Winger Contracting Company v. Cargill, Incorporated

IN THE SUPREME COURT OF IOWA
No. 17–1169
Filed April 12, 2019
WINGER CONTRACTING COMPANY,
Appellant,
vs.
CARGILL, INCORPORATED,
Appellee.
----------------------------------
TRACER CONSTRUCTION, LLC,
Plaintiff,
vs.
CARGILL, INCORPORATED,
Appellee,
and
WINGER CONTRACTING COMPANY, PETERSON CONTRACTORS, INC.,
AMERICAN PIPING GROUP, INC., TRI-CITY ELECTRIC COMPANY OF
IOWA, and TAI SPECIALTY CONSTRUCTION, INC.,
Appellants.
Appeal from the Iowa District Court for Monroe County, John D.
Telleen, Business Specialty Court Judge.
Interlocutory appeal from a grant of partial summary judgment.
AFFIRMED.
2
Nick Critelli and Lylea D. Critelli of CritelliLaw, P.C., Des Moines,
and Patrick Curran of Harrison, Moreland, Webber & Simplot, P.C.,
Ottumwa, for appellant Winger Contracting Company.
Abby S. Wessel of Rickert & Wessel Law Office, P.C., Reinbeck, for
appellant Peterson Contractors, Inc.
Benjamin J. Patterson and Timothy B. Gulbranson of Lane &
Waterman LLP, Davenport, for appellants American Piping Group, Inc.;
Tri-City Electric Company of Iowa; and TAI Specialty Construction, Inc.
John F. Fatino and Erik S. Fisk of Whitfield & Eddy, P.L.C., Des
Moines, for appellant Tracer Construction, LLC (until withdrawal).
Dana L. Oxley, Samuel E. Jones, and Jared S. Adam of Shuttleworth
& Ingersoll, PLC, Cedar Rapids, for appellee.
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APPEL, Justice.
In this case, we are called upon to decide whether mechanic’s liens
arising from the provision of materials and labor to a lessee attach to the
property of the lessor under the facts and circumstances of this case. The
case also presents the question of whether a construction mortgage lien
ultimately obtained by the owner of the land on the leasehold and property
of the lessee has priority over later-filed mechanic’s liens.
The proceedings below were heard in the Iowa Business Specialty
Court, a district court. A number of businesses sought to foreclose
mechanic’s liens against the property of a lessor for work authorized by a
lessee. They also asked the court to declare their liens superior to the
construction mortgage lien held by the property owner. Pursuant to a case
management order, the parties filed competing motions for partial
summary judgment to resolve the key underlying issues related to priority
of the liens.
The district court ruled that the mechanic’s liens did not attach to
the property of the lessor and that the construction mortgage lien on the
lessee’s property had priority over the mechanic’s liens. As a result, the
district court denied the mechanic’s lien claimants’ motions for summary
judgment and granted the lessor’s motion for summary judgment. The
mechanic’s lien claimants filed a motion for expanded findings and
conclusions under Iowa Rule of Civil Procedure 1.904(2). Except for
refining the question of the scope of the land subject to the court’s ruling,
the district court denied the motion.
The mechanic’s lien claimants appealed. We granted interlocutory
review. For the reasons expressed below, we affirm the ruling of the
district court.
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I. Factual and Procedural Background.
A. The Lease Between Cargill and HFCA for Construction of
Chlor-Alkali Facility.
1. General overview. Cargill, Incorporated entered into a fifty-year
lease with HF Chlor-Alkali, LLC (HFCA) to allow HFCA to construct a chlor-
alkali manufacturing facility and other improvements on land owned by
Cargill in Eddyville, Iowa. The lease required HFCA to pay $12,000 annual
rent along with other consideration, including payment of property taxes,
reimbursement for security services, and under some circumstances,
insurance. In the lease, HFCA covenanted to Cargill that it would not use
the land for anything other than a chlor-alkali facility without Cargill’s
approval.
The lease provided that Cargill would continue to own the land,
while HFCA would own the chlor-alkali facility. The lease stated,
All additions, alterations and improvements to the Land made
from time to time over the Term, including, without limitation,
the Facility, the Improvements and all of Lessee’s Property
located therein, shall be the property of Lessee and Lessee
shall have title to all such additions, alterations and
improvements, subject to the provisions of Article XIX herein.
