Jay Vending, Inc.
1975 Pa. Super. LEXIS 1707, 236 Pa. Super. 258, 345 A.2d 921 (1975)
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Rule of Law:
When a circuity of liens arises from a prior lienholder's failure to properly record or revive its lien, and some subsequent lienholders have actual notice while others do not, the traditional 'first in time, first in right' rule is inapplicable; instead, a specific marshalling formula derived from 'Day v. Munson' and 'Hoag v. Sayre' must be applied to protect the lienholder who acted without notice and relied on the public record.
Facts:
- Boenning and Scattergood, Inc. (Boenning) obtained a judgment against John E. and Helen M. Jennings for $30,500 on April 14, 1966.
- Boenning initiated execution proceedings against the Jennings' real property on July 3, 1970, but this writ of execution was not formally recorded in the judgment index.
- Mr. and Mrs. Jennings obtained a stay order on July 13, 1970, which stated that the stay of proceedings would not disturb the lien of the judgment.
- Boenning attempted a second and third execution upon the Jennings' property, again neglecting to properly index the writ, with the property eventually listed for sheriff’s sale on February 20, 1974.
- John H. McCoy held a mortgage and a judgment, which were recorded with actual knowledge of Boenning's judgment, as McCoy's attorney also represented the Jennings in litigation against Boenning.
- Margolies and Jay Vending Co. recorded their liens against the Jennings' realty more than five years after Boenning's unrevived judgment and at no time had any knowledge of Boenning's judgment or related execution proceedings.
- The sheriff realized $85,000 from the sale of the Jennings' property, with $66,679.50 available for distribution after satisfaction of undisputed prior liens.
Procedural Posture:
- Boenning and Scattergood, Inc. obtained a judgment against John E. and Helen M. Jennings in the amount of $30,500 on April 14, 1966.
- On July 3, 1970, Boenning initiated execution proceedings against the Jennings' real property.
- Mr. and Mrs. Jennings moved for a stay order, which was issued on July 13, 1970, to determine the judgment's validity.
- On July 29, 1972, the lower court discharged the stay order.
- The Pennsylvania Superior Court affirmed the dismissal of the stay order per curiam in Boenning & Company v. Jennings, 222 Pa. Superior Ct. 712, 294 A.2d 739 (1972).
- Boenning attempted a second execution, but Mr. and Mrs. Jennings obtained an injunction from the United States District Court for the Eastern District of Pennsylvania, which stayed proceedings until December 1973.
- The United States Court of Appeals for the Third Circuit reversed the District Court's injunction.
- Boenning instituted its third execution, and the property was listed for sheriff’s sale on February 20, 1974.
- The sheriff prepared a proposed schedule of distribution for the proceeds of the sale, which did not include Boenning's judgment due to its non-indexing.
- Boenning filed exceptions to the sheriff's schedule, arguing its lien was improperly omitted.
- On October 30, 1974, the Court of Common Pleas of Montgomery County, Judge Richard E. Lowe, sustained Boenning's exceptions and directed it to be accorded priority over all judgment creditors except Strawbridge and Clothier.
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Issue:
Does the traditional 'first in time, first in right' rule apply to resolve circular liens when the circuity arises from a prior lienholder's failure to properly record or revive its lien, and some junior lienholders had actual knowledge of the prior lien while others did not, thereby creating a situation where a later-in-time lien is superior to the earliest, but inferior to an intermediate lien, which is in turn inferior to the earliest?
Opinions:
Majority - Price, J.
No, the traditional 'first in time, first in right' rule does not apply to resolve circular liens that arise from a prior lienholder's neglect to properly record or revive its lien. The court reversed the lower court's decision, finding that Boenning's argument that a 1970 stay order relieved it of its duty to revive its judgment was incorrect. Traditionally, opening a judgment to permit a defense neither extinguishes nor impairs a lien, nor does it extend the lien's duration, as established in cases like Duffey v. Houtz and Kittanning Insurance Company v. Scott. The current lien law limits lien duration to five years unless revived, and a stay order does not excuse this requirement, as affirmed in Sanctis v. Lagerbusch. While Boenning's lien remained valid against parties with actual notice (McCoy and O'Hey), its failure to revive against Margolies and Jay Vending Co., who lacked actual notice, created a circular lien problem. The court distinguished this situation from prior cases where circuity arose from operation of law or subrogation. Instead, it adopted the equitable formula from Day v. Munson and Hoag v. Sayre to address circuity caused by a prior lienholder's recording neglect. This formula ensures that the party relying on the public record without notice receives the protection intended by recording acts. The court concluded by applying this formula to distribute the funds, prioritizing the parties without notice first.
Analysis:
This case establishes a crucial exception to the 'first in time, first in right' rule for lien priority, specifically addressing circular liens created by a senior lienholder's failure to adhere to recording or revival statutes. It underscores the importance of public recording acts and protects subsequent lienholders who rely on the record without actual notice. The adopted formula provides an equitable framework for distributing funds in complex lien priority disputes, discouraging neglect in maintaining public records and promoting security in real estate transactions. Future cases involving similar circular lien scenarios due to recording errors will likely apply this specific marshalling test.
