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Zwaska v. Irwin

Decided: August 18, 1958.


Schalick, J.s.c.


The plaintiff, Zwaska, and defendants, Irwin and Norrett, agreed in 1954 to purchase municipally-owned lots on which they would build and sell dwelling houses, their capital contributions and their profits to be equal. Jointly, they attempted to buy certain lots for which they agreed with the Borough to bid at public sale. They were outbid at the sale. To avoid competitive attention, the three persons then agreed that each would separately apply to the borough for an approximately equal number of newly selected lots, and that they would make successive applications for such lots. They complied with this plan, and at two public sales in September and October 1954 all of the desired lots were separately purchased. Deeds by the borough to Zwaska, Norrett and Irwin, respectively, are in evidence.

Having acquired title in their separate names, they agreed to form a corporation to which the lots would be conveyed, the issued capital stock to be equally divided among the three persons, and in early 1955 an attorney was employed for that purpose, and the corporate title "Zin Builders, Inc." was chosen.

They agreed to build a sample house and they selected as the site the contiguous lots conveyed to the defendant, Irwin. Construction of the house was commenced before the corporate organization was completed, and the initial building costs were divided among the three named persons, who paid bills by separate checks on their bank accounts. After the filing with the Secretary of State of the certificate of incorporation on May 16, 1955, a corporate bank account was opened, funds being supplied by Zwaska and Norrett, and from these deposits materialmen's bills were paid by corporate checks. The moneys so contributed were capital contributions and not loans, and in payment of stock issued.

Irwin's equal contribution for his payment for his stock was made in the labor of his employees whom he supplied to work on the building.

The corporation minutes do not disclose the oral agreement of the three persons. Each of the three received 50 shares of stock which were issued.

After the completion of the house in November 1955 arrangements were made with defendant, Nilsen, for the sale of the premises, although transfer of the title had not been made to the corporation. The three parties turned over their deeds to another attorney so that deeds to the corporation could be prepared. At this meeting in October 1955 with the attorney, the three persons instructed him to convey title to the corporation. Whereupon, the attorney took the deeds to a title company with an order for title searches.

On January 23, 1956 the United States Director of Internal Revenue recorded three tax liens covering tax arrearages of defendant, Irwin, in the total amount of $25,109.51. Further liens of similar nature were recorded to June 5, 1956, aggregating $38,650.28. Zwaska and Norrett did not learn of these levies until the latter part of 1956, even though the title company had long since reported the liens to Irwin and his attorney. During negotiations with the Government in an attempt to discharge the subject premises from the liens against Irwin, an agreement of sale had been executed between Zin Builders, Inc., and Nilsens.

On March 27, 1957 the plaintiff, Zwaska, brought this suit, making Norretts, Irwins, Nilsens and the United States of America, defendants. The latter made application for dismissal which was granted, but reentered the cause by intervention, therein asserting the claim to enforce its liens against Irwin and also the real estate and the buildings thereon which title was in Irwin's name. By agreement of all parties, the court ordered Irwins to convey the premises to the Nilsens for the price of $9,500, free and clear of all liens, and that said liens, claims, rights and equities of the

parties herein should attach to the proceeds of the sale, distribution to await the final determination by this court of the rights of the several parties.

Stipulations were entered setting forth that the contributions of the three parties for the land and the buildings thereon shall be considered equal. Hence, if Zwaska and Norrett were to succeed in asserting their claims, it was agreed that each of them would be entitled to one-third of the fund which was to be paid into the registry of this court and the Director of Internal Revenue would receive the remaining one-third. On the other hand, if the Government's position is sustained, the Director would receive the entire fund. All materialmen, laborers, and other claimants have been paid.

The plaintiff alleges that defendant, Irwin, held the subject premises in trust for plaintiff to the extent of a one-third interest, which is similarly imposed on the agreement of sale and the resulting fund, and thereby seeks one-third of the fund as his property.

The defendant, Norrett, seeks a similar relief as the plaintiff, and Norrett by way of answer admits the allegations of the plaintiff, substantiating the facts hereinbefore related, and Irwin by answer admits the truth of the facts alleged.

The Director of Internal Revenue in the complaint in intervention claims priority for the amount of liens over the claims of Norrett and ...

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