Article XIX, in turn, required HFCA to remove the facility from the
land after the lease ends unless different arrangements are made between
the parties. Specifically, Article XIX stated, in part,
Unless otherwise approved by Cargill in writing, Lessee shall
have the obligation, as soon as commercially practicable after
the expiration or earlier termination of this Lease, to remove
any and all Improvements and Lessee’s Property or other
improvements of any nature and kind from the Land, and
provided that the portion of the Land to which such items may
have been affixed shall be restored by Lessee to substantially
the condition existing on the Effective Date.
2. Powers and limitations on HFCA. The lease allowed HFCA to
encumber, assign, or mortgage to a secured creditor either its leasehold
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estate in the land or its fee estate in the facility. Notably, however, the
lease contained a provision limiting the nature of the Cargill–HFCA
relationship. Specifically, section 22.14 of the lease provided that nothing
in the lease should be construed “as creating a partnership, joint venture,
or association” between Cargill and HFCA or “cause either party to be
responsible in any way for the debts or obligations of the other party.”
Further, section 22.14 provided that neither the method of computing
rent, nor any provision of the lease, nor any acts of the parties “shall be
deemed to create any relationship” between Cargill and HFCA “other than
the relationship of landlord and tenant.”
Section 23.05 of the lease related to liens. This provision stated that
“Lessee shall keep the Premises free from any and all liens arising out of
any work performed, materials furnished or obligations incurred due to
Lessee or its Affiliates.”
3. Conditions precedent. The lease contained a number of
conditions precedent. The lease declared that as a condition precedent,
HFCA “will receive Cargill’s approval of the plans and specifications for the
Improvements . . . which approval Cargill shall not unreasonably
withhold.” Under the lease, the term “Improvements” meant “all buildings,
fixtures, structures and other improvements built by Lessee on the Land.”
Another condition precedent to the lease provided that the parties
would enter into six “ancillary agreements.” In the first ancillary
agreement, Cargill agreed to purchase and HFCA agreed to supply a “long-
term stable supply of [chemicals] for use at [Cargill’s] processing facilities.”
The second ancillary agreement provided that HFCA’s affiliate would
purchase from Cargill the chemicals produced by HFCA that exceeded
Cargill’s requirements. Like the first ancillary agreement, the second
ancillary agreement included a price and an initial term of ten years. In
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the third and fourth ancillary agreements, Cargill agreed to process, treat,
and sell water to HFCA, an essential input to HFCA’s production of chlor-
alkali. The fifth ancillary agreement related to security services, and the
sixth ancillary agreement allowed HFCA additional access to Cargill’s
property. The lease agreement between Cargill and HFCA provided for
termination in the event of a breach of any obligation under the ancillary
agreements.
4. Recording of memorandum of lease with county recorder. A
memorandum of lease was filed with the Monroe County recorder. The
memorandum of lease identified the lease agreement as related to the
Cargill property by legal description, identified the parties, stated that the
lease was for a term of fifty years, and declared that it incorporated by
reference all the terms and conditions of the lease. While the public record
revealed the description of the land and the incorporation of the lease by
reference, the specific terms of the lease were not recorded.
B. Financing the Construction of the Chlor-Alkali Facility. In
order to finance construction of the chlor-alkali facility, Cargill assisted
HFCA in obtaining $80 million in bond financing through the Iowa Finance
Authority. As part of the financing arrangements, U.S. Bank issued a
letter of credit guaranteeing payment to the bond trustee and HFCA agreed
to reimburse U.S. Bank for payments made under the letter of credit.
Under the agreement, HFCA covenanted to U.S. Bank that it would execute
and deliver a leasehold mortgage and assignment of rents and leases.
Pursuant to the leasehold mortgage, HFCA granted a first priority
leasehold mortgage lien and security interest to U.S. Bank that
encumbered all of HFCA’s rights in the leasehold estate and the chlor-
alkali facility. As a condition precedent to U.S. Bank’s issuing the letter of
credit guaranteeing payment to the bond trustee, Cargill agreed to
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purchase the rights and obligations of U.S. Bank in the event HFCA
defaulted. The parties refer to this condition precedent as a “put
agreement.” HFCA also obtained at least $40 million in financing from a
Cargill subsidiary. U.S. Bank recorded the mortgage on August 29, 2013.
