No. 85-367 INTHE SUPREME COURT OF THE STATEOF MONTANA 1986

TRI-COUNTY PLUMBING & HEATING, INC., aMontana corp., andATLAS ELECTRIC, INC., a Montana corp., & INGRAM-CLEVENGER, INC., a Montana corp., Intervening Plaintiff, Plaintiffsand Respondents,

LEVEE RESTORATIONS,INC., aMontana corp., and DEER LODGE BANK & TRUSTCO., a corp., DefendantsandAppellants.

APPEAL FROM: District Court of theTwelfth JudicialDistrict, Inand for the County ofChoteau, TheHonorable Chan Ettien,Judgepresiding.

COUNSELOF RECORD: ForAppellant: Swanberg,Koby, Swanberg & Matteucci;Gorham Swanberg, GreatFalls,Montana (LeveeRestorations) Jardine, Stephenson,Blewett & Weaver; Greg Luinstra argued, Great Falls,Montana (DeerLodge Bank) For Respondent: Hooks & Rudewitz; Tom Budewitz argued, Townsend, Montana Ronald F. Waterman argued,Helena,Montana

Submitted: April 22, 1986 Decided: June 5, 198b

Filed:

## yub!5

# -1986

ClerkMr. Justice JohnConwayHarrisondelivered the Opinion of the Court.

Plaintiff Tri-County Plumbing and Heating, Inc./Atlas Electric, Inc. (hereinafter "Tri-County")brought this action in Chouteau County District Court to foreclose a mechanics' lien filed by them against certain realproperty located in Fort Benton, Montana, owed by defendant Levee Restorations, Inc. (hereinafter "Levee"). The Deer Lodge Bank and Trust Company (hereinafter "Bank")was alsonamed as a defendantby virtue of its mortgage on the same real property. Ingram-Clevenger,Inc. (hereinafter "Ingram-Clevenger") filed a motion to intervene as a plaintiff in order to foreclose its ownmechanic's lien on the sameproperty. The Bank then cross-claimed against Levee to foreclose itsmortgage on the subjectproperty. The matter was heard by the District Court, sitting without a jury,in March of 1985. InJuneof 1985, the trial court issued its findings of fact, conclusions of law, and decree granting judgment against Levee in favor of Tri-County and Ingram-Clevenger for the amounts requested in their respectivemechanic's liensplus interest,attorneys feesand costs. The trial court also awarded judgment against Levee in favor of the Bank for the amount of their mortgage plus interest,attorneys fees,and costs. The trial court further accorded the liens of Tri-County and Ingram-Clevenger equal status and declared them to be superior in priority to the mortgage of the Bank. In addition, the trial court granted lien status to certain items furnished by Tri-County and Ingram-Clevenger which followed the date on which their mechanic's liens were filed. These additional items were supplied by the two plaintiffs for the preservation and protection of the subject property and were awarded a firstpriority by the trial court over payment of all other liens and encumbrances. Only the Bank, and not Levee,appeals from this judgmentof the trial court. We affirm. On November 4, 1983, Ingram-Clevenger (a general contractor with its principal place of business in Helena, Montana) entered into several contracts with Levee for the interior restoration, remodeling and renovation of the Grand Union Hotel ("Hotel")located in Fort Benton,Montana. The total contractprice for thework tobe performed under these contractswas $862,260. Ingram-Clevenger then subcontracted a major portion of the work to Tri-County (a plumbing, heating and electrical contractor with hisprincipal place of business in Helena, Montana) for the performance of the plumbing,heating and electricalwork on theHotel. On February 6,1984, Levee obtained a loan from theBank in the amount of $210,000. The majority of this loan ($179,500) was applied by Levee to the Hotel renovation project. This loan was secured by two mortgages given by Levee to the Bank, one of which included a mortgage on the Hotel. The othermortgage givenby Levee to the Bank was not at issue in this lawsuit. The mortgage on the Hotel was recorded in the Chouteau County Clerk and Recorder's office

