Court Opinion

ID: 3502107
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:08:57.905289+00
Date Added: 2024-06-11T13:44:51.547430
License: Public Domain

Bill to foreclose mechanics' liens. From a decree for defendants, plaintiffs *Page 306 
appeal. Winkworth Fuel  Supply Company, a Michigan corporation, furnished material upon the real estate described in the bill of complaint, subsequently used in the erection and construction of a building thereon. Winkworth Fuel  Supply Company furnished the first material for which a lien was claimed October 2d, the last November 9, 1931; P. H. Hamly Hardware Company furnished the first material December 21, 1931, the last material January 9, 1932; H. L. Claeys  Company furnished the first material October 12, 1931, the last material January 4, 1932.
All lien claimants regularly filed their liens and gave proper notices. There are two real estate mortgages on the premises, one held by each of defendants. The real issue relates to the priority of the liens as against these two mortgages. August 25, 1931, the Bloomsbury Corporation, in consideration of $380 paid by Wilbur Carleton Scott, sold him the lands involved for $3,800; $380 of which was paid down and the balance of $3,420 to be paid in five years. The contract contained building and other restrictions. It contained a clause as follows:
"Seller further agrees that when the unpaid principal balance on this contract has been reduced to a figure not exceeding 90 per cent. of the original sale price, seller will give deed and take back a second mortgage for the then unpaid balance, which second mortgage is to expire at least six months before the due date of the first mortgage, but in no event is the life of the second mortgage to exceed five years from its date, with interest at the rate of six per cent. per annum, payable monthly, until due and at the rate of seven per cent. per annum on all overdue instalments; said second mortgage to be paid in monthly instalments of not less than $38 each, including interest, and further provided that said second *Page 307 
mortgage shall be junior to a certain first mortgage to be secured from the Ancient Order of Gleaners in an amount not exceeding $14,000 and running for a period of not less than five years.
"It is further agreed that in the event a building is not started upon the premises in accordance with the land and use restrictions set forth in the land contract within 30 days from the date of this contract, or in the event the purchaser sells, assigns or transfers his interest under this contract prior to the acceptance of said second mortgage by the seller hereunder, seller will be relieved from the obligation of accepting said second mortgage as herein provided."
September 15, 1931, the property having been deeded to Scott, he executed a mortgage to the Bloomsbury Corporation for $3,420 on the premises which sets forth:
"This is a second mortgage subject to the prior rights of a certain first mortgage held by the Ancient Order of Gleaners, securing the payment of the sum of $12,000 payable within five years from its date."
September 15, 1931, Scott also executed a real estate mortgage to the Gleaners Life Insurance Company in the sum of $12,000.
The deed to Scott and the mortgage to Bloomsbury Corporation were recorded September 18, 1931. The land contract in pursuance of which Scott acquired the property was not at any time recorded.
(1) It is claimed the rights of lien claimants date from the furnishing of the first material or from the first work done on the building. Kay v. Towsley, 113 Mich. 281, is relied upon. The rule there laid down has no application. Restrick LumberCo. v. Wyrembolski, 164 Mich. 71. In that case the owners *Page 308 
in fee commenced the building. The contract was made with the owners of the land. After the commencement of the building the fee was deeded and a land contract taken back; a bill was filed to foreclose this deed and contract as a mortgage. Another bill was filed to foreclose mechanics' liens. The cases were consolidated. It was held the mechanics' liens were superior to the deed and contract because the mechanics' liens on the premises dated from the furnishing of the first material or the performance of the first labor on the building.
Section 13109, 3 Comp. Laws 1929, provides:
"The several liens herein provided for * * * shall be preferred to all other titles, liens or incumbrances which may attach to or upon such building, machinery, structure or improvement, or to or upon the land upon which they are situated, which shall either be given or recorded subsequent to the commencement of said building or buildings, erection, structure or improvement."
There was in Kay v. Towsley, supra, a basis for a lien, — a contract with the owners of the fee. Here there was no contract, express or implied, with the owner, part owner or lessee of the premises or any part thereof or interest therein. There was no basis for a lien. No lien could attach at that time. If the building had been built upon the land of the Bloomsbury Corporation by Scott and no change made in the title to the premises, no lien could reach the interests of the Bloomsbury Corporation; its title could not be affected by Scott's contracts to which it was not a party.
