Case Title: Michael's Constr., Inc. v. Am. Nat'l Bank

Citation: 

Docket Number: S-11-0209

State: wyoming

Court: Wyoming Supreme Court

Date: 2012-05-31T00:00:00Z

Document:
MICHAEL'S CONSTRUCTION, INC.,  a  WYOMING CORPORATION, v.  AMERICAN NATIONAL BANK.  AMERICAN NATIONAL BANK v. MICHAEL'S CONSTRUCTION, INC. a WYOMING CORPORATION.2012 WY 76Case Number: S-11-0209Decided: 05/31/2012This opinion is subject to formal revision before publication in Pacific Reporter Third.  Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.  
APRIL 
TERM, A.D. 2012
 
MICHAEL’S 
CONSTRUCTION, INC., a Wyoming corporation,Appellant 
(Plaintiff),v.AMERICAN NATIONAL BANK,Appellee 
(Defendant).AMERICAN NATIONAL BANK,Appellant 
(Defendant),v.MICHAEL’S CONSTRUCTION, INC., a Wyoming 
corporation,Appellee (Plaintiff).
 
Appeal 
from the District Court of Campbell County
The 
Honorable Michael N. Deegan, Judge
 
Representing 
Michael’s Construction, Inc.:
James 
L. Edwards of Stevens, Edwards, Hallock, Carpenter & Phillips, P.C., 
Gillette, Wyoming.
 
Representing 
American National Bank:
Clint 
A. Langer of Davis & Cannon, LLP, Sheridan, Wyoming.
 
 
Before 
KITE, C.J., and GOLDEN, HILL, VOIGT, and BURKE, JJ.
 
KITE, 
Chief Justice.
 
[¶1]      After the owner 
of a construction project in Campbell County defaulted on its obligations to 
various creditors, mortgage holder Pinnacle Bank foreclosed on the real property 
securing its mortgage.  Junior 
mortgage holder American National Bank (ANB) and construction lienholder 
Michael’s Construction, Inc. (Michael’s) both sought payment from the surplus 
funds resulting from the foreclosure proceeding.  The district court declared that ANB’s 
mortgage was superior to Michael’s lien, but denied ANB’s request for 
contractual interest from the date of foreclosure through the date of final 
judgment.  Both parties 
appealed.
 
[¶2]      We affirm the 
district court’s order regarding the priority of liens, but reverse the order 
regarding interest and remand for additional proceedings consistent with this 
decision.  
 
ISSUES
 
[¶3]      Michael’s 
presents the following issue in Case No. S-11-0209:
 
Whether 
the decision of the district court granting summary judgment in favor of 
American National Bank was correct.
 
ANB 
responds with this issue:
 
Whether 
the district court properly determined that American National Bank’s mortgage 
had priority over Michael’s Construction, Inc.’s lien.
 
ANB 
and Michael’s both identify the following issue for appeal in Case No. 
S-11-0210:
 
Whether 
the district court erred in denying American National Bank the recovery of 
interest at the contractual rate.
 
FACTS
 
[¶4]      The parties 
stipulated to the facts of this case.  
Because the dates are important to our decision, we will list the 
relevant events in chronological order:
 
·         
On 
March 14, 2006, Anthony Ciochetti, on behalf of several related entities 
(hereinafter referred to as “owner”), met with Kyle Gillette of Schutz Foss 
Architects, P.C. regarding the construction of a day care and Montessori school 
in Campbell County.  Mr. Gillette 
had a bachelor’s degree in architecture and was a project manager for Schutz 
Foss Architects, but he was not a licensed architect.    
·         
On 
April 21, 2006, Mr. Gillette recorded his first time entry for work on the day 
care project. 
·         
On 
April 24, 2006, a warranty deed conveying the day care real property to the 
owner was recorded in the Campbell County Clerk’s office.      

·         
Also 
on April 24, 2006, a mortgage from the owner to Pinnacle Bank encumbering the 
day care real property was recorded in the clerk’s office.     
·         
On 
May 15, 2006, Schutz Foss Architects and the owner entered into a contract for 
architectural services for the day care.  

·         
On 
July 3, 2006, a mortgage encumbering the day care real property given by the 
owner to ANB to secure a corresponding promissory note was recorded in the 
clerk’s office.      

·         
On 
October 20, 2006, Michael’s delivered a loader and a blade to the day care 
property.  
·         
On 
October 30, 2006, Michael’s began removing topsoil from the day care 
property.   

·         
On 
November 6, 2006, Michael’s and the owner entered into an agreement for 
construction services.  

·         
On 
April 17, 2007, Michael’s timely filed and perfected a lien statement against 
the real property.    

