Morton I. Greenberg and Furman. The opinion of the court was delivered by Morton I. Greenberg, J.A.D.
This appeal involves another chapter in this protracted litigation, the disposition of which requires an extended opinion by this court.
On April 18, 1977 Trus Joist Corporation filed this action in the Superior Court, Chancery Division, Passaic County, against Treetop Associates, Inc., a New Jersey corporation, Macopin Associates, a partnership, Leo Fitzpatrick, John Russian, Michael Anderson and William Bowman.*fn1 In material part the complaint alleged that Trus Joist on or about April 25, 1975 had filed an action against Treetop in the Superior Court, Law Division, Passaic County, on a book account for goods delivered seeking a judgment for $21,600.95. The Law Division case was settled on April 2, 1976 for $16,000 but the $16,000 was not paid. Thus on September 17, 1976 in the Law Division action Trus Joist moved for and obtained a summary judgment against Treetop for $16,000 plus interest from April 2, 1976. The Chancery Division complaint further alleged that between April 2, 1976 and September 17, 1976 numerous creditors of Treetop obtained judgments against Treetop having priority over the Trus Joist judgment. Trus Joist further set forth in the Chancery Division complaint that on or about May 23, 1974 Treetop conveyed certain lands in Bloomingdale, Passaic County, to Macopin, a partnership in which Fitzpatrick, Russian, Anderson and Bowman each had a one-quarter interest. Trus Joist asked for judgment that the conveyance "be declared void" and its
judgment be declared to be a lien on the premises. This relief was sought on the basis that the conveyance was fraudulent, rendered Treetop insolvent and was made without fair consideration when Treetop was about to engage in a business for which the property remaining in its hands after the conveyance constituted an unreasonably small capital. Trus Joist further charged the conveyance was made when Treetop intended to incur debts beyond its ability to pay as they matured.
On May 13, 1977 Trus Joist filed a lis pendens in the Chancery Division action. The lis pendens described the object of the action to have the deed from Treetop to Macopin declared void as a fraudulent conveyance. The lis pendens stated that it was the further object of the action to have the Trus Joist judgment against Treetop declared a lien on the property.
The pendency of the litigation including an assault on its title did not deter Macopin from alienating the property. In the summer of 1977 Macopin sought to mortgage the premises to the National Union Fire Insurance Company of Pittsburgh, Pennsylvania. At that time Commonwealth Land Title Insurance Company made a title search preparatory to guaranteeing National Union's title. The search revealed the lis pendens which Commonwealth viewed as a cloud on Macopin's title. Commonwealth's representative then reviewed the complaint in the Chancery Division action. He recognized that the complaint sought to set aside the conveyance by Treetop to Macopin. Nevertheless Commonwealth thought it obvious that the gravamen of the complaint was recovery of the debt owed by Treetop. Thus Commonwealth agreed to insure the title of National Union to the proposed mortgage without an exception for the lis pendens provided $18,000 was held in escrow by Commonwealth. The additional $2,000 covered a judgment against another defendant not directly involved on this appeal. The escrow would guarantee satisfaction of the Trus Joist claim if Trus Joist were successful in the Chancery Division action.
The Commonwealth search also revealed other liens on the premises including a first mortgage held by Hudson City Savings Bank and a second mortgage held by John and Ann Dvorak. Both of these mortgages were in default and foreclosure proceedings had been started for the Hudson City mortgage.
It is apparent that the preliminary certificate and report on title was satisfactory to National Union. Thus on September 9, 1977 National Union granted Macopin a $325,000 mortgage which on that day was recorded in Passaic County. Commonwealth distributed the money through its escrow account. The two largest disbursements of the loan proceeds were $123,704.98 to Paul Soleman, attorney for the Dvoraks, to pay off their mortgage, and $52,801.50 to the Hudson City Savings Bank, in partial payment of its mortgage. On or about September 9, 1977 Commonwealth issued its policy insuring National Union.
On February 24, 1978 an amended complaint was filed in the Chancery Division case. In this amended complaint Matthew J. Scola, as trustee in bankruptcy of Treetop joined as a party plaintiff. The amended complaint indicated that on or about June 30, 1977 Treetop had filed a petition in bankruptcy in the United States District Court in New Jersey, on July 19, 1977 Scola was appointed its trustee and on November 23, 1977 Scola was authorized to join in this action as plaintiff to set aside the fraudulent conveyance. Scola sought an order setting aside the conveyance on behalf of the estate of Treetop for the benefit of all its creditors.
National Union by accepting a mortgage from Macopin at a time when the conveyance to it from Treetop was being challenged took security that was in jeopardy of being invalidated.*fn2 To protect its interest it moved for leave to intervene in this litigation. On June 26, 1978 Judge Ciolino signed an order granting this motion. National Union then ...