Mechanics' liens in this State are based solely upon contract.
"The kind of lien in question can originate only in contract, and no one is capable of making this contract who is not the 'owner, part owner or lessee of *Page 309 
the land' to be affected." Wagar v. Briscoe, 38 Mich. 587.
"No lien can be induced on any man's ownership except on the basis of his own indebtedness, and can then be extended no further than his ownership extends." Wagar v. Briscoe, supra.
"It was the evident intent of the legislature to provide for the lien only upon the actual interest which the owner, part owner, or lessee had at that time." Peninsular General ElectricCo. v. Norris, 100 Mich. 496.
"And where the owners gave a deed to secure a loan, with a land contract back, a lien does not attach, under 3 Comp. Laws [1897], § 10712, providing for such lien, in case the person contracting for materials has no legal title." Restrick LumberCo. v. Wyrembolski (syllabus), supra.
What is a lien? It is, says 2 Bouvier's Law Dictionary (Rawle's 3d Rev.), p. 1978, "A hold or claim which one person has upon the property of another as a security for some debt or charge."
"The right which a creditor has to obtain satisfaction of a debt or duty out of a specified res which is owned by another."Vidal v. South American Securities Co. (C.C.A.), 276 Fed. 855.
"A legal claim or charge on property either real or personal as security for the payment of some debt or obligation." 37 C. J. p. 306.
The decisions of this court have always required there must be title back of a lien. A lien may not attach without something to attach to. Clark v. Raymond, 27 Mich. 456; Willard
v. Magoon, 30 Mich. 273; Wagar v. Briscoe, supra; PeninsularGeneral Electric Co. v. Norris, supra; Smalley v.Mitchell, 110 Mich. 650; Fuller v. Detroit Loan  BuildingAss'n, 119 Mich. 71; Bauer v. Long, 147 Mich. 351 *Page 310 
(118 Am. St. Rep. 552, 11 Ann. Cas. 86); Frolich v. Blackstock,155 Mich. 604; Restrick Lumber Co. v. Wyrembolski, supra;Merrill v. Brant, 175 Mich. 182; F. M. Sibley Lumber Co.
v. Letterman, 234 Mich. 32.
As said in Rockel on Mechanics' Liens, § 162:
"If the person has no title or is not an owner within the meaning of the statute, improvements put on by him cannot give a mechanic's lien prior claim over a mortgage afterwards given for purchase money."
A lien cannot attach where there is no title to attach to. No lien can exist except as based on contract. One's property may not be taken without his consent without due process of law and without just compensation. The statute, 3 Comp. Laws 1929, § 13109, applies only to liens; to something which has attached to or may attach to the land, — to a claim based upon contract, express or implied, with the owner, part owner or lessee of the land or of some interest therein. There can be no priority of liens on the land here involved based upon the first furnishing of material or performance of work, because the basis of a lien, — a contract, express or implied, with someone having an interest in the premises is wanting. The statute regulating priority of liens had, up to this point, no application.
(2) Some time after the first material was furnished which entered into the building erected by Scott, he purchased the premises on land contract. There had been no contract to furnish materials with his vendors. The materials furnished were not furnished under any contract, express or implied, with the owner, part owner or lessee of the premises or any part thereof, or interest therein. When the contract of purchase was made by Scott he went into possession. *Page 311 
One dealing with another in possession of premises is chargeable with notice or knowledge of the nature and extent of the rights and title of the one in possession.Woodward v. Clark, 15 Mich. 104; Russel v. Sweezey, 22 Mich. 236;  Hommel v. Devinney, 39 Mich. 522;Seager v. Cooley, 44 Mich. 14; Atwood v. Bearss, 47 Mich. 72;Michie v. Ellair, 54 Mich. 518; Allen v. Cadwell, 55 Mich. 8;Corey v. Smalley, 106 Mich. 257 (58 Am. St. Rep. 474);Howatt v. Green, 139 Mich. 289; Delosh v. Delosh, 171 Mich. 175;  Fraser v. Fleming, 190 Mich. 238;Slatkin v. Schumer, 210 Mich. 513; American Cedar  Lumber Co.
v. Gustin, 236 Mich. 351. Possession by a land contract purchaser is constructive notice of his rights. Corey v.Smalley, supra; Fraser v. Fleming, supra. Notice is a legal deduction from possession. Delosh v. Delosh, supra; AmericanCedar  Lumber Co. v. Gustin, supra. Constructive notice by possession is equal to constructive notice by record. Fraser v.Fleming, supra; American Cedar  Lumber Co. v. Gustin, supra.