·         
As 
of July 16, 2007, the owner had defaulted on its obligations to Pinnacle Bank, 
Michael’s, Schutz Foss Architects, and ANB.    
·         
On 
July 16, 2007, Pinnacle Bank commenced foreclosure proceedings pursuant to the 
power of sale provision in its mortgage.    
·         
On 
August 21, 2007, the Campbell County Sheriff conducted a foreclosure sale.  Michael’s purchased the property at the 
sale for $400,000.    

·         
The 
owner’s debt to Pinnacle Bank was satisfied out of the foreclosure sale 
proceeds, leaving a balance of $271,968.23.     
·         
As 
of August 21, 2007, the owner owed Michael’s $432,980, plus accrued interest and 
fees and ANB $88,123.03 in principal, plus accrued interest and fees.    
 
[¶5]      Because the 
remaining funds from the foreclosure sale were insufficient to satisfy Michael’s 
and ANB’s outstanding claims, the matter came before the district court for a 
declaration of priorities and distribution of the funds.  ANB claimed that its mortgage had 
priority over Michael’s lien because the mortgage was recorded prior to the 
commencement of construction on the project.  Michael’s claimed that its lien had 
priority because it related back to the date Schutz Foss Architects began work 
on the project.    

 
[¶6]      The parties filed 
competing motions for summary judgment.  
The district court interpreted the relevant lien priority statutory 
sections and ruled that ANB’s mortgage had priority over Michael’s lien.  The district court also ruled that ANB 
was entitled to contractual interest through the date of foreclosure.  ANB filed a motion to amend the summary 
judgment order to include interest, at the rate specified in the promissory 
note, until the date of judgment.  
Michael’s argued that the district court had discretion to limit the 
amount of interest awarded to ANB after the foreclosure sale and, as a matter of 
equity, any interest awarded should be limited in order to make more of the 
surplus funds available to satisfy its construction lien.  The district court agreed with Michael’s 
and entered an order awarding ANB interest at the contractual rate “only from 
the date of default until the date of foreclosure. . . .”     
 
[¶7]      Michael’s appeal 
in Case No. S-11-0209 challenges the district court’s decision on the priorities 
of the parties’ liens, and ANB’s appeal in Case No. S-11-0210 contests the 
district court’s interest award.  

 
STANDARD 
OF REVIEW
 
[¶8]      This case was 
determined on summary judgment.  
Summary judgments are governed by W.R.C.P. 56(c):
 
The 
judgment sought shall be rendered forthwith if the pleadings, depositions, 
answers to interrogatories, and admissions on file, together with the 
affidavits, if any, show that there is no genuine issue as to any material fact 
and that the moving party is entitled to a judgment as a matter of law.  
 
We 
review a district court’s summary judgment rulings de novo, using the same materials and 
following the same standards as the district court.  The facts are reviewed from the vantage 
point most favorable to the party who opposed the motion, and we give that party 
the benefit of all favorable inferences that may fairly be drawn from the 
record.  
 
Grynberg 
v. L & R Exploration Venture, 
2011 WY 134, ¶ 16, 261 P.3d 731, 735-36 (Wyo. 2011) (citations omitted).   
 
[¶9]      The lien priority 
issue requires us to interpret the relevant statutes, which involves a question 
of law and de novo review.  J 
& T Properties, LLC v. Gallagher, 2011 WY 112, ¶ 8, 256 P.3d 522, 524 
(Wyo. 2011); Vogel v. Onyx Acceptance Corp., 2011 WY 163, ¶ 21, 267 P.3d 1057, 1063 (Wyo. 
2011).  In addition, although 
Michael’s insists the correct standard for reviewing the interest award is the 
abuse of discretion standard, this case requires us to determine whether the 
district court had discretion in the first place to reduce the amount of 
interest due ANB.  That question is 
one of law, which we review de 
novo.  See, e.g., Platt v. Platt, 2011 WY 155, ¶ 14, 264 P.3d 804, 807 (Wyo. 2011) (holding the question of whether the district court 
had discretion to modify a partition order made by a court commissioner was 
reviewed de 
novo).
 
DISCUSSION
 
A.   Lien 
Priority       

 
[¶10]   Michael’s claims the district court 
erred by concluding the date for its lien priority was the first day it 
performed actual construction work on the building site in October 2006.  It argues that, under the relevant 
statutory provisions, its lien priority date should have related back to when 
the architectural firm started work on the project in the Spring of 2006, making 
its lien superior to ANB’s mortgage recorded on July 3, 2006.  
 
[¶11]   Wyo. Stat. Ann. § 29-1-305 
(LexisNexis 2009)1 set out the lien priority rules 
which apply in this case and stated in pertinent part: 
 
            
(a) Except as provided in this section the liens provided by this title 
shall be on an equal footing without reference to the date of the filing of the 
lien statement.
 