on February 10,1984. Ingram-Clevenger started work on theHotelproject on or about November 4, 1983. From time to time, as required under the construction contracts, Ingram-Clevenger submitted applications for payment to Levee's architect for the project, Richard Shope. Ingram-Clevenger submitted a total of nine applications for payment to Shope,ofwhich only the first four were approved and paid covering the period from November, 1983 through February, 1984. The last five applications for payment (coveringMarch through May, 1984)were not approved or paid by Shope because Levee had not secured future financing for the Hotel project. After the last payment was made by Levee to Ingram-Clevenger in February of 1984, Ingram-Clevenger continued to work on the project apparently in anticipation of Levee securing future financing. During the late spring of 1984, it became apparent that future financing for the project could not be found and Ingram-Clevenger halted work at the end ofMay. It appears that the only financing obtained by Levee for the Hotelprojectwas the above mentioned loan from the Bank. To date, Levee has only paid the sum of $145,440 to Ingram-Clevengerunder the Hotel project contracts, despite a total of over $600,000worth ofwork having beenperformed by theplaintiffs. On June 7, 1984, Tri-County filed a mechanic's lien against the Hotel in the amount of $149,829. This sum represented the amount it was owed by Ingram-Clevenger for its unpaid subcontracting work. On July 7, 1984, Ingram-Clevenger filed its own mechanic's lien against the Hotel for the sum of $441,344. This sum was the unpaid portion of the Hotel project contracts at the time the lien

was filed, and it was based on the unpaid applications for payment presented to Levee. Both of these liens were properly recorded with the Clerk and Recorder of Chouteau County. It should be noted tha.tTri-County's mecha.nic 

## 's lien claimwas included in its entirety in Ingram-Clevenger's lien except for the sum of $2,369. This amount represented items which were negotiated directly between Tri-County and Levee, and this sum was included in Tri-County's lien of $149,829. Following the filing of the mechanic's liens by Tri-County and Ingram-Clevenger, both Ingram-Clevenger andTri-County continued to incur expenses relating to the protection and preservation of the Hotel project. These expenses included $10,000 for the installation of a water line, $3,671.99 for insurancepremiums, $5,303.91 for gas and electricity,and $629 for repairs due to freezing. Once it became apparent that no more funds were forthcoming from Levee for the Hotel project, Tri-County filed suit on its mechanic's lien on June 8, 1984, and the above-described proceedings ensued. The District Court granted judgment against Levee in favor of Tri-County and Ingram-Clevenger for the respective amounts of their mechanic's liens, $149,829 and $312,491 (which included a $20,976 mathematical error discovered during trial). Ingram-Clevenger's judgment was later reduced by the trial court to the sum of $300,076 due to the sale of certain construction supplies from the Hotel project. The trial court also accorded equal lien status to the liens of Ingram-Clevengerand Tri-County,and declared themortgage of the Bank ($210,000) to be second in priority. The trial court further decreed that the "preservation" expenses incurred by Ingram-Clevenger and Tri-County should be accorded a first priority ofpayment over allother liensand encumbrances. TheBank now presents the following pertinent issues for reviewby thisCourt: 1. Did the District Court err in not granting a continuance of the trial in order that discovery could be initiated and completed? 2. Was there substantial evidence to support the finding of the District Court as to the amount of Ingram-Clevenger's lien and that the lien was not in fact overstated?3. Did the District Court err in awarding lien status to certain "preservationexpenses" incurred subsequentto the filing of Ingram-Clevenger's and Tri-County's mechanic's liens and granting a priority to these expenses superior to that accorded either the mechanic's liens or the Bank's mortgage? 4. Did the District Court err in awarding Ingram-Clevengeran amount in excess of the stated amount of its lien as actually filedwith the Clerk and Recorder where

no additional or supplementallienwas filed? 5. Did the District Court err in awarding the liens a priority statusover thatof theBank's mortgage? I. Did the District Court err innotgranting a continuance of the trial in order that discovery could be initiated and completed? The Bank basically argues the District Court erred in not granting its request for a continuance on the day of trial. The Bank argues it needed the continuance because it was not prepared to adequately cross-examine the lien claimant's witnesses due to an insufficient amountof time to conduct discovery. The Bank points out this case had originally been set for trial in November, 1984. At that time,theparties stipulated to a vacation of that trial date due to pending settlement negotiations. Thereafter, on January 24, 1985, the original counsel for the Bank withdrew from the case and present counsel was substituted. The District Court then set the case for trial on February 26, 1985,whichwas just over one month after thepresent counsel for the Bank came into the case. The Bank argues its present counsel immediately filed a motion for a continuance, which was granted,but the trial datewas only set back some threeweeks to March 12, 1985. The Bank points out its present counsel had only been appointed for seven weeks when the trialbegan. The Bank contends due to the quick trial date of this case after its substitution of new counsel, adequate discovery was not conducted by any of the parties involved. In fact, the Bank argues,no discovery had been initiated by any of the parties until the Bank's present counsel came into the case. Therefore, the Bank argues, it was prevented at trial from properly cross-examining the claimants' witnesses

