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In re Fleetwood Motel Corp.

August 6, 1964

IN THE MATTER OF FLEETWOOD MOTEL CORPORATION, DEBTOR. JOSEPH F. BRADWAY, TRUSTEE UNDER THE WILL OF EDWARD H. BRADWAY, SR. FOR A 75/300THS INTEREST AND TRUSTEE UNDER THE WILL OF ELLA R. ELWELL FOR A 75/300THS INTEREST, BARBARA J. SANKEY, CUSTODIAN FOR MINORS, JOSEPH F. BRADWAY, JR. FOR A 10/300THS INTEREST, LINDA L. BRADWAY FOR A 10/300THS INTEREST, CORINNE J. BRADWAY FOR A 10/300THS INTEREST, AND CAMILLE M. BRADWAY FOR A 10/300THS INTEREST, AND BERNARD W. CAPALDI, TRUSTEE UNDER DEED OF TRUST OF JOHN M. SANKEY, DATED APRIL 30, 1957 FOR A 25/300THS INTEREST, AND TRUSTEE UNDER DEED OF TRUST OF WILLIAM F. LAWLESS, SR. AND CAROL B. LAWLESS DATED APRIL 30TH, 1957 FOR A 25/300THS INTEREST, AND TRUSTEE UNDER DEED OF TRUST OF JOSEPH F. BRADWAY, SR. DATED MARCH 5, 1938 FOR A 60/300THS INTEREST, APPELLANTS. IN THE MATTER OF FLEETWOOD MOTEL CORPORATION, DEBTOR. JACK G. KOLMAN, TRUSTEE, APPELLANT.


Author: Staley

Before STALEY, HASTIE and GANEY, Circuit Judges.

STALEY, Circuit Judge.

These cross appeals are from an order entered by the district court in proceedings under Chapter X of the Bankruptcy Act granting a contractor, James Low, trading as Thomas Low and Son, a secured lien claim in the amount of $55,991.01 for work performed in the construction of a motel on behalf of the debtor, Fleetwood Motel Corporation.The factual circumstances attending the financial difficulties and attempted reorganization of the debtor have been fully summarized in our opinion in the companion cases, In re Fleetwood Motel Corporation, Nos. 14,667 and 14,669, 335 F.2d 857. However, these appeals pose distinct legal issues which require consideration in a separate opinion.

Fleetwood, pursuant to a prior option agreement, executed a 99 year lease of premises located at 3100 Boardwalk, Atlantic City, New Jersey, on October 1, 1958. The lessor, Beachfront Land, Inc., was the predecessor in interest of Joseph F. Bradway, one the present appellants. The provisions of the lease as well as the particulars of its execution and operation have already been fully set forth in the opinion referred to above. For present purposes, however, we must state that the lease required Fleetwood to construct a hotel or motel of not less than 125 bedrooms, together with a restaurant, cocktail lounge, swimming pool, and various other facilities; required the submission to and approval by the lessor of the plans and specifications for this structure before any cons56t be filed in accordance with the Mechanics' Lien Law of the State of New Jersey*fn1; contained an agreement on the part of the lessor to subject the land and subordinate the lease to a mortgage not to exceed 75 per cent of the construction cost of the buildings required to be erected; and required Fleetwood, at the expiration of the lease, to deliver up and surrender to the lessor the premises and improvements, furniture, and furnishings contained therein.

Fleetwood contracted with Low for the construction of a motel upon the leased premises on February 4, 1959. The contract together with the plans and specifications was recorded the following day in the office of the Clerk for Atlantic County, New Jersey. The contract sum was specified at $918,620, and the date of completion set at May 15, 1959. The lessor subordinated its lease and subjected its interest in the premises to a construction mortgage in the amount of $800,000, and Low also subordinated its contract to that mortgage.

The work on the contract was substantially completed on June 26, 1959. However, because of the financial difficulties of Fleetwood, discussed in the companion opinion, Low had not been paid in full for this work at the time the present reorganization proceedings were commenced on September 27, 1960. The referee in bankruptcy noted that the parties had stipulated that "there is due to Low on the contract the sum of $27,345.94, subject to offsets for defective workmanship and materials, and that there is due to Low for extras, $29,245.07."

The district court ruled that Low had a secured lien claim in the amount of $27,345.94 which attaches to the building, improvements, leasehold and the estate of Fleetwood*fn2 Moreover, the court held that because the lessor had consented in writing to the construction, this mechanic's lien would also bind the land owned by Bradway. The claim for extras, reduced by $600 to $28,645.07, was held to be a lien on the building, improvements, leasehold, and estate of Fleetwood, but not upon the land. The court reasoned that the landlord's consent to construction as manifested in the lease should not be construed as including consent to the construction of the extras.

In this court the trustee of the debtor concedes that the first of these claims is a valid mechanic's lien binding upon the estate of the debtor. He asserts, however, that the claim for extras is unsecured. The landlord, on the other hand, maintains that neither of the claims binds either the land or the building and improvements erected thereon.

We consider first the nature of the contractor's claim for the work which was unquestionably performed pursuant to the construction contract. The relevant portion of the New Jersey Mechanics' Lien Law provides:

"When a building is erected by a tenant or a person other than the owner of the land upon which it is erected, only the building and the estate of the tenant or person so erecting such building shall be subject to the lien created by this article, unless erected with the written consent of the owner of such land . * * *" N.J.S.A. 2A:44-68. (Emphasis supplied.)

It will immediately be noted that in order to bind the owner of the land, the statute by its terms requires only his written consent to the erection, and not his consent to be bound by the lien. And the landlord admits, as he must, that the lease not only permitted, but, indeed, obliged Fleetwood to erect a motel and other improvements on the premises.

Bradway's position is that under the law of New Jersey only a written consent which is absolute in its terms will bind his land. In support of that position he cites Hughes v. Durso, 65 N.J.Super. 409, 168 A.2d 75 (App.Div.1961); Stein v. Pennsylvania Dock & Warehouse Co., 10 N.J.Misc. 568, 159 A. 683 (Cir.Ct.1932); and Hervey v. Gay, 42 N.J.L. 168 (E. & A. 1880). The requisite consent is said to be negated in this case by that clause in the lease wherein the landlord disavows liability for any mechanic's lien*fn3

The cited cases support a rigid construction of the New Jersey Mechanics' Lien Law. But they stand only for the propostion that the consent required by that statute cannot be inferred from a writing of the owner permitting construction by his tenant. None of them deal with the question whether a provision in a lease requiring construction by the tenant is a sufficient consent to erection to bind the owner.

We have been cited to and have discovered no New Jersey case which deals with this question. But the authorities agree that such a provision binds the owner. 3 Powell on Real Property 486, at 732-734 (1952); 2 Thompson on Real Property § 1273, at 373-375 (1924); 57 C.J.S. Mechanics' Liens § 65c(4), at 562. This conclusion accords both with logic and the policy underlying the Mechanics' Lien Law*fn4 For the obvious basis for the consent requirement is that the owner should not be held liable for erection or repairs which he did not authorize. That authorization has most assuredly been given when the owner requires the construction which gives rise to the lien. We need ...


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