C. Mechanic’s Liens, Enforcement Action, Loan Default, and
Exercise of the Put. HFCA entered into contracts with two general
contractors to construct the facilities. Either HFCA or the general
contractors entered into contracts with a number of subcontractors,
including Winger Contracting Company, Peterson Contractors, Inc., Tri-
City Electric Company of Iowa, TAI Specialty Construction, Inc., and
American Piping Group, Inc. Neither Winger nor any of the general
contractors or other subcontractors entered into any contracts with Cargill
regarding the construction of the facility or any improvements to Cargill’s
land. Unfortunately, the project fell apart, and the contractors were not
paid in full for their work on the project.
The contractors filed mechanic’s liens based upon their work on the
facility in 2015 and early 2016. They sought to foreclose their mechanic’s
liens against Cargill’s fee interest in the real property on which the facility
is located. Two foreclosure actions were filed in district court, one in
September 2015 and another in May 2016.
In July 2016, U.S. Bank declared a default after HFCA failed to
reimburse U.S. Bank for a bond interest payment and failed to pay
quarterly fees to U.S. Bank. The default caused the bond trustee to declare
the total amount of about $80 million under the bond financing due
immediately. U.S. Bank paid off the bond pursuant to the letter of credit.
U.S. Bank then exercised its put, leading Cargill to pay U.S. Bank
approximately $80 million. Pursuant to the put, U.S. Bank assigned and
8
transferred to Cargill all of its right, title, and interest in and to, among
other things, its construction mortgage related to HFCA’s property.
D. Proceedings in District Court. After the mechanic’s lien
claimants filed actions to foreclose mechanic’s liens against Cargill, the
district court entered a case management order. The district court
recognized that the mechanic’s lienholders’ priority in relation to any
claimed mortgage or security interest held by Cargill was a core issue in
the litigation. As a result, the district court directed Winger and another
contractor to move for partial summary judgment on the question of
priority of the mechanic’s liens in relation to the collateral held by Cargill.
Winger filed a motion for partial summary judgment. 1 Winger
advanced what amounted to a joint venture theory. Winger claimed that
Cargill and HFCA did not have a simple lessor–lessee relationship but were
engaged in an ongoing and continuing business relationship combining
their property, effort, money, skill, and knowledge for their mutual benefit.
This relationship, according to Winger, resulted in a business enterprise,
joint venture, and/or a joint adventure under Brewer v. Central
Construction Co., 241 Iowa 799, 806, 43 N.W.2d 131, 136 (1950), and
Denniston & Partridge Co. v. Romp, 244 Iowa 204, 208–09, 56 N.W.2d 601,
604 (1953).
Winger also advanced an agency theory. Winger claimed that the
Cargill–HFCA lease conferred benefits on Cargill that could only arise from
constructing the facility. Winger noted that the parties recognized that a
substantial amount of the money guaranteed by Cargill would be used to
construct the facility. As a result, Winger claimed that HFCA was Cargill’s
agent when contracting for the services of the contractors, subjecting
1Winger’s motion was joined by Peterson, Tri-City, TAI, American Piping, and other
parties to the litigation.
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Cargill’s property to the asserted mechanic’s liens. In support of its agency
theory, Winger cited Stroh Corp. v. K & S Development Corp., 247 N.W.2d
750, 752 (Iowa 1976).
Additionally, Winger asserted that finding that Cargill could avoid
liability on the mechanic’s liens would result in “the ultimate in unjust
enrichment.” According to Winger, allowing Cargill to purchase the lease
mortgage on its own property ten months after the filing of mechanic’s
liens and claim that its newly acquired rights in the property are superior
to the mechanic’s liens would be “the ultimate in absurdity and artifice for
fraud.” Winger argued that equity requires substance and intent, rather
than form, should govern to prevent injustice. See Veale Lumber Co. v.
Brown, 197 Iowa 240, 244, 195 N.W. 248, 250 (1923).
Winger also asserted the mechanic’s liens that unquestionably did
attach to the property of HFCA were superior to the construction mortgage
lien asserted by Cargill. Winger contended the mortgage in this case
amounted to an artifice to deprive the mechanic’s lienholders of their just
compensation. In support of its argument, Winger cited Veale, 197 Iowa
at 244, 195 N.W. at 250.
Cargill resisted and filed a cross-motion for partial summary
judgment. Cargill asserted that amendments to the mechanic’s lien
statute enacted in 2007 make it clear that a mechanic’s lien arises only
out of a contract with the owner and not a contract with the owner’s agent.