(especially with regard to the amounts of the mechanic's liens), and this Court should grant it a new trial. We disagree. First, it must be pointed out that any motion for a continuance of trial is within the sound discretion of the District Court. This Court has said it will not overrule a District Court's decision to deny a motion for a continuance of trial unless there is "an affirmative showing that the complaining party has suffered prejudice." State v. Bailey

(1935), 99Mont. 484, 488, 44 P.2d 740, 742. In the present case,there isno showing that the Bank sufferedprejudiceby proceeding to trial on the scheduleddate. As the claimantspoint out,the Bank had nine months to do whatever discovery it deemed necessary from the date the suit was filed (June 8, 1984) until the date of trial (March 12, 1985). Admittedly, new counsel was substituted for the Bank on January 24, 1985, but one continuance of the trial

was granted for this reason (February26 to March 12, 1985). Furthermore,once new counsel was substituted for the Bank, they made no effort to do any discovery on their own. The record indicates they made no effort to schedule any depositionsor request theproduction ofdocuments.Therefore, the District Court did not abuse its discretion in denying the Bank's motion for a continuance made on the day of trial.

Was there substantialevidence to support the finding of the District Court as to the amount of Ingram-Clevenger's lienand that the lienwas not in factoverstated? The Bank correctly points out that under Montana law a mechanic's lien claimant does not have a right to a lien untilhe can showorprove his lien. The burden is upon the plaintiff to establish his lien (citation omitted), and, to support this burden, he must show, not only that he furnished thematerials,but also that theywere used for the enhancement of the property to which he claims he has a right to resort as security for thedebt thus created. In the absence of this showing, his equity does not arise (citationsomitted). Rogers

## - Templeton Lumber Co. v. Welch (1919),56 Monte 321,

The Bank further points out it is clear in Montana that a lien holder is entitled to the reasonable value of its laborand materials furnished. The abandonment of an improvement before the completion thereof, by the owner of the premises, without fault on the part of the contractor, does notabrogate the right of the contractor,laborers, and material men to mechanics' liens for the value of the work done and the material furnished.

(Citations omitted)

# . Williams Brothers Construction v. Vaughn (Mont. 1981), 631

In light of these standards, the Bank argues that Ingram-Clevenger, and therefore Tri-County, have not established the amountsof their liens. The Bank asserts the

measure of damages to which the lien claimants are entitled is determined by the value of the materials and labor furnished which, of course, is a matter of proof. The Bankargues the claimants cannot base the amounts of their liens solely on estimates of the labor and materials they put into the Hotel project. Yet, the Bank argues, that is exactly what the lien claimantshave done and that is the basis upon which the District Court awarded them the amounts of their liens. The Bank contends in the present case the amount of Ingram-Clevenger's lien, which includes Tri-County's lien,

was establishedmainly through the testimony of Joe Petrini, the secretary/treasurer for Ingram-Clevenger. The Bank claims that Petrini testified at trialthathewas theperson who prepared and submitted the applications for payment to Levee's architect for the Hotel project, Richard Shope. The Bank further claims that Petrini testified that these applications forpayment submitted to Levee were notbased on the actual amount of materials and labor put into the project, but rather he testified that these applications for payment were based solely on estimates of the labor and materials furnished. The Bank strongly relies on the following testimony from Petrini to establish that Ingram-Clevenger's applications forpaymentwere solelybased

on estimates: Q. (By Ronald Waterman, Ingram-Clevenger's counsel) Mr. Petrini, in the application forms, as an example, the application dated through the period of December 3rd, 1983, would you tell the court, are these commonly prepared by you? A. (By Petrini) In the course of our business, yes. Q. And how are theseprepared? A. At the requestof an architect,owner. And to eliminate confusion, to try to allow the architect and the owner to reasonably review percentage of completion, we prepared a breakdown. In this case, at the request of the architect prior to submittal, this wasacceptable to him. And we proceeded on that basis. Q. Did you actually develop this application, you,yourself? A. Yes. Idid. Q. And were these figures drawn from other books and records which are regularly kept within, with Ingram-Clevenger? A. Okay. These figures are developed using our estimated, estimating procedure. This I funnel all of those estimated costs into a category. Just to allow everyone to be able to better understand the billing process.