            
(b) Any lien perfected as provided by this title attaches to the 
materials, machinery or supplies furnished and improvements made in preference 
to any subsequent lien, security interest or mortgage under any other provision 
of law which has been perfected upon real or personal property, including a 
leasehold interest, against which the lien is claimed.
 
            
(c) Any lien, security interest or mortgage which has been perfected upon 
real or personal property or upon a leasehold interest prior to the commencement 
of any construction work or repair of the premises or property . . . shall have 
priority.
 
            
(d) Where a sale is ordered by the court on foreclosure of any lien 
provided by this title and the proceeds from the sale are insufficient to 
discharge in full all of the liens, the proceeds shall be prorated among the 
several lien claimants according to the amounts of their respective claims. 

 
[¶12]   In order to decide this case, we 
must interpret the statutory language by applying the following principles:
 
[Our] 
paramount consideration is to determine the legislature’s intent, which must be 
ascertained initially and primarily from the words used in the statute. We look first to the plain 
and ordinary meaning of the words to determine if the statute is ambiguous. A 
statute is clear and unambiguous if its wording is such that reasonable persons 
are able to agree on its meaning with consistency and predictability. 
Conversely, a statute is 
ambiguous if it is found to be vague or uncertain and subject to varying interpretations.
 
Office 
of State Lands and Invs. v. Mule Shoe Ranch, Inc., 
2011 WY 68, ¶ 13, 252 P.3d 951, 954–55 (Wyo. 2011), 
quoting Dorr 
v. Smith, Keller & Assoc., 
2010 WY 120, ¶ 11, 238 P.3d 549, 552 (Wyo. 2010). 
 See also, Vogel, ¶ 21, 267 P.3d  at 1063.  The determination of whether a statute 
is clear or ambiguous is a matter of law for the court. Office 
of State Lands, 
¶ 13, 252 P.3d  at 955.  
 
[¶13]   In ascertaining the meaning of a 
statutory provision, “all statutes relating to the same subject or having the 
same general purpose must be considered and construed in harmony.”  Mountain 
Cement Co. v. South of Laramie Water & Sewer Dist., 
2011 WY 81, ¶ 13, 255 P.3d 881, 885 (Wyo. 2011).    When the language is clear, 
we give effect to the ordinary and obvious meaning of the words employed by the 
legislature.  SLB v. JEO, 2006 WY 74, ¶ 8, 136 P.3d 797, 800 (Wyo. 2006).  

 
[¶14]   The district court relied upon § 
29-1-305(c) in ruling that ANB’s mortgage had priority over Michael’s lien.  That provision gave priority to “[a]ny lien, security interest or mortgage which has been 
perfected upon real or personal property . . . prior to the commencement of any 
construction work or repair of the premises or property.”  Section 29-1-305(b) states the 
corollary—any construction lien properly perfected has preference over “any 
subsequent lien, security interest or mortgage.”  Thus, the “commencement of any 
construction work” language set out in subsection (c) provides the line of 
demarcation for establishing the relative priorities of claimants and the 
meaning of that phrase is critical to our decision in this case.    

 
[¶15]   Michael’s maintains that, under § 
29-1-305, any construction lien relates back to the commencement of the project, 
which includes preconstruction services such as architectural design work.  Thatcher & Sons, Inc. v. Norwest Bank 
Casper, N.A., 750 P.2d 1324, 1327 (Wyo. 1988) confirmed that the intent of § 
29-1-305(b) was to relate all construction liens back to the commencement of the 
project.  We held the lien of a 
subcontractor who began work on a project after a mortgage was recorded related 
back to the commencement of construction by the original contractor.  Because construction was commenced prior 
to the recording of Norwest Bank’s mortgage, the subcontractor’s lien had 
priority.  Id.  
Thatcher does not, however, directly answer the question of whether 
architectural services are included within the meaning of “commencement of any 
construction work” in § 29-1-305(c).
 
[¶16]   Applying our rules of statutory 
interpretation, we conclude the language of § 29-1-305(c) is clear.  The ordinary and obvious meaning of 
“construction” is “the process or act of constructing.”  Webster’s Third New Int’l Dictionary 489 
(2002).  “Construct” is defined as 
“to put together substances or parts, systematically, in order to make or build 
(a building, bridge, etc.); assemble[.]”  
Id.  Similarly, Black’s Law Dictionary 
(6th Ed. 1990), defines “construct” as 
“[t]o build; erect; put together; make ready for use. To adjust and join 
materials, or parts of, so as to form a permanent whole.  To put together constituent parts of 
something in their proper place and order.”  Thus, the plain meaning of construction 
or “construction work” contemplates actual physical work on the building site. 