2007 Iowa Acts ch. 83, § 3 (codified at Iowa Code § 572.2 (Supp. 2007)).
Thus, according to Cargill, the mechanic’s liens in this case attached only
to a building, improvement, or land belonging to HFCA, the owner with
whom the mechanic’s lien claimants entered into contract. Further,
Cargill argued that in 2012, the legislature narrowed the definition of
owner in the mechanic’s lien statute by eliminating from the definition
10
“every person for whose use or benefit any building, erection, or other
improvement is made.” 2012 Iowa Acts ch. 1105, § 2 (codified at Iowa
Code § 572.1(8) (2013)). As a result of the 2012 deletion, Cargill noted,
the term “owner” is now limited to “the legal or equitable titleholder of
record.” Iowa Code § 572.1(8) (2015). 2 Cargill argued that it was not the
legal or equitable titleholder of the improvements. According to Cargill,
HFCA owned the property.
Aside from its statutory argument, Cargill argued that the
undisputed facts did not provide a basis for attachment of mechanic’s liens
to Cargill’s land. According to Cargill, the relationship with Cargill and
HFCA did not establish an agency. Cargill argued applicable caselaw holds
that whether a lessee became an agent of the lessor depended upon three
factors: (1) whether the buildings or improvements become property of the
lessor within a comparatively short period of time, (2) whether the
additions were permanent and beneficial to the real property and so
contemplated by the parties at the time of the lease, and (3) whether the
lease payments reflected the additional value created by the
improvements. See Ringland-Johnson-Crowley Co. v. First Cent. Serv.
Corp., 255 N.W.2d 149, 151 (Iowa 1977). According to Cargill, these
criteria for an implied agency were not met here because the lease term
was for fifty years, the facility and improvements remained the property of
HFCA during that term and afterwards, HFCA had the obligation to
maintain the premises excepted for ordinary wear and tear, HFCA had the
obligation at the end of the term to remove the facility, and the fixed fifty-
year annual rent for the leasehold interest was $12,000. Further, the lease
2All
statutory references herein are to the 2015 version of the Iowa Code unless
otherwise stated.
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agreement itself, Cargill noted, expressly stated that the relationship
between Cargill and HFCA was limited to a landlord–tenant relationship.
Cargill also resisted the claim that it was a joint venturer with HFCA.
Cargill emphasized that under the lease, there was no “right to share in
the profits” or “duty to share the losses.” Brewer, 241 Iowa at 806, 43
N.W.2d at 136. Further, under the lease agreement, HFCA owned the
facility, and as a result, there was no “joint proprietary interest.”
On the issue of lien superiority, Cargill argued that it was the
assignee of a construction mortgage lien originally filed by U.S. Bank on
August 29, 2013. Cargill asserted that a construction mortgage lien takes
priority over “all mechanics’ liens of claimants who commenced their
particular work or improvement subsequent to the date of the recording of
the construction mortgage lien.” Iowa Code § 572.18(2).
The district court denied Winger’s motion for partial summary
judgment and granted Cargill’s cross-motion for partial summary
judgment. The district court observed that, ordinarily, lienholders
contracting with lessees cannot acquire greater interest in real estate than
the interests owned by the lessees. See Queal Lumber Co. v. Lipman, 200
Iowa 1376, 1378, 206 N.W. 627, 628 (1925). The district court then
determined that, in light of the recent legislative changes to Iowa Code
chapter 572, a mechanic’s lienholder could no longer reach the property
of a lessor by claiming a contract with a lessee as agent of the owner. See
2012 Iowa Acts ch. 1105, § 2 (codified at Iowa Code § 572.1(8) (2013));
2007 Iowa Acts ch. 83, § 3 (codified at Iowa Code § 572.2 (Supp. 2007)).
As a result, the district court concluded that Romp, 244 Iowa at 208–09,
56 N.W.2d at 604, and Stroh, 247 N.W.2d at 752, were no longer good law.
In the alternative, the district court held that Romp and Stroh were
distinguishable from the present case. The district court stated that this
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case is unlike Stroh because the lease agreement here, which expressly
disavowed partnership or joint venture and disavowed HFCA authority to
permit mechanic’s liens, was recorded. 3 Further, the district court noted
that the improvements on the land became property of the landlord at the
end of the lease term in both Romp and Stroh.