(Emphasisadded.) The Bank claims the above testimony,togetherwith other testimony by Petrini, establishes that the figures used on the applications for payment submitted to Levee were based only on estimates of the work completed and were not developed from an actual tally of hours spent on the job or frommaterials invoiced and installed. The Bank argues there

was no proof presented at trialwhatsoever which established a certain dollar figure of the labor and materials actually put into the Hotel project. Consequently, the Bank argues, because these estimated applications for payment were the basis for the amounts of the claimants' liens, the liens themselvesare only estimatesandmust be disregarded. Furthermore, the Bank argues, there was also strong evidence presented at trial that Ingram-Clevenger's lien, which includes Tri-County's lien, was in fact overstated. The Bank points to the testimony of Richard Shope (Levee's architect for the project) and Larry Truchot (an architect and independent contractor who testified on behalf of Levee and the Bank) to establish that Ingram-Clevenger's lien was excessive. The Bank argues both of these men separately evaluated the amount of materials and labor which actually went into theproject and compared this amount to the figureson Ingram-Clevenger's filed lien,and bothmen concluded that Ingram-Clevenger's lien was excessive. In fact, the Bank asserts, Shope and Truchot testified that Ingram-Clevenger's filed lien shouldbe reduced somewherebetween 15percent and 22 percent. Therefore, the Bank argues, because Ingram-Clevenger's lien appears to be intentionally overstated based on a faulty "estimatingprocedure," the lien itself should be vitiated (voided). See, Duval v. Fuchs

(1962), 141Mont. 123, 375 P.2d 541. At the very least,the Bank seems to argue, this case should be remanded for a new trial for an accounting of the actual amounts of the claimants' liens. We disagree. We hold there is substantial evidence in the record to support the award as to the amount of a Ingram-Clevenger's mechanic's lien and that this lien was not in fact overstated. First,the amountof Ingram-Clevenger's lienwas not based on estimates as the Bank suggests. Joe Petrini

(Ingram-Clevenger's secretary/treasurer), testified thoroughly and completely during trial about the work which had been performed by the claimants on the Hotel project but which remained unpaid. Petrini's testimonywas not based on estimates, but rather itwasbased.upon the actual records of labor performed, materials supplied, and subcontract work done. The District Court had before it the summaries of the labor and materials supplied by the claimants (plaintiffs' exhibits A-1 through A-10) and also the primary documents fromwhich these summarieswere taken (plaintiffs'exhibits B and C). As Petrini testifiedwith regard to exhibitC: Q. (ByMr. Waterman) Handing you what has been marked proposed exhibit C,what is exhibit C? A. (ByPetrini) Exhibit C is a computerprepared job cost information. THECOURT: What?A. Job cost information for all of ourprojects. Q. This is allofyourprojects that are ongoing? A. That's correct. g. Does part of these records contain the job cost information relative to the Grand Union Hotel? A. That's correct. Q. And is that designated in exhibit C with this white mark? A. That's correct. Q. And where are those records drawn from? A. From actual costs, labor, actual invoices. Subcontractexpenses. (Emphasisadded.) Q. Do these job costs,were these job costs then used in making the calculations to come up with the exhibits A and A-1 through A-lo? A. That's correct. As evidenced from the above testimony, we hold Ingram-Clevenger's lien was not based on estimates, but rather itwasbased upon actual job cost figures. Therefore, there is substantial evidence in the record to support the amountsof the claimants' liens. We further find that Ingram-Clevenger's lien was not overstated. The testimony of Richard Shope and Larry Truchot, who both testified that Ingram-Clevenger's lien should be reduced by 15 percent to 22 percent,was obviously disregarded by the District Court. We see no reason to disturb that finding by the lower court,especially in light of the overwhelming evidence in the record, as discussed above, that supports the amount of Ingram-Clevenger's filed lien. Therefore, we find the amount of Ingram-Clevenger's lienwas not overstated and the award as to the amountof the lien shall stand.Did the District Court error in awarding lien status to certain "preservation expenses" incurred subsequent to the filing of Ingram-Clevenger's and Tri-County's mechanic's liens and in granting a priority to these expenses superior to that accorded either the mechanic's liens or the Bank's mortgage? As noted in the facts sectionof this opinion, following the filing of the mechanic's liens by Tri-County and Ingram-Clevenger, both of these claimants continued to incur expenses relating to the protection and preservation of the Hotel project. These expenses included $10,000 for the installation of a waterline, $3,671.99 for insurance premiums, $5,303.91 for gas and electricity, and $629 for repairs due to freezing. The District Court concluded that these preservation expenses incurred by the claimants should be accorded a first priority ofpayment over all other liens and incumbrances involving the Hotelproject. Apparently the Bank does not take issue with the District Court's characterization of these expenses as "preservation and protection expenses." Rather, the Bank argues these items should not be accorded lien priority status ahead of the claimants' mechanic's liens or its mortgage. The Bank essentially argues there is no authority in Montana which entitles amechanic's lien claimant to tack onto its lien, after it is filed, expenditures for the "preservation and protection" of the encumbered property. The Bank argues this does notmean the preservation expenses