 
[¶17]   Other jurisdictions have 
interpreted their lien priority statutes as requiring actual, visible 
construction work on the project site to trigger the priority date.  In Walker v. Lytton Savings and Loan Assoc., 
465 P.2d 497 (Cal. 1970), the California Supreme Court interpreted that 
state’s lien priority statute, which stated that mechanics’ liens were 
“preferred to any. . . deed of trust . . .  or other encumbrance . . . which may have 
attached subsequent to the time when the building, improvement . . . was 
commenced.”  Id. at 524 n.4.  The court ruled that architectural 
services did not trigger the lien priority statute, stating “the general rule is 
that such a lien does not attach unless and until [c]onstruction has been 
undertaken by the doing of actual visible work on the land or the delivery of 
construction materials thereto.”  Id. at 524.  
 
[¶18]   In Rupp v. Earl H. Cline & Sons, Inc., 
188 A.2d 146 (Md. Ct. App. 1963), the court was asked to determine the 
priorities of a deed of trust and a mechanics’ lien to the proceeds of a 
foreclosure sale.  The Maryland 
statute at issue stated that lienable work was given preference to a deed of 
trust which was recorded after “commencement of the building.”  Id. at 148.  The court stated that 

 
before 
there can be the commencement of a building which would give a mechanics’ 
lien claimant a preference over a recorded mortgage there must be (i) a manifest 
commencement of some work or labor on the ground which everyone can readily see 
and recognize as the commencement of a building and (ii) the work done must have 
been begun with the intention and purpose then formed to continue the work until 
the completion of the building. If either of these elements is missing then 
there has been no 'commencement of the building’ within the meaning of § 15 of 
Art. 63.
 
Id. 
at 
149 (emphasis in original).  

 
[¶19]   Other states, such as Nevada and 
Arkansas, have statutes which specifically define “commencement of construction” 
or similar language.   In 
Arkansas, the lien priority statute stated that liens for labor performed or 
material or fixtures furnished shall “date from the time that the construction 
or repair first commenced” and had priority over all encumbrances that attached 
“subsequent to commencement of construction . . . .”  May Constr. Co. v. Town Creek Constr. & 
Dev., LLC, __ S.W.3d ___, 2011 WL 2477185 (Ark. 2011).  The statute specifically stated that 
“[c]onstruction or repair commences when there is a visible manifestation of 
activity on real estate that would lead a reasonable person to believe that 
construction . . . has begun or will soon begin . . . .”  Id.   Similarly, in Nevada, the lien 
priority statute stated that mechanics’ liens had priority over any encumbrance 
which attached “after the commencement of construction of a work of 
improvement.”  “Commencement of 
construction” was defined in Nevada statutes as the date on which:  “1. Work performed; or 2. Materials or 
equipment furnished in connection with a work of improvement, is visible from a 
reasonable inspection of the site.”  
J.E. Dunn Northwest, Inc. v. Corus 
Constr. Venture, LLC, 249 P.3d 501, 505 (Nev. 2011).  The Nevada Supreme Court noted that, 
while the statutory definition was not adopted until 2003, the court had 
recognized since 1977 that “visible, on-site construction is required for 
mechanics’ liens to take a priority position over a subsequently recorded deed 
of trust.”  Id. at 504, citing Aladdin Heating v. Trustees, Cent. States, 
563 P.2d 82, 84 (Nev. 1977).  
Thus, many cases interpret “commencement of construction” and similar 
language as requiring visible, on-site manifestations of construction activity 
to trigger the priority date for construction liens.  Under those rulings, off-site 
preconstruction activities, like architectural services, are insufficient to 
qualify as “commencement of construction.”  
See also, Williams & Works, Inc. v. Springfield 
Corp., 293 N.W.2d 304, 306-07 (Mich. 1980) (holding the Michigan lien 
priority statute did not include non-visible offsite engineering services as 
commencement of building or improvement for fixing mechanic’s lien 
priority).
 
[¶20]   Michael’s directs us to one case 
which reached the opposite conclusion—Bankers Trust Co. v. El Paso Pre-Cast Co., 
560 P.2d 457 (Colo. 1977).  The 
Colorado lien priority statute stated that all mechanics’ liens “shall relate 
back to the time of the commencement of work under the contract between the 
owner and the first contractor.”  
The court stated that, since the lien priority statute referred to the 
“first contractor” and architects and engineers were contractors within the 
contemplation of the mechanics’ lien laws, the lien priority dated from the 
commencement of the preconstruction work.  
The decision was based, in part, on the principle that “mechanics’ lien 
laws should be construed in favor of lien claimants.”  Id. at 461.  
 