Finally, the district court also held that while Winger could place a
mechanic’s lien on HFCA’s property (the facility and its leasehold interest),
Cargill’s mortgage lien had priority because U.S. Bank recorded its
mortgage before the mechanic’s liens were filed. The district court found
that on this issue, the provisions of Iowa Code section 572.18(2) were
controlling.
Winger filed a motion to reconsider under Iowa Rule of Civil
Procedure 1.904(2). In the motion, Winger rehashed issues already
presented to the district court. Winger also, however, pointed to language
in Iowa Code section 572.2(1) which provides that
those engaged in grading, sodding, installing nursery stock,
landscaping, sidewalk building, fencing on any land or lot, by
virtue of any contract with the owner, owner-builder, general
contractor, or subcontractor shall have a lien upon such
building or improvement, and land belonging to the owner on
which the same is situated or upon the land or lot so graded,
landscaped, fenced, or otherwise improved, altered, or
repaired, to secure payment for the material or labor
furnished or labor performed.
Iowa Code § 572.2(1) (emphasis added). Pursuant to that emphasized
language, according to Winger, its lien attached not simply to land
“belonging to the owner,” but also to land upon which the improvements
were made.
3The entire lease agreement between HFCA and Cargill was not recorded. What
was recorded was a memorandum of lease that identified the property and the fact that
a lease existed between the parties. The memorandum of lease incorporated the terms of
the lease by reference but did not disclose the actual terms of the lease.
13
Peterson joined Winger’s motion to reconsider but also filed a
separate 1.904(2) motion. Peterson argued that it had performed work
“directly to the land” which entitled it to a lien on Cargill’s fee interest.
Peterson claimed that it “was hired, among other things, to move dirt,
provide concrete paving and erosion control, strip, salvage and spread
topsoil, clear and grub the land, and install storm sewers and fencing.”
Accordingly, Peterson asserted it was separately entitled to a lien “upon
the land or lot so graded, landscaped, fenced, or otherwise improved,
altered, or repaired.” Id.
In addition, Peterson challenged the district court’s ruling as
overbroad. Specifically, Peterson claimed the district court judgment
extended to Cargill property outside the scope of the property interests
involved in the lease transaction and thus should not have been affected
by the motions for summary judgment.
Other mechanic’s lien claimants also joined Winger’s motion to
reconsider. In their joinders, Tri-City, TAI, and American Piping each
asserted that they “provided labor and materials that improved the land,”
and “[f]or the same reasons set forth in . . . Winger’s Motion,” each “has an
enforceable lien on both the HFCA plant facility as well as the underlying
Cargill land that was ‘otherwise improved.’ ”
On rehearing, the district court first addressed the meaning of the
recent amendment to rule 1.904(2), which permits the district court to
“reconsider” its findings and conclusions previously made. The district
court rejected Winger’s assertion that new issues and new evidence may
be introduced in support of a motion to reconsider under the amended
language. The district court reasoned that the sole purpose of the
amendment was to permit an appeal within thirty days of a ruling on a
1.904(2) motion without the necessity of examining the propriety of the
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motion. The district court concluded that a 1.904(2) motion was not a
vehicle for advancing a wholly new legal theory in support of a claim. The
district court refused to consider facts not originally presented to the
district court in the summary judgment motions.
Applying the 1.904(2) framework, the district court declined to
amend its prior ruling based upon the mechanic’s lienholders’ citation to
the “otherwise improved” language in Iowa Code section 572.2(1). The
district court stated that “the Mechanics Lienholders have neither alleged
the specific work they provided that allegedly ‘otherwise improved’ Cargill’s
land nor provided record evidence of the specific improvements they
made.” The district court also stated that to the extent Peterson did not
join Winger’s summary judgment motion, Peterson “failed to present any
evidence, even in the form of an affidavit, to support it ‘otherwise improved’
the collateral held by Cargill” even though the district court’s case
management order specifically invited the parties to proceed
independently. The district court denied the motion to reconsider based
on the “otherwise improved” language relied upon by the mechanic’s
lienholders for the first time in the 1.904(2) motions.
The district court further declined to reconsider its interpretation of
Iowa Code section 572.2(1) as eliminating contracts with an agent as a
basis for attaching mechanic’s liens to the property of third parties. The
district court also refused to reconsider its alternative determination that
the principles of Romp and Stroh were not applicable. Finally, the district
court declined to reconsider its ruling that the doctrine of merger did not
eliminate Cargill’s lien on HFCA’s property.
