#### Watson Land and Improvement Company *v.*C. H. Salyers.

*Mechanics’ liens*— Priority—Purchase-money *mortgage subordinated to construction lien.*

The fact that a vendor of land agrees that a purchase-money mortgage shall be subordinated in lien to one given by the purchaser to obtain money with which to erect a building on the premises does not render it subordinate to mechanics’ liens which should have been, paid by the purchaser out of money realized on the loan.

Argued Oct. 20, 1914.

Appeal, No. 207, Oct. T., 1914, by Pittsburgh Hardwood Door Company, Mechanics’ Lien Creditor on Mechanics’ Liens, Nos. 93, 94, 95, 96, 97, 98, 99,100,101,102,103 and 104, Oct. T., 1913, from judgment of C. P. Allegheny Co., upon execution in case of Watson Land and Improvement Company, a Corporation, v. C. H. Salyers, on exceptions of Pittsburgh Hardwood Door Company, et al, Mechanics’ Lien Creditors, to the Sheriff’s Special Return.

Before Fell, C. J., Brown, Mestrezat, Stewart and Moschzisker, JJ.

Affirmed.

*455Exceptions to sheriff’s special return.

The court overruled the exceptions and confirmed absolutely the sheriff’s return in an opinion by Fobd, J., as follows:

On April 17,1912, the Watson Land and Improvement Company made a contract with C. H. Salyers for the sale of fifteen lots in the plan of the Watson Land’and Improvement Company situate on Watson boulevard and East streets, Pittsburgh. By this contract or agreement a purchase-money mortgage was to be given securing the payment of the consideration-money, $17,400.

The contract recites that Salyers “desires to purchase the said lots for the purpose of erecting dwelling houses thereon in accordance with plans and specifications to be submitted to” the land company and Salyers agrees to “erect on each lot a dwelling house in accordance with plans and specifications to be submitted to” the land company and to be satisfactory to the party of the first part, “all of which houses shall be completed within ten months from the execution of this agreement.”

It was further agreed that the purchase-money mortgage shall contain provisions for postponing it, first to and in favor of a construction loan or loans and also after the satisfaction of such construction loans to and in favor of a mortgage or mortgages in an amount not to exceed in the aggregate the actual outlay of the party of the second part (Salyers) in the construction of said houses......In calculating the outlay no credit shall be taken by said party of the second part for his own time nor for any profit but only for moneys actually expended by him.

In compliance with the terms of the agreement the land company by deed dated July 10th and recorded July 12, 1912, conveyed the lots of C. H. Salyers and on the same day C. H. Salyers executed and delivered to the land company a purchase-money mortgage. The mortgage was for the sum of $17,400, the full purchase-price *456of the lots and contained the provision for postponement and release stipulated in the agreement.

On the same day the parties entered into a supplemental agreement reciting the deed and mortgage. Salyers agreed to begin the construction of the houses within ten days.

On October 8,1912, O. H. Salyers executed a bond and mortgage in favor of Roy L. McGrew. The mortgage is recorded in Mortgage Book, Yol. 1490, page 486, and by its terms was an advance money construction loan in the sum of $35,000 payable in nine months and- covering .twelve of the fifteen lots conveyed by the land company and described in the purchase-money mortgage from Salyers.

On October 14, 1912, the Watson Land and Improvement Company postponed of record the lien of the purchase-money mortgage to- the lien of the said mortgage securing the construction loan on the twelve lots.

Thereafter — the date not definitely appearing — C. H. Salyers began the erection of twelve houses on the lots covered by the mortgage securing the construction loan. Salyers failing to pay for the material and labor for the houses, mechanics’ liens were filed by the claimants.

On August 13, 1913, the land company, alleging default in payment, entered judgment on the bond secured by the purchase-money mortgage given by Salyers to the land company. A fi. fa. was issued thereon and so proceeded in that on November 15, 1913, the fifteen lots covered by the purchase-money mortgage were sold to the land company, the plaintiff in error, for the sum of $7,500. The sheriff made special return of the sale to court, distributing the fund less the costs and taxes to the plaintiff. To this distribution the mechanics’ lien creditors filed exceptions and the case is now before the court.

The exceptants filed six exceptions, but state their position under two heads:

(1) As between Salyers and the land company the *457agreements under which Salyers purchased constituted an improvement contract and the estate of both parties or their interest therein is bound by the mechanics’ liens and therefore these liens are prior to the lien of the purchase-money mortgage.

(2) There is a specific contract between Salyers and the land company under which the mortgage of the land company shall be postponed to the cost of the houses and for this reason the mechanics’ liens are preferred over the lien of the purchase-money mortgage.

The right of a tenant for years, under what has been called an “improvement lease,” to subject the demised premises to mechanics’ liens grows out of his position, as it were, of a contractor or agent. “Where the tenant contracts with the landlord to build or add to or repair a building for compensation to be made by the landlord either in money or by occupation and use of the premises, he is regarded as an ordinary contractor to build or repair......The tenant is the landlord’s agent holding possession for him, building and repairing for him and at his ultimate cost.” Hall v. Parker, 94, Pa. 109.

Our attention has been called to no case in this State in which the question now considered was determined.