[¶21]   In this case, the district court 
concluded “[t]he requirement of a visible, on-site commencement of construction 
work . . . is consonant with Wyoming principles,” and we agree.  The Wyoming legislature’s use of the 
term “construction work” in § 29-1-305(c) rather than simply “work” to establish 
the date of priority is significant.  
The plain meaning of “construction” includes the concept of actual, 
visible on-site building or assembly activities.  That distinguishes our statute from 
Colorado’s, which referred only to commencement of “work.”  Moreover, while Colorado has a policy 
that mechanics’ liens should be construed in favor of lien claimants, we have 
consistently stated the opposite:
 
Mechanics’ 
liens were not recognized at and are in derogation of common law so there must 
be full compliance with legislative requirements.   Arch 
Sellery, Inc. v. Simpson, 
Wyo.1959, 346 P.2d 1068. 
Statutory lien laws must be strictly construed and their scope cannot be 
extended.   Cities 
Service Oil Company v. Pubco Petroleum Corporation, 
Wyo.1972, 497 P.2d 1368. 

 
American 
Buildings Co. v. Wheelers Stores, 585 P.2d 845, 847 (Wyo. 1978).  See also, Winter v. Pleasant, 2010 WY 4, ¶ 3, 222 P.3d 828, 832 (Wyo. 2010). 
 
[¶22]   Michael’s argues that the 
legislature intended the commencement of architectural and other preconstruction 
services to establish the priority date for construction liens.  It supports its position with several 
definitions set forth in Wyo. Stat. Ann. § 29-1-201 (LexisNexis 2011):  
 
(a) 
Except as otherwise provided, as used in this title:2
 
            
(i) “Contractor” means:
 
            
     (A) A 
person employed by and contracting with an owner to improve an owner’s property 
including:
 
                        
(I) An architect;
 
                        
(II) A professional engineer; and
 
                        
(III) A surveyor.
. 
. . . 
 
            
(iii) “Improve or improvement” means:
 
            
     (A) 
Demolition, erection, alteration or repair of any property for its permanent 
benefit;
 
            
     (B) Any 
work performed or material furnished for the permanent change of any real 
property; and
 
            
     (C) 
Materials manufactured pursuant to contract.
. 
. . .
            
(vii) “Work” shall be as requested, authorized or ratified under 
contract.
 
[¶23]   Because, under § 29-1-201, 
“architects” are included within the definition of “contractors,” “improvement” 
includes “any work performed . . . for the permanent change of any real 
property,” and “work” means as ratified under a contract, Michael’s argues that 
the legislature intended architectural services to be included in the definition 
of “any construction work” in § 29-1-305(c) for determining the date of lien 
priorities.  Michael’s insists that 
if the beginning of architectural services does not set the date for priority, 
then architects and other preconstruction service providers are effectively 
denied a lien, which is contrary to the intent of the lien statutes. 

 
[¶24]   First, we note that the definitions 
stated in § 29-1-201 use the term “work” instead of “construction work” as used 
in § 29-1-305(c).   As our 
earlier analysis of the language of § 29-1-305(c) makes clear, the legislature’s 
choice to modify “work” with the term “construction” is important because it 
introduces the concepts of actual building and assembly activities into the 
statutory language.  Thus, the 
definition of “work” without the modifier “construction” is of little use to our 
analysis.  
 
[¶25]   Other jurisdictions have faced 
similar arguments that, because preconstruction service providers have the right 
to claim a lien, the date of their services should provide the date of 
priority.  They have concluded there 
is a distinction between the designation of proper lien claimants and the 
determination of priority among lien claimants.  See, e.g., Ketchum, Konkel, Barrett, Nickel & 
Austin v. Heritage Mountain Dev. Co., 784 P.2d 1217, 1221 (Utah Ct. App. 
1989); J.E. Dunn Northwest, 249 P.3d  
at 507-08.  In Williams & Works, 293 N.W.2d  at 
310-11, the mechanic’s lien claimant argued that, by expanding the scope of 
lienable work to include engineering services, the Michigan legislature intended 
the date of priority to relate back to the commencement of such offsite 
preconstruction services.   The 
Michigan Supreme Court stated:
 
[I]t 
[is] unreasonable to believe the Legislature intended to indirectly change 
§9(3), containing the traditional and well-established rule requiring a visible, 
on-site commencement of construction in order to establish priority, by the 
simple expansion of the lienable services outlined in a different 
section[.] 

 
Id. 
at 
311.  
 