"A person is chargeable with constructive notice where, having the means of knowledge, he does not use them: Mayor,etc., of Baltimore v. Williams, 6 Md. 235. If he has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries, and does not make, but on the contrary studiously avoids making such obvious inquiries, he must be taken to have notice of those facts, which, if he had used such ordinary diligence, he would readily have ascertained. Converse v. Blumrich, 14 Mich. 108
(90 Am. Dec. 230)." American Cedar  Lumber Co. v. Gustin, supra.
(3) The contract lien of a vendor is prior to that of a mechanic or material man who performs work or furnishes material on the property to the contract purchaser. *Page 312 
"We do not think our statute can be construed as creating a lien in such cases." Fuller v. Detroit Loan  Building Ass'n,supra.
The same rule applies between lessor and lessee.Wagar v. Briscoe, supra; Peninsular General Electric Co. v.Norris, supra; Merrill v. Brant, supra. These cases were decided in accordance with a great weight of authority. 40 C. J. p. 111. The rights of the lien claimants were not superior to the rights of the vendor and could not attach to or affect its interests in the land. The lien claimants were chargeable with notice of contract vendor's rights and with notice of the rights of the vendee under such contract. The land contract between the vendor and vendee provided for the deed and the mortgages subsequently given and lien claimants must be held chargeable with notice of the contents of such contract.
Lien claimants dealing with Scott were chargeable with notice of all his rights and title arising out of or based upon his possession, and with all that could have been ascertained by exercising reasonable diligence and making obvious inquiries in relation thereto. This constructive notice, arising from Scott's possession, of his rights in the premises and their basis is just as binding upon lien claimants as if the contract in which Scott was vendee had been recorded with the register of deeds.
In Redford Lumber Co. v. Knight, 242 Mich. 695, lien claimants asserted priority over a mortgage given and recorded subsequent to the commencement of the building. In disposing of this contention it was said:
"Defendant Union Trust Company, the only defendant to file brief here, contends, among other things, that — *Page 313 
" 'Where one supplying materials is put upon notice before the delivery of the same of the fact that there exists or is to be created a lien prior to his own, the rights of such lien claimant are prior to and superior over the rights of the persons supplying material.'
"We think defendant is right. The lien attaches to the 'interest of the owner' and 'to the extent of the right, title and interest of such owner * * * at the time the work was commenced or materials were begun to be furnished' * * *. Comp. Laws Supp. 1922, § 14796.
"In Baker v. Mather, 25 Mich. 51, it was held, quoting syllabus:
" 'Everybody taking a conveyance of, or a lien upon, land, takes it with constructive notice of whatever appears in the conveyances which constitute his chain of title. A second mortgagee takes subject to a prior unrecorded mortgage expressly referred to in the deed to his mortgagor and excepted therefrom.'
"And, see, Houseman v. Gerken, 231 Mich. 253.
"The recital in the recorded Hartleb mortgage gave constructive notice to plaintiff that the parties in interest had agreed that the first mortgage to Society for Savings was to be replaced by another mortgage for $3,500 which was to continue to be the first lien. Plaintiff's lien is subject to the condition of the title of which it had notice. SeeUnion Terminal Co. v. Turner Construction Co., 159 C.C.A. 585 (247 Fed. 727, 11 A.L.R. 880); Luce v. Stott Realty Co.,201 Mich. 587; 40 C. J. p. 288."
When Scott acquired the equitable title and right of possession he did so under land contract. He was a vendee in possession. Lien claimants dealing with him are chargeable with notice of his rights which were determined by the terms of his contract.
The contract of the vendee, of which lien claimants from Scott's possession must be charged with constructive notice, provided (1) for the giving of a deed to the vendee upon performance by him; (2) for the taking back by vendor of a mortgage which should be a second mortgage to secure the *Page 314 
remainder of the unpaid purchase price; and (3) for a first mortgage to the Ancient Order of Gleaners for $14,000. Evidently it was contemplated the $14,000 mortgage was to be for building purposes because its priority is based upon building on the premises.
