Opinion ID: 2033199
Heading Depth: 1
Heading Rank: 6

Heading: priority between security interests and construction liens

Text: NationsBanc contends that the full amount of its deed of trust has priority over Lincoln Lumber's construction lien because the funds for its subsequent security interest were used to pay off the construction loan, which had priority over the construction liens. Section 52-139 provides the framework for determining priorities between construction liens as against other claims. In general, construction liens have priority over adverse claims of which the contractor is unaware. See & sect; 52-139(1). However, subsection (4) provides that [t]o the extent that a subsequent security interest is given to secure funds used to pay a debt secured by a security interest having priority over a construction lien under this section, the subsequent security interest is also prior to the construction lien. In the absence of anything to the contrary, statutory language is to be given its plain and ordinary meaning; an appellate court will not resort to interpretation to ascertain the meaning of statutory words which are plain, direct, and unambiguous. Philpot v. Aguglia, 259 Neb. 573, 611 N.W.2d 93 (2000); Ferguson v. Union Pacific RR. Co., 258 Neb. 78, 601 N.W.2d 907 (1999). NationsBanc argues that subsection (4) provides that its subsequent security interest has priority over the construction liens for the full amount required to pay off a prior construction loan. However, if the Legislature had intended that a subsequent security interest would have priority for the full pay-off amount of a prior construction loan, it would not have limited that priority to the extent of the prior construction security interest's priority over any construction lien. This reading is consistent with the comments to the Uniform Simplification of Land Transfers Act, upon which the Nebraska Construction Lien Act is based. See Action Heating & Air Cond. v. Petersen, 229 Neb. 796, 429 N.W.2d 1 (1988). This statutory subrogation of the latter to the prior interest recognizes that the lien claimant is not prejudiced by having one creditor substituted for another so long as the total amount having priority over his interest is not increased. Unif. Simplification of Land Transfers Act § 5-209, comment 1, 14 U.L.A. 339 (1990). Union Bank, pursuant to its security interest in the construction loan to Daugherty, could have asserted a first priority lien against the property to the extent it had made disbursements. The last disbursement record before the filing of the construction liens showed that $66,094.69 had been disbursed on Daugherty's construction loan. Therefore, no other contractors or suppliers would have been prejudiced by giving NationsBanc's subsequent deed of trust priority for that same amount. However, to give NationsBanc priority for the $9,405.34 paid over and above the construction loan's priority does prejudice the interests of those filing construction liens ahead of the deed of trust. Therefore, the district court's determination that NationsBanc's deed of trust for $75,500 had priority over the construction liens only to the extent of the $66,094.69 disbursements was correct with respect to the interests of Kaser. The district court erred, however, in coming to this same conclusion as to the interests of Lincoln Lumber. Both Kaser and Lincoln Lumber were entitled to the unpaid part of their contract price under § 52-136(1). Because Daugherty's notice of commencement was in effect at the time they filed their liens, both liens attached on the date the notice of commencement was filed pursuant to § 52-137(2), and the claimants therefore had equal priority under § 52-138(1). At trial, however, Lincoln Lumber stipulated on the record that NationsBanc's security interest had priority over its construction lien. The general rule is that parties are bound by stipulations voluntarily made. Mischke v. Mischke, 253 Neb. 439, 571 N.W.2d 248 (1997). In Nebraska, parties are free to make stipulations that govern their rights, and such stipulations will be respected and enforced by courts so long as the agreement is not contrary to public policy or good morals. Mischke v. Mischke, supra (concluding estate was bound by stipulation made in earlier trial as to value of rents and profits notwithstanding intervening Nebraska Supreme Court decision determining that estate was entitled to profits made by appellees on constructive trust principles); In re Estate of Mithofer, 243 Neb. 722, 502 N.W.2d 454 (1993) (affirming district court's rejection of party's request to withdraw from stipulation made on record that fixed parties' interests in estate property where court record satisfied statutory requirement that such agreements be in writing); Kuhlmann v. Platte Valley Irr. Dist., 166 Neb. 493, 89 N.W.2d 768 (1958) (concluding it was error for district court to dismiss cause of action for damages for insufficient evidence when parties had stipulated on record, with court approval, that issue of damages would be continued until later date); St. Joseph Dev. Corp. v. Sequenzia, 7 Neb.App. 759, 766, 585 N.W.2d 511, 516 (1998) (concluding that judgment debtor had stipulated away her right to assert trial court lacked personal jurisdiction due to insufficient servicerequired under Uniform Enforcement of Foreign Judgments Actby agreeing at trial that filing of foreign judgment created judgment lien on property in question), overruled on other grounds, Breeden v. Nebraska Methodist Hosp., 257 Neb. 371, 598 N.W.2d 441 (1999); In re Estate of Watson, 5 Neb.App. 184, 557 N.W.2d 38 (1996) (giving effect to stipulation that estate would pay for legal fees up to certain date despite clear evidence of attorney's conflict of interest in case that would otherwise prohibit payment of fees). Because the stipulation was binding on Lincoln Lumber, it was error for the district court to determine that NationsBanc's security interest had priority over Lincoln Lumber's construction lien only to the extent disbursements had been made on the construction loan. We conclude that pursuant to the parties' stipulation, NationsBanc's deed of trust for $75,500 has full priority over Lincoln Lumber's construction lien. The stipulation, however, is not binding on the rights of Kaser, since Kaser was not a party to a proceeding and did not assent to the stipulation. See, Torrison v. Overman, 250 Neb. 164, 549 N.W.2d 124 (1996) (concluding collateral estoppel could not be asserted against insurance company that was not party to consent judgment); Bryant Heating v. United States Nat. Bank, 216 Neb. 107, 114, 342 N.W.2d 191, 196 (1983) (dismissing appellee's argument that it was prejudiced by stipulation between other parties when it was not a party to the stipulation in question and therefore cannot be bound by it); Walker v. Collins Construction Co., 121 Neb. 157, 236 N.W. 334 (1931) (holding subcontractors are not deprived of right to lien by contract stipulation between general contractor and owner unless they assent to its terms). Because the stipulation was not binding on Kaser, NationsBanc's subsequent deed of trust has priority over Kaser's lien for only $66,094.69, which was the extent that disbursements were made under the original construction loan.