are not due and the claimants are not entitled to recover these sums from Levee, it simply means these expenses are only a general judgment lien on the Hotel property with a priority behind that of both the mechanic's liens and the Bank'smortgage. We disagree.We hold there is sufficientstatutory authority to allow the claimants to add on to their liens,after they are filed, expenditures for thepreservation andprotectionof the Hotel property. Section 71-3-112, MCA,provides: Holder of lien not entitled to compensation. 

### --- - Except as otherwise provided by the Uniform CommercialCode, onewho hold property by virtue of a lien thereon is not entitled to compensation from the owner thereof for any trouble or expense which he incurs respecting it, except to the same extent as a borrower under 70-7-110 and 70-7-111. Of the two statutes mentioned in § 71-3-112, MCA, § 70-7-110 is the statute which is pertinent to the instant

case and reads as follows: Who to bear expenses. Theborrower of a thing for 

### --- use must bear all its expenses during the loan, except such as are necessarily incurred by him to preserve it from unexpected and unusual injury. 

### -- For such expenses he is entitled to compensation from the lender, who may, however, exonerate himself by surrendering the thing to theborrower.

(Emphasisadded.) Although these statutesdo not specifically address the situationof the instantcase,theymake one obviouspoint--a lien claimant is entitled to reimbursement from the owner for any expenses necessary to preserve his security from unexpected and unusual injury. Section 71-3-112 is contained under the general provisions regarding lien statutes (Title 71,Chapter 3,Part 1,MCA), therefore itsmeaning applies to all types of liens involvingboth realand personal property. We agree with the claimants that installation of the water line,premiums for fire insurance,the costsofgas and electricity, and repairs due to freezing were necessary to "preserve it [theHotelproperty] from unexpected and unusual injury." It is clear that the absence of any of these items would have adversely affected the Hotel property and the improvements made by the claimants. Further, these are expenses that Levee would benefit from if itwere to redeemits interest in the Hotel property at some future date. Therefore, the protection of the claimants

### ' mechanic

### 's liens should extend to these items. Finally, after finding the preservation expensesmay be added to the claimants' mechanic's liens,we agree with the District Court that these items should be accorded a first priority of payment. If a lien priority status is not awarded to these items, a mechanic's lien claimant would be forced with a choice of either permitting damage or destruction to its security,or spendingmoney without hope of reimbursement. Furthermore,as mentioned above, the owner of the property (i.e. Levee) also indirectly benefits from any necessary preservation expenses. Consequently, the District Court's ruling regarding the preservation expenses shall stand. IV. Did the District Court err in awarding Ingram-Clevenger

an amount ($20,976) in excess of the stated amount of its lien as actually filed with the Clerk and Recorder where no additionalor supplemental lien was filed? Simply stated, the Bank argues that Ingram-Clevengeris not entitled to the amountof a mathematical error discovered during the course of trial. During trial, Petrini

