Court Opinion

ID: 9675561
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:57:48.323247+00
Date Added: 2024-06-11T18:16:35.533969
License: Public Domain

Justice Culver, joined by Justices Smith and Griffin,
dissenting.
I agree to the majority opinion in holding that the deed of trust lien in favor of Mortgage Investment Company did not lose its priority to the McConnell vendor’s lien merely because of the acceptance of the “Owner-Contractor Bond,” but I am not in accord with this decision in so far as it holds that the mechanics’ and materialmen’s liens are inferior to the McConnell vendor’s lien.
The majority says “The all important element in the present litigation is the time of inception of the mechanics’ and materialmen’s liens.” The majority considers that inasmuch as the facts do not show that a contract was let by the owner and the work commenced prior to the execution of the deed of trust, lien, they were inferior to the deed of trust lien and therefore inferior to the vendor’s lien. I do not disagree with the general principle of law that, if a deed of trust lien is executed prior to the letting of the contract for and the commencement of the work, it is superior to the mechanics’ and material-men’s liens for materials and labor furnished subsequently but under the facts in this case it is my opinion that this principle of law does hot control here necessarily as between the holders *587of the mechanics’ and materialmen’s liens and the holders of the subordinated vendor’s liens.
The owner, Chaney and Singleton, executed a note for the sum of $119,000 and a deed of trust lien to secure the payment of the same. The only purpose for which the money was thus obtained, was to pay the cost of the construction of the 14 houses. To this deed of trust lien McConnell and the McConnell Land Company expressly subordinated their vendor’s liens. The material and labor represented by the mechanics’ and material-men’s liens were a part of the cost.
All of the parties had entered into similar contracts with each other before. As in this case McConnell sold land to Chaney and Singleton, the deeds of trust were executed to Mortgage Investment Company and McConnell subordinated his vendor’s liens to the deeds of trust. Under the terms of those contracts Chaney and Singleton had completed some 26 houses prior to the beginning of the work involved here and on those 26 houses McConnell was paid for the lots. Mortgage Investment Company was repaid the construction costs out of the proceeds of the F.H.A. insured loans made by Mortgage Investment Company to the respective purchasers.
McConnell knew at the time he signed the subordination agreement that Chaney and Singleton intended to use the money advanced by Mortgage Investment Company on the note and deed of trust for the construction of the 14 bourses and that Mortgage Investment Company was obligated to advance up to the sum of $119,000 or so much thereof as was necessary to complete the houses for sale.
Mortgage Investment Company during the months of April, May and June of 1953, as the work progressed, advanced to Chaney and Singleton the sum of $73,450.
I take it to be beyond question that if Mortgage Investment Company had advanced to Chaney and Singleton the amount of money necessary to pay the materialmen’s and mechanics’ lien whose claims have been held inferior to the vendor’s lien that the deed of trust lien to that additional extent would be superior to the vendor’s lien. I fail to see any material distinction to be made between the Mortgage Investment Company advancing the money directly to Chaney and Singleton to pay these claims and paying them to the mechanics and material-men. At the time Mortgage Investment Company was made *588aware of these claims Chaney and Singleton had abandoned the project. No question is raised as to their validity. They were due and owing for work and material furnished and the total of these claims plus the amount advanced by Mortgage Investment Company to Chaney and Singleton is well within the $119,000 provided in the note and deed of trust to which McConnell subordinated his vendor’s lien.
While Mortgage Investment Company does maintain that the mechanics’ and materialmen’s liens are superior to the purchase money lien because they are superior to the deed of trust lien, this is not the only ground upon which they assert that priority. They say that under all of the facts and circumstances in this case McConnell and the McConnell Construction Company are estopped to assert that their vendor’s liens are subordinated to the constitutional and statutory liens which are now owned by Mortgage Investment Company. Surely the fur-nishers of material and labor knew constructively if not actually that Mortgage Investment Company had obligated itself to pay for the cost of construction up to $119,000 and that McConnell had agreed in effect that the cost of construction of these houses would be paid first and prior to his lien for the purchase price of the land. The subordination agreement should be reasonably and liberally construed to give effect to the obvious intent of the parties.