[¶26]   Likewise, we do not believe the 
Wyoming legislature meant to indirectly change the date of priority from the 
plain meaning of “commencement of any construction work” by including architects 
and other preconstruction service providers in the definition of lien 
claimants.  Contrary to Michael’s 
argument, architects, etc. are not left “unprotected” by our determination.  They are still given a lien, with the 
date of priority simply being the date of actual construction activities.  
 
[¶27]   Finally, Michael’s argues that 
because ANB had actual notice that the architects were working on the project by 
signage placed on the property and an article in a local newspaper prior to the 
recording of the mortgage, its lien should have priority over the mortgage.  We disagree.  The legislature made a determination 
that the date of lien priority was the date of “commencement of any construction 
work.”  We cannot disregard the 
legislature’s choice and impose a different date based upon actual notice of 
offsite work being performed.  See generally, Williams & Works, 293 N.W.2d  at 314 
(holding the fact that a mortgage holder had actual notice of preconstruction 
services did not affect the priority determination because the statute stated 
that a mortgage filed prior to the “commencement” of the building had priority). 
We affirm the district court’s determination that ANB’s mortgage was superior to 
Michael’s construction lien.

B.   Interest 
Award
 
[¶28]   The promissory note given by the 
owner to ANB included the following provisions:
 
2.     PROMISE TO PAY.  For value received, I [the owner] 
promise to pay you [American National Bank]  . . . the principal sum of $99,500.00 
(Principal) plus interest from June 30, 2006 on the unpaid Principal balance 
until this Note matures or this obligation is accelerated.  
 
3.     INTEREST.  Interest will accrue on the unpaid 
Principal balance of this Note at the rate of 9.250 percent (Interest Rate). 

 
The 
parties stipulated:
 
            
As of August 21, 2007, the date of the foreclosure sale, Defendant 
American National Bank was owed the following sums:
 
            
Principal sum                       
$88,123.03
            
Accrued Interest       $  1,607.71
            
Attorney’s fees         
$  
1,756.16
            
Total                           
$91,486.90
 
[¶29]   In granting summary judgment in 
favor of ANB, the district court awarded it the “principal amount due and owing 
under its Promissory Note [and] interest (interest at the pre-judgment rate 
calculated from the time of default until foreclosure together with its share of 
the interest earned on the sums held by the Clerk of District Court in this 
matter)[.]”  ANB filed a motion to 
amend the summary judgment order to include interest at the contractual rate 
through the date of the court’s final judgment.  It requested the “following sums be paid 
from the surplus foreclosure proceeds held by the Court:
 
Principal 
sum                                               
$ 88,123.03
Accrued 
interest                               
$ 26,967.45 (accruing at a rate of $22.64/day)
Attorney’s 
fees and expenses       $ 
42,383.23
Future 
attorney’s fees                     
$   
5,000.00
Total                                                   
$162,473.31 plus additional interest after 9/14/10 to be determined by 
the court.” 
 
[¶30]   Michael’s countered that, although 
ANB had the right under the terms of the promissory note to collect interest 
through the date of the final judgment, the district court had discretion to 
limit the amount of interest after the foreclosure sale.  Michael’s stated that, under principles 
of equity, it was proper to limit the amount of interest awarded to ANB because 
the accrued interest and requested attorneys fees “are in excess of eighty 
percent (80%) of the principal sum . . . of [the] Bank’s claim;” Michael’s is 
the source of the surplus funds because it purchased the property at the 
foreclosure sale and “every dollar awarded to [American National] Bank as 
interest is born[e] by Michael’s;” the combined claims of Michael’s and ANB are 
“far in excess” of the surplus foreclosure proceeds; and neither ANB nor 
Michael’s is “blameworthy or guilty of bad faith conduct.”  The district court was persuaded by 
Michael’s argument and concluded that it had discretion to limit ANB’s claim for 
contractual interest to the period from default until foreclosure and award the 
parties proportional shares of the interest earned on the funds after the 
foreclosure.   

 
[¶31]   The district court grounded its 
decision on the notion that foreclosure is an equitable proceeding.  Michael’s cites Bank of America, N.A. v. BA Mortgage, LLC, 
111 P.3d 226 (N. M. Ct. App. 2005) as authority for this position.  The New Mexico court of appeals stated 
in that case:  “Foreclosure is an 
equitable action, and the distribution of foreclosure proceeds should be 
governed by equitable considerations.”  
Id. at 229.  The New Mexico court did not, however, 
use that statement to support disregarding the contracts which created the liens 
and awarding a lienholder only part of its rightful recovery on the basis of 
equitable principles.3  
 
[¶32]   The Bank of America court explained that 
equitable concepts are associated with substituting the surplus foreclosure 
proceeds for the mortgaged property:
 
G. 
Nelson and D. Whitman, Real Estate Finance Law § 7.31, at 588 (2d 
ed.1985), states the rule regarding the right to surplus after 
foreclosure:
 
The 
major underlying principle is that the surplus represents the remnant of the 
equity of redemption and security wiped out by the foreclosure. Consequently, 
the surplus stands in the place of the foreclosed real estate and the liens and 
interests that previously attached to that real estate now attach to the 
surplus. They are entitled to be paid out of the surplus in the order of 
priority they enjoyed prior to foreclosure. The claim of the foreclosed 
mortgagor or the owner of the equity of redemption normally is junior to those 
of all valid liens wiped out by the foreclosure. (footnotes 
omitted).
 