(Ingram-Clevenger's secretary/treasurer) testified there was

a $20,976 mathematical error in Ingram-Clevenger's filed mechanic's lienand that the lien should be increasedby this amount. The District Court ultimately awarded Ingram-Clevenger this math error and tacked it onto the amount of their filed lien. The Bank argues there is no authority in Montana which permits a lien claimant (suchas Ingram-Clevenger) to increase (amend) its lien over that which has officially been filed. TheBank goes on furthertoargue that Ingram-Clevenger's only remedy would have been to file a new lien, which was not done. Just aswith regard to issue 3, the Bank argues this does notmean themathematical

error is notdue and Ingram-Clevenger cannot recover this sum from Levee, it simplymeans the mathematical error is only a general judgment lien on the Hotel property with a priority behind that of both the mechanic's liens and the Bank's mortgage. Once again,we disagree with the Bank. The Bank correctly points out that under Montana's mechanic's lien statutes, certain proceduresmust be followed in order to establish avalid lien. Further,these statutory procedures 

### by which a lien isperfected and enforced must be strictly followed or the lien isvoid. See,Crane and Ordway Co. v. Baatz (1917)53Mont. 438,164 P. 533;~arco-~ruden v. Nelson (1979), 181 Mont. 252, 593 P.2d 48; General ~lectric Supply Co. etc. v. Bennett (Mont. 1981), 626 P.2d 844, 38 St.Rep. 553. However, this Court has also repeatedly said that this state's mechanic's lien laws are to be "liberally construed": [It is a] well-known rule thatmechanics' lien laws are remedial, and therefore to be liberally construed and applied

# ... It is that, the necessary steps having once been taken to secure the lien, the law is subject to the most liberal construction, for it is remedial in character,and rests upon broad principles of natural equity and commercialnecessity. Crane, 164 P. at 534. Also, along this same line,this Court recently stated: ThisCourt has uniformly held that the requirements of the mechanic's lien statutes as to procedure will be strictly enforced. Once the procedure has been fulfilled, the statutes will be liberally construed so as to give effect to their remedial character. (Citationsomitted.) General Electric, 626 P.2d at 846. We hold the above principles are applicable to the instant case. Ingram-Clevenger, as the record indicates,precisely followed Montana

### 's statutory procedure (571-3-51(1)

## , MCA) in perfecting and securing its mechanic's lien--the only problem being it made a good faith mathematical error in the amountof the lien. As the General Electric case indicates, once the procedure to establish a lien has been fulfilled, the statutes will be liberally construed so as to give effect to their remedial character. We hold Ingram-Clevengershould not be prejudiced by its good faithmistake. The company made every effort to comply with the steps necessary to acquire its lien, and equity demands it receive the entire value of its labor and materials put into the Hotel project. Therefore, the District Court was correct in awarding Ingram-Clevenger the amount of its mathematical error.

Did the District Court err in awarding the mechanic's liens a priority status over that of the Bank's mortgage? The Bank begins its argument by stating that assuming arguendo the mechanic's liens filed by Ingram-Clevenger and Tri-County arevalid and enforceable for their stated amounts

(whichwe have held they are), they are stillnot entitled to

apriority over the Bank's mortgage. The Bank asserts that 5 71-3-502(4), MCA, is the section that controls with regard to the priorities of the instant

case. This statuteprovides: Section 71-3-502. Priorities.

(4) The liens attach to the buildings, structures, or improvements for which they were furnished or the work was done in preference to any prior lien, encumbrance, or mortgage upon 

### -- the land upon which sai~buildings, structures,or improvementswere erected;and any person enforcing such lien may sell the same under execution, and the purchaser mayremove the property sold within a reasonable time thereafter. (Emphasis added.) The Bank essentially argues that although this statute specifically says that a mechanic's lien has priority over a prior recorded mortgage, by the words "mortgage upon 

