Court Opinion

ID: 7817632
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:41:37.43572+00
Date Added: 2024-06-11T16:30:38.704922
License: Public Domain

John A. Fogleman, Justice, dissenting. I cannot distinguish this case from Sebastian Bmlding & Loam Association v. Minten, 181 Ark. 700, 27 S. W. 2d 1011. There the borrower agreed to buy a lot for $1,000.00. He then obtained a loan for construction purposes from the savings and loan association. On February 14th, the borrower signed the mortgage with the “construction purpose clause.” The lender gave the seller a check for $1,000.00 of this loan and the deed to the borrower was then delivered. The deed and mortgage were recorded simultaneously. Counsel for the lien claimant contended that the lien of the mortgagee was not preferred oyer that of the lien claimant where the loan was made upon the representation that it is borrowed for the purpose of improving the mortgaged property, unless it is in fact expended for that purpose and that it is incumbent upon the mortgagee to establish this fact. This court then specifically held that the purpose for which the mortgage was given determined its superiority over subsequent mechanic’s liens. While the trial court had held that the mechanics and materialmen had a lien on a parity with the lender’s lien to the extent of $1,000.00 but superior to the lender’s lien for the balance of the loan, this court held that the lender’s lien was the prior lien. One of the authorities cited for this decision was Shaw v. Rackensack Apartment Corporation, 174 Ark. 492, 295 S. W. 966, where it was clearly held that a mortgage given to obtain money to erect a building given prior to commencement of the work was superior for its full amount to a lien for work and materials going into the construction, notwithstanding the fact that a portion of the loan proceeds was used for clearing the title to the land. I submit that neither case has been overruled or limited in respect to this question by any subsequent decision. The Minten case was cited as authority and followed in Clark v. General Electric Co., 243 Ark. 399, 420 S. W. 2d 830. In my opinion, the decision in Planters Lumber Company v. Wilson Co., 241 Ark. 1005, 413 S. W. 2d 55, did not overrule, limit or modify the rule in the Minten case or the Shaw case, both of which are mentioned in that opinion without any suggestion that they were not correct. They simply were held inapplicable to the facts. In the Wilson Company case the decision turns entirely upon the fact that the lender owned the property and delivered to the borrower a deed reciting that the purchase price was paid, without mention of any encumbrance. The lender then caused this deed to be recorded. Thereafter, the borrower executed the construction money mortgages. After the mortgage was executed, the lender withheld the purchase price of the lot in spite of its previous representation that the purchase price had been paid. The distinction pointed out in the Clark case applies here. Prior to the making of this loan, appellant never at any time or in any way represented that the purchase price of the lots had been paid prior to the loan, nor did it receive or retain any part of the parchase price. I submit that we are dealing with rules of property which should not be lightly regarded or overturned. While the deed in this case was dated January 31, 1966, it was not delivered until February 2, 1966, the date of the construction money mortgage and the date of the advance of $2,900.00. Two thousand dollars of this was by check for the purpose of paying off a first lien on the property held by Capitol Savings & Loan Association. The balance of the purchase money due T. & C. Construction was paid by depositing $900.00 to its account. This advance of $2,900.00 was evidenced by a note dated-February 2, 1966. The advance thus came after the loan was made. It must be remembered that the statutes we are considering are designed to protect a lien of mechanics or materialmen and that the purpose is not to assure them of a source of funds for payment. If appellant had not advanced the money to pay for the lot, the liens of the materialmen and mechanics would have been subject to these prior liens of $2,900.00 insofar as the land is concerned. Ark. Stat. Ann. § 51-605 (1947) only gives priority over existing encumbrances on the building erected. By the court’s decision, the position of these lienors has been improved at the expense of appellant. Their liens are now upon both land and building, subject only to the lien for $10,000.00 advanced for construction. If the bank had advanced the entire $12,900.00 to the borrower without the purchase price having been paid, the mechanics’ and ma-terialmen’s liens would be subject to the $12,900.00 plus the original debt on the property insofar as the lot is concerned and to $12,900.00 on the building. Or if the bank had advanced the $12,900.00 to the borrower and he had paid for the lots without the bank’s knowing he intended to do so, the mechanics’ and materialmen’s liens would still have been subject to the $12,900.00 on the lot and building. The bank was not acting for its own benefit by withholding funds as was the case in Planters Lumber Company v. Wilson, supra. There is a distinction in the Hughes case not noted in the majority opinion. The $4,500.00 was advanced at the time the loan was made, but the balance was not to be advanced until the various cabins to be built were completed. The court there relied on the Minien case to declare priority in favor of the mortgagee for the entire debt, and followed the rationale of that case and the Hackensack case in giving priority for that part^ advanced to pay off the mortgage on the land. I cannot follow the suggestion that there is any real difference in the Minten case and the Hughes case insofar as the point raised here is involved. Nor can I follow the reasoning by which the bank lost when it advanced the full amount of the loan and acted as much for the benefit of appellee as anyone. I would reverse on direct appeal and affirm on cross-appeal.