(4) When the real estate was deeded to Scott he gave back a purchase-price mortgage which was made subject to the prior rights of a first mortgage to the Ancient Order of Gleaners of even date. Lien claimants assert priority over these mortgages, basing their right thereto first, upon the furnishing of the first material for the building erected by Scott August 20, 1931; and second, upon Hart v. Reid, 243 Mich. 175. When the first material was furnished there was, as we have pointed out, no contract; no title or interest in Scott; nothing to which a lien or claim or hold could attach. There could be none for the reason the right thereto is governed by the condition of the title when the first material was furnished and both essential elements of a valid lien or claim of lien, — a contract and a contractor who has an interest in the premises, were lacking.
(5) It is claimed Hart v. Reid, supra, overruled Wagar v.Briscoe, supra; Peninsular General Electric Co. v. Norris,supra; Fuller v. Detroit Loan  Building Ass'n, supra; andMerrill v. Brant, supra. The contract here involved did not provide Scott should build a building. The vendors' and mortgagees' rights were the same whether the vendee built or not.
In Hart v. Reid, supra, cases following the weight of authority as stated in 40 C. J. p. 113, cited above, were referred to, but the case was decided on its own pertinent facts which indicated the lease by the Grindleys, the owners of the premises, to Thompson; *Page 315 
Thompson's assignment of the lease to the Thompson Realty Company; the reassignment by the Thompson Realty Company of the rents and profits to accrue thereunder to the Grindleys; the mortgage of the leased premises by the Grindleys to secure the bond issue; the erection of the building on the premises by Thompson with money provided by the Grindleys; the provisions of the building contract in relation to the erection and insurance of the building whereby the Grindleys made a $50,000 profit; the assignment of the rents and profits together with the other facts made the Grindleys chargeable with liability for the acts of Thompson who, though not found to be their general agent, was held to be their agent in the erection of the building there involved, thus making the title of the Grindleys subject to mechanics' liens for labor and materials furnished by lien claimants in the erection of the Grindleys' building, on the Grindleys' land, by the Grindleys' money, and that the Grindleys' lease to Thompson under which bymesne assignments the Grindleys acquired the rents and profits, was but colorable for financing purposes. This case did not overrule and was not intended to overrule Wagar v. Briscoe,supra; Peninsular General Electric Co. v. Norris, supra; Fuller
v. Detroit Loan  Building Ass'n, supra, andMerrill v. Grant, supra.
(6) No lien could attach to the premises at all unless based upon a contract, express or implied, with the owner, part owner, or lessee of the premises. This is evident from a casual reading of the statute and is recognized by Restrick Lumber Co.
v. Wyrembolski, supra, and cases above cited. Lien claimants' rights may not be based upon the furnishing of the first material. There was no contract, express or implied, with the Bloomsbury Corporation, owners *Page 316 
of the premises. Scott had no title, legal or equitable, to the premises when these materials were furnished.
When Scott acquired the equitable title to the premises he did so under a land contract. He entered into possession of the premises under such contract which provided therefor. This contract contained the provision above quoted. Lien claimants, after Scott acquired equitable title to the premises and possession thereof, were chargeable with notice of his rights to the same extent as if his contract had been recorded.Redford Lumber Co. v. Knight, supra.
The contract by which Scott obtained an equitable title and possession of the premises, provided for the deed and mortgages subsequently given and the priority of such mortgages. The purchase-price mortgage was recorded. It referred to the first mortgage held by the Ancient Order of Gleaners for $12,000. This was constructive notice of both mortgagees' rights.Houseman v. Gerken, supra; Redford Lumber Co. v. Knight, supra.
Lien claimants may not complain that the mortgage to the Ancient Order of Gleaners provided for in the contract was to be $14,000 and the mortgage actually given was for but $12,000. There are no general equities in favor of lien claimants. None of the labor or materials for which liens are claimed were furnished until long after the contract by which Scott acquired the equitable title of the premises and possession was made, the contract carried out by Scott, the deed given by the Bloomsbury Corporation to Scott and the purchase-price mortgage provided for in the contract recorded which gave notice of the mortgage of the Ancient Order of Gleaners. *Page 317 
Lien claimants are entitled to liens, but such liens under the facts in this case must be held subordinate to the mortgage given by Scott to the Ancient Order of Gleaners of $12,000 and the purchase-price mortgage to the Bloomsbury Corporation by which it is subordinate to the Gleaners mortgage.
Decree should be affirmed, with costs.