### - the land" and "wereerected" thepriorities of this statuteapply only where a mechanic's lien arises out of the construction of a new structure onpreviously unimproved land. The Bank adopts this interpretation from two early cases by this Court: Interstate Lumber Company v. Rider (1933), 93 Mont. 489, 19 P.2d 644 and Dewey Lumber Company v. McQuirk (19341, 96 Mont. 294, 30 P.2d 475. With regard to the instant case, the Bank argues that although its mortgage on the Hotel property was recorded prior to the claimants' mechanic's liens, their mechanic's liens 

### -- do not have priority under 5 71-3-502(4) because their liens arose out of an existing structure on previously improved land. The Bank asserts that because the claimants

were remodeling and renovating an existing structure (i.e. the Hotel), the priorities of $ 71-3-502(4) do not apply and the claimants' liens must yield to the Bank's mortgage. To reach the above result, the Bank admits this Court must overrule one of its recent decisions. In Home Interiors, Inc. v. Hendrickson (Mont. 1984), 692 ~.2d 1229, 41 St.Rep. 2408, this Court directly interpreted themeaning of $ 71-3-502(4) and stated under the facts of the case that mechanic's liens are superior to prior recorded.mortgages or trust indentures regardlessof the nature of thework doneby the lien claimants. The Court in Home Interiors refused to strictly interpret thewords "upon the land" as the Bank now suggests, and stated such an interpretationwould defeat thepurpose of § 71-3-502(4) which is that amechanic's lienhas priority overaprior recordedmortgage. The claimants,on the other hand,argue theirmechanic's liens have priority over the Bank's mortgage by virtue of a simple statute which the Bank has overlooked. Section 71-3-502(3),MCA,provides: 71-3-502. Priorites.

(3) The liens forwork or labor done or material furnished, as specified in this part, shall be prior to and have precedence over any mortgage, encumbrance, or other lien made subsequentto the commencementofwork on any contract for the erection of such building, structure, or other improvement. The claimants point out they contracted with Levee to restore and remodel the Hotel on November 4, 1983, and commenced work on or about the same day. The Bank advanced its loan to Levee on February 6,1984,and filed its mortgage

on February 10, 1984. The claimants note that under the clear wording of subsection (3) of 5 71-3-502 their mechanic's liens are superior to the Bank's mortgage. Therefore, the statute and cases relied upon by the Bank are not relevant to thepresent case. Section 71-3-502(3)

## ,MCA, 

### - is the only pertinent lawwhich needs to be applied to this

case. We agree. We further find no merit in the Bank's argument that 5 71-3-502(3) should be strictly construed to pivot on the phrase "for the erection of such building, structure, or other improvement." Under subsection (3),the priority of a mechanic's lien over a subsequent mortgage is 

### - not limited to a situation where a new structure is built (erected) on previously unimproved land. Such an interpretation would defeat the obvious purpose of the statute.Finally, the claimants argue, and we agree, even if S 71-3-502(3) was not applicable to the present case (which it is)

## ,this Court has recently held under the facts in Home Interiors that a mechanic's lien is superior to a prior recorded mortgage. In Home Interiors we stated that mechanic's liensheld by material suppliershad priority over

a prior recorded trust indenture under § 71-3-502(4) because the holder of the trust indenture was the party with the greatest ability to protect its interest by either withholding funds to the extent of the contemplated improvements or by requiring the landowner to obtain lien waivers. We went on to say this result does not spell imminent disaster for the holder of a prior recorded trust indenture; itmerely requiresthe holder of a trust indenture to exercise ordinary business prudence where construction is contemplated. As we stated: We therefore hold the party having the greatest ability to protect its interestshas the burden of exercising due care to prevent overreaching by an interested party. In this case respondent [a mortgage corporation] was in the best position to protect against non-payment by the landowner by either withholding funds to the extent of the contemplated improvements or by requiring the landowner to obtain lien waivers from the mechanics. Home Interiors, 692P.2d at 1232. We see no reason to distinguish the Home Interiors case from the instant case. The Bank in the present casehad the

sameopportunityand responsibilityas the respondent in Home Interiors if itwanted to protect itsmortgage from the lien claimants rights. We hold our decision in Home Interiors is still sound law, and we reject the Bank's analysis of $3 71-3-502(4) as set forthabove. Therefore,even under this Court's ruling in Home Interiors, the claimants' liens take priority over the Bank's mortgage.The judgment of theDistrict Court is affirmed.