee's lien may be re-corded there, although there appears to be no reason for opposingits registration. One objection which might be advanced is that thelien is a part of a judgment and will be docketed as such. But itis submitted that it will be enforced, not by execution, but by a fore-closure sale. Although these problems will not affect a vendee inthe usual case where he has become entitled to a lien, they do showthat less than complete relief is occasionally given in a rescissionaction.LENORE BENARIO.AMENDMENT TO THE CIVIL SERVICE LAW PROHIBITING STRIKESBY PUBLIC EMPLOYEES.-At the 170th session of the New YorkLegislature a bill was enacted amending the Civil Service Law byinserting, therein, a new section to follow section twenty-two, to beknown as section twenty-two-a. This section declares that a publicemployee who strikes loses his civil service protection, and if re-employed does not regain it for five years. To remove any possi-bility of profit from his wrongful act, his compensation may not beincreased for three years.'With the enormous growth and expansion of the labor move-ment we have had a parallel development of the right to strike, andas the strength and size of the unions have increased, the right tostrike has gained greater recognition from the courts. It has be-come increasingly evident that there is a conflict of interests-theworkers' interest in protecting the right to strike as against the gen-eral interest in the public health, welfare and safety. The necessityof preserving and insuring our national economy, as the superiorduty of our legislative officers, has stirred them into action both inthe state and national legislatures. One aspect of this great problemwas before the New York Legislature and the solution offered wasthe amendment under discussion. It was necessary to distinguishthe public servant from all other workers or employees and to takethe precaution of denying to these employees the right to strike inorder to preserve this general interest in the public health, welfareand safety.This addition to the Civil Service Law, i.e., section twenty-two-a,raises several questions:1. Does the New York Anti-Injunction Act (C. P. A. 876-a)apply where the employee is a public employee?45 Laws of 1916, c. 547, § 11.I N. Y. Cnvu. SvicE LAW § 22a.[ VOL. 21

Amendment of the Civil Practice Act Relating to the Awarding of a Vendee\u27s Lien Upon His Rescission of the Contract

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Amendment of the Civil Practice Act Relating to the Awarding of a Vendee\u27s Lien Upon His Rescission of the Contract

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