On appeal from the Essex Circuit Court.
For the appellant, Lindabury, Depue & Faulks (James E. M. Tams, of counsel).
For the respondent, Edward R. McGlynn.
The opinion of the court was delivered by
PARKER, J. The memorandum by Judge Mountain sufficiently sets out the facts, except perhaps some minor matters which will appear in the course of the discussion.
It will have been noted that the plaintiff owned a tract of land, on which he had begun the building of an apartment house under a contract with a general contractor. The property was known to be subject to unpaid assessments: to a mortgage of less than $12,000; and to possible lien by the contractor. Plaintiff evidently thought no other claim could arise against the property, except, of course, accruing taxes, &c., and liens created by himself. The building contract was in writing and had been filed, and plaintiff, assuming that it had been legally filed, supposed himself and his land immune to claims of laborers, subcontractors and
materialmen, except by way of stop-notice directed to unpaid balance of the contract price. He was in error, because the contract needed specifications to make it complete, and those specifications had not been filed. Comp. Stat., p. 3293, § 2. Consequently the property was liable to lien, although plaintiff did not know it. Neither did the defendant; and plaintiff's claim is that as to him, as well as affecting defendant itself and probably the purchasers from defendant of participating bonds based on the proposed mortgage, it was defendant's business and implied if not express undertaking to discover the defect in filing the contract and take suitable precautions to provide against mechanics' liens paramount to the contract -- and perhaps paramount to the mortgage to the extent of such proceeds thereof as did not go into the building -- by ascertaining the extent of such possible liens and by whom claimed, and withholding the amount thereof from the contractor to insure their payment. The question, and the only question, in the case is whether defendant owed any such duty to the plaintiff. If it did owe such duty, the judgment should be affirmed.
Apart from the fact that there was a somewhat lengthy document signed by plaintiff as an application for the "guaranteed mortgage loan," and containing answers to numerous questions about the property and title, the transaction does not differ in substance from the ordinary construction loan made by a lawyer for a client with funds belonging to that client. It is common knowledge that owners contemplating the erection of a building with borrowed money will defer application for a mortgage loan in order to save interest and until the contract is on file and the building under way. The loan being granted and title approved and mortgage executed and placed upon record, the proceeds of that mortgage become the property of the borrower, subject usually to the fees and expenses of the lender's lawyer for searching the title, &c.; and those proceeds the lawyer disburses as the agent, not only of his client who is lending the money and is entitled to such mortgage lien as contracted for, but also as the agent of the borrower, who has borrowed for a
well-understood object, viz., to clear existing liens, and pay for his new building in such manner as to be protected against other liens not of his own making. In this phase of the matter, the borrower stands as though he had drawn the contract price out of his own balance at the bank and placed it in the custody of the lawyer to disburse to parties legally entitled thereto, and in connection with that duty to make sure that the property is protected against mechanics' liens. In other words, the lawyer, or as in this case the tender acting also as lawyer or title searcher, places the amount of the loan to the credit of the borrower, and is under the obligation to disburse it for the borrower's benefit in paying for the new building. Taking the borrower's fee for so doing, he becomes responsible for due care in that process of disbursement.
We think that the trial judge properly held defendant liable, and the judgment is therefore affirmed.
For affirmance -- THE CHANCELLOR, TRENCHARD, PARKER, LLOYD, CASE, BODINE, DONGES, BROGAN, VAN BUSKIRK, KAYS, ...