Lieberman v. Arzee Mid-State Supply Corp.

A-1556-96T2, 1997 WL 739022 (N.J. Super. App. Div. 1997)
  • Opinion Date: November 14, 1997

FRAUDULENT TRANSFERS; LIENS—A judgment docketed against a property owner is a lien against its real property until the time that a subsequent deed is recorded. Even though the judgment creditor had unsuccessfully brought a fraudulent transfer action against the new owner, and even though the judgment creditor had been unable to legally block the property’s transfer, its judgment lien is still enforceable because it was in place before the deed was recorded.

A supplier obtained a default judgment against a company and its owner. Once the judgment was docketed, it created a lien on the real property where the company conducted business. One week before the default judgment was issued, the owner conveyed the company’s property to his brother. However, the deed was not recorded by the brother until after the judgment was docketed. When the supplier learned that the brother was about to transfer the company’s property to a third party, it brought suit seeking to void the original transfer to the brother as a fraudulent conveyance, and sought an injunction to prevent the conveyance to the third party. The Chancery Division denied the injunction and dismissed the supplier’s complaint, concluding that the conveyance was not fraudulent. More than a year later, a post-judgment consent order was entered in the original action by the supplier against the company and its owner, permitting a writ of execution to be posted on the company’s property. The third party that owned the property brought a summary judgment motion to vacate the consent order and restrain any attempt to enforce the original default judgment against the property. The Law Division granted summary judgment.

The Appellate Division reversed, concluding that the initial default judgment attached to the property because it was docketed before recordation of the deed conveying the property to the brother. Citing New Brunswick v. Markouski, 123 N.J. 402 (1991), the Court concluded that a lien was created when the initial default judgment was entered, since such recordation with the court clerk constituted notice of the debtor-creditor relationship. Levy and execution was not required. The deed from the owner to his brother, although immediately effective between them, was of no effect as to third parties prior to its recordation. This determination is also in accordance with N.J.S.A. 46:22-1, which provides that every deed is void and of no effect against judgment creditors without notice until duly recorded.

Even though the deed failed to cut off the supplier’s rights, the issue remained whether its lien was cut off by its unsuccessful suit to void the deed as a fraudulent conveyance. The Appellate Court concluded that the judgment dismissing the supplier’s claim did not affect its lien or right to execute on the property. The Court stated that upon docketing of the judgment against the company’s owner, the supplier was entitled to execution on the property and a sheriff’s sale in satisfaction of the judgment. The rights of the supplier did not depend upon proving that the conveyance from the owner to the brother was fraudulent since, in a race-notice jurisdiction, those rights had priority over the brother’s interest in the property. Furthermore, the Appellate Court stated that the doctrine of collateral estoppel did not apply and the supplier’s claim against the property itself was not cut off, since the relevant court order only dismissed the supplier’s claim “against the buyer of the subject premises.” Additionally, the entire controversy doctrine, requiring joinder of claims to avoid splitting causes of action that would surprise and prejudice parties, was inapplicable, since the docketed judgment gave notice to the entire world of the supplier’s lien. Finally, relying on New Brunswick, the Court stated that a judgment passes with the private sale of land, and is not extinguished by the mere transfer of ownership. The Court also stated that the result was not unfair to the third party since it had both actual and constructive notice of the supplier’s judgment before taking title.