In my opinion the advances by petitioner to take up and satisfy these mechanics and materialmen liens for the account of Chaney and Singleton and the discounting of those claims were equivalent in law to advancements directly to Chaney and Singleton under the Mortgage Investment Company’s deed of trust.
Both the note and the deed of trust to which the vendor subordinated his lien were in the regular and usual form. Each referred to the other and acknowledged an indebtedness to Mortgage Investment Company in the amount of $119,000. Although it is admitted that the money was borrowed for the purpose of erecting the 14 houses, both instruments were completely silent as to how or when or to whom the moneys were to be advanced. I think the owner, Chaney and Singleton, would be obligated to Mortgage Investment Company on the note for any sums that were advanced to the owner for construction purposes or advanced directly to mechanics and materialmen in the payment of bills legitimately incurred and duly owing. If the owner was obligated thus I do not see why the vendor’s lien *589is not subject to the repayment to Mortgage Investment Company of all the sums so advanced.
The contractor’s bond given by the owner to Mortgage Investment Company did provide that the lender would make advances from time to time on F.H.A. inspections, the balance to be paid upon completion, but the owner likewise obligated himself to keep the property free and clear of any and all mechanics’ and materialmen’s liens. The owner could hardly complain, therefore, if Mortgage Investment Company performed this obligation for him, and to that extent deny liability on the note. The following authorities, I think, bear out the view that the mechanics’ and materialmen’s liens should be satisfied out of any balance remaining up to the amount of the note prior to the subordinated vendor’s lien: Brush et al v. E. R. Bohan & Co. et al, 102 Cal. App. 457, 283 Pac. 126; Community Lumber Co. et al v. Chute et al, 215 Cal. 268,10 Pac. 2d 57 superseding 292 Pac. 1069; Community Lumber Co. et al v. California Pub. Co. et al, 215 Cal. 274, 10 Pac. 2d 60; Andersonian Investment Co. v. Jones et al, 104 Wash. 142, 176 Pac. 17.
To the contrary American Law of Property, Vol. 4, Priorities, Sec. 16.106H states as a general rule that an agreement to subordinate the vendor’s lien to the mortgage given to the lender of money for construction does not thereby subordinate it to mechanics’ and materialmen’s liens that could or should have been paid out of the construction alone. The author supports this statement by the following authorities: Community Lumber Co. v. Chute, 292 Pac. 1069 (Cal. 1930) superseded supra; Hoagland v. Lowe, 39 Neb. 397, 58 N.W. 197; Watson Land & Improvement Co. v. Salyers, 247 Pa. 454, 93 Atl. 495. However, I have found no Texas authorities bearing on this point and our case differs factually in that the claims were in effect paid by the Mortgage Investment Company.
It is held in West v. Reeves, 53 Neb. 472, 73 N.W. 935, that the lien of a materialman is subordinate to the lien of the vendor “except in cases where the vendor himself promotes the improvement or causes it to be made.” This holding was found and quoted in L. P. Larson Real Property Co. v. Norris-Lyddon Produce Co., 127 Neb. 357, 255 N.W. 50, McConnell participated and cooperated in securing the construction loan by subordinating his lien. He knew that without the loan Chaney and Singleton could not proceed. He was financially interested in seeing that the houses were constructed and sold to prospective residents. Populating- the addition would enhance the value of his *590unsold land and particularly that portion designated and reserved by him for commercial use.
Nor do I consider that any material distinction is to be made here between the statutory and constitutional liens. The effect of the McConnell agreement was in my opinion to subordinate the purchase money liens to the cost of construction up to the amount of $119,000. So long as the claims were just, due and owing it made no difference to him whether the liens had been filed in the statutory manner or not. He was not such an innocent third party as to be affected by the failure to file. The Mortgage Investment Company had the privilege and the obligation to advance funds to pay these claims as they became due without requiring the necessity of filing for record and imposing this burden upon mechanics and suppliers of material-men who should be able to rely upon the good faith performance of all parties. I think no rights have intervened here which would necessitate a distinction between constitutional and statutory liens.
I would affirm the Court of Civil Appeals with the modification that Mortgage Investment Company be awarded additionally judgment for the amounts paid out on the claims which were supported only by constitutional liens and accord to them priority over the purchase money lien.
Opinion delivered July 24, 1957.
Rehearing overruled Oct. 9, 1957, Justice Greenhill not sitting.