Restatement 
(Third) of Property: Mortgages § 7.4 (1997), 
states the same rule, providing that “the surplus is applied to liens and other 
interests terminated by the foreclosure in order of their priority and the 
remaining balance, if any, is distributed to the holder of the equity of 
redemption.” Therefore, “the claim of the holder of the foreclosed equity of 
redemption to the surplus is subordinate to the claims of all other holders of 
liens and interests terminated by the foreclosure.” Id. cmt. 
b.
 
Bank 
of America, 111 P.3d  at 227-28.  See also, 59A CJS Mortgages § 1330 (recognizing that a 
junior lienholder’s lien against the encumbered property, although terminated by 
a foreclosure, is transferred in equity to the surplus proceeds from the 
foreclosure sale).  Thus, as the 
quoted excerpt from Bank of America 
makes clear, the New Mexico court of appeals understood that an equitable 
conversion of a lien on encumbered property to the surplus proceeds from a 
foreclosure sale occurs after foreclosure, and liens should be paid out of the 
surplus in the order of priority they enjoyed prior to foreclosure.  The court did not use equitable 
principles to deny the more senior lienholder any part of its claim to the 
surplus proceeds.     

 
[¶33]   Like Bank of America, Wyoming cases also 
confirm that foreclosure is an equitable action.  See, e.g., McNiell Family Trust v. Centura Bank, 
2003 WY 2, ¶ 9, 60 P.3d 1277, 1282 (Wyo. 2003) and cases cited therein.  However, we have consistently limited 
the application of equitable concepts in foreclosure cases when a contract 
and/or statute governs the outcome.  
For example, in Countrywide Home 
Loans, Inc. v. First National Bank of Steamboat Springs, N.A., 2006 WY 132, 
¶ 22, 144 P.3d 1224, 1230-31 (Wyo. 2006), we refused to apply the doctrine of 
equitable subrogation to defeat the priority of mortgages as established by 
Wyoming’s recording statutes.  
Similarly, in Thatcher, we 
refused to apply equitable principles to hold that a mortgage recorded after 
construction commenced on a golf course had priority over construction liens 
even though the funds provided by the mortgagee were used to finish the project 
and pay the owner’s outstanding debts.  Id. at 1326-27.  We stated that the legal principles 
expressed in the lien priority statutes could not be ignored in favor of 
equitable principles.  Id.  Both of these cases confirm that a court 
should not, in the context of foreclosures, routinely use concepts of equity to 
undermine legal principles.  

 
[¶34]   The district court concluded it had 
the discretion to limit the amount of interest ANB could recover from the 
surplus foreclosure proceeds.  This 
decision seems to assume that a contractual right to interest is somehow 
inferior to the right to collect the principal.  The importance of the contractual right 
to interest was eloquently discussed in Spring Coal, 239 F.  at 52, quoting Central Trust Co. v. Condon, 67 Fed. 84 
(6th Cir. 1895):
 
'In 
the distribution of the proceeds of a common security between liens of different 
priorities, we know of no principle by which interest can be stopped on the 
amount of the superior lien until its satisfaction. As between [different 
claimants,] the [superior claimants] are entitled to interest to the day of 
payment.’
 
The 
Spring Coal decision also stated: 
“'Principal as well as interest, accruing during a 
receivership, is paid on debts of the highest dignity, even though what remains 
is not sufficient to pay claims of a lower rank in full[.]’”  Id., quoting American Iron Co. v. Seaboard Air Line 
Railway, 233 U.S. 261, 34 S. Ct. 502, 58 L. Ed. 949 (1911).   With regard to the authority of 
courts to disregard the terms of a contract, the court stated:  “Courts of 
equity no more than courts of law have power to make contracts for persons or 
corporations, nor can courts substitute their judgment for the judgment of the 
parties to a contract.”  Spring Coal, 239 F.  at 
51.
 