The district court considered Winger’s claim that it did not address
the argument that “the Cargill-HFCA lease and lease-mortgage transaction
resulted in Cargill being insulated from or granted priority status over the
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mechanics liens constitutes an artifice for fraud.” By incorporating
Cargill’s argument on the motion to reconsider, the district court
recognized that the mechanic’s lienholders were on notice that HFCA had
only a leasehold interest in the land by virtue of the filings in the Monroe
County recorder’s office. Citing Clemens Graf Droste Zu Vischering v.
Kading, 368 N.W.2d 702, 709 (Iowa 1985), the district court noted that
contractors have constructive notice of all information in recorded
documents and have a duty of inquiry concerning circumstances disclosed
by the records. The district court adopted the view that Cargill had the
right to enter into a contract with its lessee that provided all improvements
should be made at the expense of the lessee. See Perkins Supply & Fuel
Serv. v. Rosenberg, 226 Iowa 27, 30, 282 N.W. 371, 373 (1938). The
district court found the case unlike that presented in Veale, 197 Iowa at
241–44, 195 N.W. at 249–50, noting that the relationship between HFCA
and Cargill involved a recorded lease that expressly denied HFCA the right
to permit mechanic’s liens to attach to the lessor’s premises. 4
Finally, the district court addressed an issue presented by Peterson.
Peterson claimed that the district court’s ruling that the mechanic’s liens
did not attach to “Cargill’s fee interest in the land identified in the
mechanic’s liens” was overbroad. Peterson claimed that under the district
court’s case management order, the issue to be resolved was limited to
determining whether the mechanic’s lien attached to land “owned by
Cargill and leased to HFCA.” Specifically, Peterson claimed that it
performed work on Cargill’s land not subject to Cargill’s security interest
or collateral. The district court ruled that its prior order necessarily
4We note again that the district court stated that the lease itself was recorded.
However, the lease itself was not recorded, but a memorandum of lease indicating its
existence was on file at the Monroe County recorder’s office.
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included priority of liens on “HFCA’s Leasehold Interest” that included not
only the real property upon which the facility was situated but also any
easements on which ingress and egress roads and rail tracks were
constructed.
Winger, Peterson, Tri-City, TAI, and American Piping filed notices of
appeal. 5
II. Standard of Review.
Although an action to enforce a mechanic’s lien is in equity, this
case involves an appeal from a ruling on motions for summary judgment
and is thus reviewed for corrections of errors at law. United Suppliers, Inc.
v. Hanson, 876 N.W.2d 765, 772 (Iowa 2016); A & W Elec. Contractors, Inc.
v. Petry, 576 N.W.2d 112, 113 (Iowa 1998). Questions of statutory
interpretation that inhere in a motion for summary judgment are reviewed
for errors at law. See Rhoades v. State, 880 N.W.2d 431, 434 (Iowa 2016).
The mechanic’s lien statute is liberally construed to promote restitution,
prevent unjust enrichment, and assist the parties in obtaining justice.
Carson v. Roediger, 513 N.W.2d 713, 715 (Iowa 1994).
III. Overview of Iowa Mechanic’s Lien Law.
A. General Purpose. “A mechanic’s lien is a claim against real
property for the value of labor and materials furnished by the claimant in
improvement of the property.” Roger W. Stone, Mechanic’s Liens in Iowa,
30 Drake L. Rev. 39, 41 (1980) [hereinafter Stone]. The theory and purpose
of a mechanic’s lien is to protect persons who have supplied labor or
material for the improvement of real property by giving the lienholder
security independent of their contractual remedies against the owner of
the land. Id. at 42. The principle underlying the mechanic’s lien statute
5Other mechanic’s lien claimants filed notices of appeal but subsequently
voluntarily dismissed their appeals.
17
is that a party who materially increases the value of the owner’s property
is entitled to look to the improved property as security for the effort. Id.
A mechanic’s lien is purely statutory in nature. Carson, 513 N.W.2d
at 715. Iowa’s territorial government enacted a mechanic’s lien statute in
1838, and in one form or another, a mechanic’s lien statute has been part
of Iowa law up until the present day. See Stone, 30 Drake L. Rev. at 41–
42. Relatively recent legislative changes have tended to curtail or limit the
scope of mechanic’s liens. Roger W. Stone, Mechanic’s Liens in Iowa—
Revisited, 49 Drake L. Rev. 1, 2–3 (2000). At all times, however, Iowa’s
mechanic’s lien statute has required that a party claiming a mechanic’s
lien must point to a contract to recover on a mechanic’s lien. Queal, 200
Iowa at 1379, 206 N.W. at 628; see Giese Constr. Co. v. Randa, 524 N.W.2d
427, 430–31 (Iowa Ct. App. 1994).
