Opinion ID: 1269312
Heading Depth: 1
Heading Rank: 6

Heading: The Question of Priority.

Text: By the decrees the mechanics' liens of plaintiff Drake were given priority over the liens of defendant Paget's mortgages, although the latter were executed and recorded prior to the creation of the former. Contending that this was error, counsel for Paget urge upon the court a re-examination of its decisions construing the statute which governs this question. That statute is ORS 87.025, Subdivisions 2 and 3. So far as pertinent to the present discussion it reads: (2) All liens created under ORS 87.010 upon any improvement shall be preferred to all prior liens, mortgages or other encumbrances upon the land upon which the improvement was constructed; and [in] enforcing such lien, the improvement may be sold separately from the land, and, when so sold, the purchaser may remove the same, within a reasonable time thereafter, not to exceed 30 days, upon the payment to the owner of the land of a reasonable rent for its use from the date of its purchase to the time of removal; but if such removal is prevented by legal proceedings, the 30 days shall not begin to run until the final determination of such proceedings in the court of first resort, or the appellate court if appeal is taken. (Subdivision 3, enacted by Oregon Laws 1939, ch 527, requires a seven-day notice of the delivery of material to be given to the owner of record of such prior recorded mortgage.) The language just quoted was a part of the mechanic's lien law enacted in 1885, Laws 1885 p. 14 § 3, and has remained unchanged from the time of its enactment to this day. In 1882 the court decided the case of Inverarity v. Stowell, 10 Or 261, which involved a question similar to that now before us. The statute under which that case arose contained no provision giving priority to a mechanic's lien over a prior recorded mortgage. The court applied the common-law rule that the building became a part of the land and subject to the lien of the mortgage as soon as it was annexed, and held that it had no power to postpone the prior lien of the mortgage to the mechanic's lien as to any portion of the property, either the land or the building. The present statute was first construed in 1898 in Cooper Mfg. Co. v. Delahunt, supra, in an opinion by Mr. Justice ROBERT S. BEAN. The question presented was whether a lien for material furnished for the erection of a dwelling house upon premises on which there was a mortgage recorded before commencement of construction should be given priority over such mortgage as to the building alone. The court said:    The statute is not clear, but it seems to us that its evident meaning is that all mechanics' liens shall attach to the building or other improvement in preference to prior liens, mortgages, or other incumbrances upon the land, whether such mechanic's lien is for the original construction, or the alteration or repair of the building. It provides, in effect, that the liens created by this act upon any building or other improvement shall be preferred to all prior liens on the land upon which such building or other improvement shall have been constructed, or upon which it was situated when altered or repaired. This construction was announced in answering the contention of the holder of the mortgage that the priority granted by the statute to a mechanic's lien was for an alteration or repair of the building only, and not on account of its original construction. What was said in the opinion concerning liens for the alteration or repair of the building is concededly dictum, as the case involved no such liens. The dictum has since been overruled. Bratzel v. Stafford, 140 Or 661, 14 P2d 454, 16 P2d 991; Residential Finance Co. v. Larkin, 149 Or 410, 40 P2d 1008. These cases are in no sense authority for Paget's position. All that they actually decided was that under the particular facts of each case the mechanics' liens for alteration or repair of a building were inferior to prior recorded mortgages upon the land and building. This is true also of Wagner v. Shaw, 6 Alaska 647, and the unreported decision of Federal Judge Robert S. Bean in Stockton Box Co. v. Shasta View Lumber and Box Co., which is cited in Bratzel v. Stafford at pp. 666-668. Whether, in view of some of the language in the opinion of Mr. Justice CAMPBELL in Bratzell v. Stafford (see pp. 664, 665), there may be circumstances under which priority will be accorded to a mechanic's lien for alteration or repair of a building over a previously recorded mortgage upon the land and the building, is a question upon which we express no opinion because it is not before us. But the construction of the statute with respect to the question actually involved in Cooper Mfg. Co. v. Delahunt  which is the precise question to be decided here  has, so far as we have been able to determine, never been departed from in any subsequent decision of this court. On the contrary, the correctness of that construction seems to have been recognized by the court in Bratzel v. Stafford, supra, and Pacific Spruce Corp. v. Ore. Cement Co., 133 Or 223, 286 P 520, 289 P 489, 72 ALR 1507; and, until this day, it has not been challenged in this court since the decision was rendered more than 50 years ago. 10-12. Meanwhile, the legislature has met many times without amending the statute (save in a particular not here pertinent), thus indicating legislative approval of this court's interpretation of its meaning. The decision has become a rule of property. The court should certainly not be moved to change it by views pressed upon us in argument regarding the expediency of the statute. The wisdom or policy of such an enactment is a matter exclusively for legislative consideration. Phillips on Mechanics' Liens (3d ed) 423 § 238. Nor is there room for the contention that the statute, as we have