[¶35]   Other authorities have recognized 
that a prior lienholder is entitled to full payment before lienholders of lesser 
priority are allowed to share in the surplus funds.  “Generally, 
the rights of successive junior lienholders are in order of priority and, 
between two successive junior lienholders, prior junior lienholder is entitled 
to satisfaction in full before 
any payment to lienholder of 
lesser priority.”  59A CJS Mortgages § 851.  While not directly addressing the issue 
of whether a senior lienholder is entitled to full payment of accrued interest 
before a junior lienholder can recover from surplus foreclosure proceeds, Wyo. 
Stat. Ann. § 34-4-113 (LexisNexis 2011) indicates that is the case.  Section 34-4-113 states in relevant 
part:
 
(b) 
If the foreclosing mortgagee receives a demand for the proceeds . . . by the 
holder of a subordinate or junior mortgage or other lien . . .  proceeds remaining after distribution 
[to the foreclosing lienholder] shall be paid over . . . to the subordinate 
mortgagees or lienholders in accordance 
with their priority and to the extent of their 
interest.
 
(emphasis 
added).  The fact that the statute 
refers to the priority of the lienholders and states that payment shall be made 
“to the extent of their interest” indicates the legislature intended that each 
lienholder be paid in accordance with its priority and in full before the next 
lienholder in the priority queue is paid.  
See also, Hudson Valley Bank, 35 A.3d  at 269 
(holding that disregarding lien priority and applying equitable apportionment 
would be improper under the circumstances where a single property is encumbered 
by two mortgages of different priority).
 
[¶36]   Here, § 29-1-305 clearly gave ANB’s 
mortgage priority over Michael’s lien.  
The terms of the promissory note included payment of interest through the 
time of judgment.  ANB’s right to 
interest was as important a contractual provision as its right to collect the 
principal.  ANB will be made whole 
and paid in full only upon an award of contractual interest for the entire 
period.  We conclude, therefore, 
that the district court did not have the discretion to limit ANB’s recovery by 
denying it interest at the contractual rate from the time of foreclosure through 
final judgment.  We remand for 
further proceedings to determine the amount of interest due ANB under the 
promissory note for that time period.
 
[¶37]   Affirmed in part, and reversed and 
remanded in part.   

FOOTNOTES
1This section was repealed effective July 1, 2011.  Wyo. Sess. Laws 2010, ch. 92, § 3.  However, Wyo. Sess. Laws 2010, ch. 92, § 
4 stated:  “The provisions of this 
act shall apply to all projects commenced on or after July 1, 2011.  Any projects commenced prior to July 1, 
2011, shall be governed by the lien procedures in title 29 that existed prior to 
July 1, 2011.”  Consequently, § 
29-1-305 applies in this case.
 
The current lien priority statute is found at Wyo. Stat. Ann. § 29-1-402 
(LexisNexis 2011) and states:
 
            
(a) Except as provided in this section, the liens provided by this act 
shall be on an equal footing without reference to the date of the filing of the 
lien statement.
 
            
(b) Any lien perfected in compliance with this act attaches to the real 
property, fixtures, materials, machinery or supplies furnished and improvements 
made in preference to any subsequent lien, security interest or mortgage under 
any other provision of law which has been perfected upon real or personal 
property, including a leasehold interest, against which the lien is 
claimed.
 
            
(c) Any lien, security interest or mortgage which has been perfected upon 
real or personal property or upon a leasehold interest prior to the commencement 
of any construction work or repair of the premises or property, except as 
provided by chapter 7 of this act, or W.S. 
29-8-102 
relating to liens for the production of farm products under contracts executed, 
entered into, renewed or substantively amended on or after July 1, 2001, shall 
have priority.
 
            
(d) Where a sale is ordered by the court on foreclosure of any lien 
provided by this act and the proceeds from the sale are insufficient to 
discharge in full all of the liens, the proceeds shall be prorated among the 
several lien claimants according to the amounts of their respective 
claims.
2Effective July 1, 2011, the word “title” was replaced with “act.”  Wyo. Sess. Laws 2010, ch. 92, § 2.    

3There are certain instances where courts have recognized that equitable 
principles may be applied to reduce a lienholder’s recovery.  Typically, this involves situations 
where there are multiple liens of equal priority and insufficient funds to pay 
all such lienholders in full or “encumbrancers [who] have been given security 
interests on separate estates” of the foreclosed property.  See, e.g., Hudson Valley Bank v. Kissel, 35 A.3d 260, 269 (Conn. 2012); Spring Coal Co. v. 
Keech, 239 F. 48, 51-52 (4th Cir. 
1916).  This concept is consistent 
with § 29-1-305(d) which required proration of the proceeds of a lien 
foreclosure sale among lien claimants of the same priority when the proceeds of 
the sale were insufficient to discharge in full all of the liens.  Such precedent does not, however, govern 
our decision in this case because we have two parties claiming against the same 
estate and one is clearly superior to the other.