In Lee v. Gibson, 104 Tenn. 698, it was said “A mechanics’ lien is superior to a vendor’s where, as an inducement to his conveyance of the land, the vendor stipulates that certain buildings and improvements shall be erected thereon, according to plans and specifications and at a price to be approved by himself and agrees to advance and loan a certain sum to the vendee for this purpose.”

In Henderson v. Connelly, 123 Ill. 98, the syllabus reads: “Where the vendor, by his contract, expressly authorizes his vendee to erect a building on the premises agreeing to advance money to aid such improvement as the work progresses, and before any termination of the contract and notice thereof a mechanic furnishes materials and performs labor in the erection of such build*458ing the latter will not be required to look alone to tbe title held by tbe vendee but may enforce bis lien against tbe legal as well as tbe equitable owner.”

In tbe cases cited as well as in Hill v. Gill, 40 Minn. 441, tbe vendor bad an immediate interest in tbe building, agreed to advance tbe moneys necessary to meet tbe cost of construction and tbe vendee was regarded as tbe agent of tbe vendor.

In tbe case at bar it is not contended, nor is there testimony, that tbe land company agreed to advance or loan money in aid of tbe erection of tbe buildings. Its covenant was to postpone tbe lien of tbe purcbase-money mortgage, first, in favor of a construction loan or loans and, second, after tbe satisfaction of tbe construction loan, in favor of a mortgage or mortgages not to exceed tbe aggregate of tbe actual cost of tbe buildings.

Tbe fact that a vendor agrees that tbe purcbase-money mortgage shall be subordinate to one given by tbe purchaser to obtain money with which to erect a building on tbe premises does not render it subordinate to a mechanics’ lien which should have been paid by tbe purchaser out of tbe moneys realized on tbe loan: Hoagland v. Lowe, 39 Nebr. 397.

From tbe evidence it appears that O. H. Salyers was a building contractor, described by one of tbe witnesses as *“a.*man who builds bouses and sells them. He is an operator.” It is clear that Mr. Salyers desired to purchase tbe property and that tbe land company was willing to sell at a fixed and definite sum, that sum to be wholly secured by a purcbase-money mortgage. Tbe purpose for which tbe company would postpone was clearly expressed in tbe mortgage and tbe plaintiff’s covenant was in part performed by postponing to tbe $35,000 mortgage. Salyers’ negotiating and placing tbe $35,000 mortgage was apparently to provide a fund from which to pay contractors, material men and laborers. If it wás not so applied tbe failure does not seem to be tbe result of connivance or fraud on tbe part of tbe land *459company. The land company was under no duty to see to the application of the moneys realized on the construction loan: Moroney’s App., 24 Pa. 372.

That the land company did not fully perform its agreement was due to no default or neglect on its part. The construction mortgage was not paid off and it does not appear that Salyers negotiated the second mortgage or series of mortgages. He defaulted in payment of the purchase-money mortgage and the land company was within its rights in proceeding on the bond.

The claimants knew of the purchase-money mortgage and of the construction mortgage and the terms of each. If they examined the records they found that a fund had been created for the purpose of meeting the cost of construction. They might have protected themselves by notifying the land company or by notice to Roy L. McGrew.

The court dismissed the exceptions. The mechanics’ lien claimants appealed.

*Error assigned*was in dismissing the exceptions to the return.

*R. B. Ivory,*with him *J. C. Bily,*for appellant.

A mortgagee who encourages the improvement of the mortgaged property by an agreement to subordinate his lien to the cost thereof, is, as to persons furnishing labor and material for use thereon upon the faith of his promise, a promoter of such improvement, and their liens for labor and material are entitled to priority over his mortgage: Woodward v. Leiby, 36 Pa. 437; Leiby v. Wilson, 40 Pa. 63; Leslie v. Leonard, 10 Pa. Superior Ct. 548; McFall v. McKeesport & Youghiogheny Ice Co., 123 Pa. 253; Lee v. Gibson, 104 Tenn. 698; Bohn Mfg. Co. v. Kountze, 30 Neb. 719; Henderson v. Connelly, 123 Ill. 98; Hill v. Gill, 40 Minn. 441; Millsap v. Ball, 30 Neb. 728.

*460*W. W. Stoner, of J. M. Stoner & Sons,*with him *Weil & Thorp,*for appellees.

It is settled law that not only a grantor’s lien for purchase-money, but as well the lien of an advance money mortgage placed on the record prior to the commencement of the improvements, takes priority over the liens of mechanics erecting the same: Page v. Carr, 232 Pa. 374.

In this case an unconditional deed was delivered to vendee for the property described therein and a mortgage was taken for the full purchase price. As an inducement to the grantor to accept a mortgage for the full amount of the consideration, vendee agreed to erect houses on the property sold and the grantor and mortgagee stated in the mortgage explicitly its obligations as to postponement and release. This agreement to erect houses was, therefore, not part of the consideration for the purchase but was an inducement to the vendor to accept as security for such consideration a purchase-money mortgage for the full amount: Preston v. Wolfshafer, 47 Pitts. L. J. (O. S.) 103.

January 2, 1915:

Per Curiam,

The order appealed from is affirmed for the reasons stated in the opinion of Judge Ford.