construed it, is unconstitutional. That question would seem to be set at rest by Haines Commercial Co. v. Grabill, 78 Or 375, 382, 383, 152 P 877. See 121 ALR 618 and Phillips, op. cit., where the author says: It is competent to the legislature to give the mechanic, on the building he erects, a lien having priority over a previously recorded mortgage on the land. The decision in Pacific Spruce Corp. v. Ore. Cement Co., supra, relied on by Paget, involves an entirely different question. That question, as stated in the opinion by Mr. Justice RAND, was whether the lien of a duly recorded purchase price mortgage which was executed simultaneously with a deed conveying the mortgaged land is entitled to priority of payment, not as to the building but as to the land itself, over liens for labor and material furnished to the vendee for a building upon which work had been commenced by the vendee before acquiring title to the land. (Italics supplied.) Mechanics' liens against the building were not involved. They were given priority in the decree of the Circuit Court, and such priority was not challenged on appeal by the mortgagee. The court held that, under a proper construction of the statute, the mortgage was entitled to preference over the liens for labor and material, and that any other construction would render the statute unconstitutional. It was said in the course of the opinion that the primary purpose of the statute was to secure and protect laborers and materialmen for the labor and material furnished in the construction of buildings, and that the statute should be liberally construed to accomplish that purpose, but that, insofar as the statute may subject the owner of the land to the payment of another person's debts for which he is in nowise responsible and deprive him of his property without fault upon his part, the statute should be strictly construed. There is a wide difference between according priority to mechanics' liens against a building over a previously recorded mortgage of the land, and the allowance of the priority claimed for mechanics' liens in the circumstances of the Pacific Spruce Corporation case. The constitutional objections which the court avoided by denying such preference are not present in the cases now under consideration. Finally, it is argued that, regardless of all other questions, the statute was never intended to apply to so-called construction mortgages. That is to say, mortgages given to secure future advances made from time to time in aid of the construction of an improvement. Of this kind are the mortgages in these cases. We are told in the briefs of counsel that this method of financing was unknown in 1885 when the statute was passed. We seriously doubt that this would be a controlling consideration if it were a fact. But counsel are wrong in their history. The first edition of Phillips on Mechanics' Liens, published in 1874, contains in § 236 a discussion of cases dealing with mortgages of that sort. Moroney's Appeal, 24 Pa St 372, which is cited in defendant Paget's brief, involves such a mortgage given in August, 1849. But, putting this to one side, the authorities say that the general rules governing priority between mechanics' liens and mortgages ordinarily are deemed applicable notwithstanding the loan secured by the mortgage was made with the purpose, understanding, or expectation that the proceeds thereof would be used in improving the property or the mortgage was given to secure a debt for work done on, or materials furnished for, the building. 57 CJS 760, Mechanics' Liens § 201. See Union Loan & Savings Ass'n v. Johnson, 118 Neb 17, 223 NW 467; Carriger v. Mackey, 15 Ind App 392, 44 NE 266; Kendall Mfg. Co. v. Rundle, 78 Wis 150, 47 NW 364. In Union Loan & Savings Ass'n v. Johnson, supra, a contention was advanced which is the converse of the contention of the mortgagee in this case. It was said: Appellee contends, and the trial court apparently had the theory that, inasmuch as the material furnished to defendant Johnson went to enhance the value of the property upon which plaintiff held mortgages, therefore the mortgages would be subordinate to the mechanics' liens. That, however, is not the law. 118 Neb 23. In Carriger v. Mackey, supra, the court said: The appellants insist, that the facts found show no equity in the appellee, which entitles him to a lien superior to the mortgage of John J. Carriger, given for debts due for materials used and labor performed in the construction of the building. We are unable to perceive by what rule the appellants who have mortgages, are entitled to priority on the building. It can make no difference what the mortgages were given to secure. They have priority only upon the real estate as it stood at the time of their execution. 15 Ind App 394. 13. Our statute makes no exception, but manifestly refers to all prior recorded mortgages, whether given for future advances to aid in construction or not. We are not at liberty to import exceptions into the statutes because of possibilities conjured up by counsel that the expectations of a mortgagee concerning the security which he is receiving will be disappointed. 14. In conclusion upon this phase of the case it is our opinion that, when the new mechanic's lien law was passed in 1885, the provision giving priority to mechanics' liens over prior recorded mortgages was adopted in order to supply what was considered to be a defect in the prior law, as construed in Inverarity v. Stowell, supra. That case was decided only three years before the enactment of the present statute, and we are satisfied that the decision in Cooper Mfg. Co. v. Delahunt, supra, properly construed the statute to mean that mechanics' liens for material furnished for original construction are preferred so far as the building is concerned to the liens of prior recorded mortgages on the land.