Court Opinion

ID: 7824192
Source: CourtListenerOpinion
Date Created: 2022-09-07 18:03:08.765264+00
Date Added: 2024-06-11T16:30:48.961146
License: Public Domain

Jill R. Jacoway, Special Justice, concurring. I concur with the majority’s holding that the trial court’s decision should be affirmed. The statute under which appellants proceeded in this case does not afford them the remedy which they seek. However, my sympathies go to the materialmen. The “penalty” imposed on the lender for making misrepresentations does not, in this instance, seem harsh enough. Ark. Code Ann. § 18-44-110 (1987) does not afford the materialmen the result they desire. Since the materialmen’s lien law was first put on the books before the turn of the century, it has been recodified three times. Seemingly, each recodification implies legislative investigation and approval. The statute has survived through the years virtually unchanged in spite of how this court has interpreted it. The statute and the cases interpreting it .allow a lender to openly and fraudulently misrepresent that the purpose of a loan is to be for construction. Even though the lender knows that a portion of the loan is to be used for other purposes, the lender will still enjoy the position of priority over any subsequent lienholders and materialmen to the extent that the funds are used for the stated purpose. Such are the fixed facts of this case. Worthen knew at the time of the loan closing that a portion of the funds was to be used for purposes other than construction, but did not disclose this information on its mortgage. As punishment for this intentional misstatement, the portion of the funds which was actually used for other purposes loses its priority while that portion used for the stated purpose retains priority above the materialmen. Given the drafting and interpretation of the statute, this result is appropriate. It seems to me, however, to be inequitable to allow one to profit from his lie. I can understand the materialmen’s reliance on the purpose stated in the bank’s mortgage; i.e., that it was given for construction purposes only. There was no other mortgage of record; there was no indication of any “purchase money” mortgage in the county recorder’s records. Hence, materialmen might well conclude that the owner/developer had invested equity in the land. From a review of the revenue stamps on the recorded deed, the materialmen could have determined the amount of that presumed equity was $200,000. In my view, construction money mortgagees should be allowed priority to the extent that the funds are actually used for the stated purpose; i.e., construction. However, any construction mortgagee who intentionally misleads others by falsely stating on publicly filed documents that funds will be used for construction, knowing full well that the funds are to be used for other purposes, should not be allowed the benefit and protection of priority. False statements should not be rewarded. Perhaps a different result would have been available to these materialmen under some other theory, but they are not entitled to recovery under their theory based on the statute as drafted. Foreclosure, being an equitable proceeding, permits the use of such defenses as unclean hands and equitable estoppel. Had the materialmen pled those defenses, the result might have been different. Worthen was not acting in good faith. Whether this conduct rose to the level of unclean hands is open to question. With the facts before us, Worthen’s actions, although misleading, were not egregious enough for this court to reverse the trial court on this issue sua sponte.