B. Cases Involving Contracts with a Lessee: Romp and Stroh.
Generally, the mere existence of a contract with a lessee does not give rise
to a mechanic’s lien against the property of the lessor. See Thompson
Yards, Inc. v. Haakinson & Beaty Co., 209 Iowa 985, 986–87, 229 N.W.
266, 267 (1930). There are two Iowa cases, however, that hold a
mechanic’s lien might attach to the property of the lessor when the work
and services were provided under contracts with the lessee.
The first case is Romp. In this case, the landowner entered into a
lease with Romp and others who intended to enter the mushroom
business. 244 Iowa at 205–06, 56 N.W.2d at 602–03. Romp also borrowed
funds from the landowner to finance construction of buildings on the
property and provided the landowner with a mortgage on the buildings.
Id. at 206–07, 56 N.W.2d at 602–03. Romp contracted with Denniston &
Partridge to furnish materials for the buildings. Id. at 206, 56 N.W.2d at
602. Romp did not pay Denniston & Partridge for their work, and
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Denniston & Partridge filed a mechanic’s lien. Id. at 206–07, 56 N.W.2d
at 602–03. The question in the case was whether the mechanic’s lien
attached to the property of the owner of the real estate or only to property
of the lessee who contracted for the services. Id. at 209, 56 N.W.2d at 604.
The Romp court cited two provisions of the mechanic’s lien statute.
First, the Romp court cited the definition of “owner” under the applicable
mechanic’s lien statute. Id. at 208, 56 N.W.2d at 603. Under the then-
effective version of Iowa Code section 572.1, “ ‘Owner’ shall include every
person for whose use or benefit any building, erection, or other
improvement is made, having the capacity to contract.” Id. Further, the
Romp court cited the then-effective version of Iowa Code section 572.2,
which provided for mechanic’s liens arising out of “any building or land for
improvement, alteration, or repair thereof . . . by virtue of any contract
with the owner, his agent, trustee, contractor, or subcontractor.” Id.
Applying the statutory provisions, the Romp court concluded that
the lessees were agents of the lessor under the facts presented. Id. at 209–
11, 56 N.W.2d at 604–06. The Romp court noted that the rental charged
by the lessor contemplated improvement of the land. Id. at 210–11, 56
N.W.2d at 605. The lease was for a short-term period of five years with
one five-year term of renewal with no provision at the end for removal of
the improvements. Id. at 211, 56 N.W.2d at 605. The lessor loaned the
lessee money with the expectation that a substantial part of the money
would be used to construct a building or buildings. Id.
The Romp court also considered whether the mortgage lien of the
lessor was superior to the mechanic’s lien. Id. at 213, 56 N.W.2d at 606.
The Romp court concluded that it was not. Id. The Romp court stated that
such a result, under the facts of the case, “would permit something very
like a fraud upon the suppliers of materials or labor.” Id. The Romp court
19
declared, “The rule that one who advances money to another for the
erection of improvements on land acquires a lien superior to those of
materialmen or laborers has no application” under the facts where the
lessor was the “owner” and the improvements “were made for her
‘benefit.’ ” Id. According to the Romp court, she cannot evade her
responsibility by taking a mortgage. Id.
A second case is Stroh. In Stroh, an unrecorded lease required the
lessee to construct a car-wash/gasoline facility on the premises. 247
N.W.2d at 751–52. Under the lease, the lessor approved plans for the
facility. Id. at 751. Upon completion of the construction, the lease
provided that the lessor pay the lessee $50,000, the estimated cost of the
project. Id. The lease provided for annual rent of $16,250 for a fifteen-
year term with an option for two consecutive five-year terms of renewal.
Id. at 751–52. Title in the property vested with the lessor upon completion
of the lease. Id. at 752.
Upon completion of the project, the lessor paid the $50,000 to the
lessee for construction. Id. The general contractor hired by the lessee gave
Stroh a check for construction services, but the check was dishonored. Id.
Stroh went unpaid. Id. As a result, Stroh filed a mechanic’s lien and
sought to foreclose the mechanic’s lien against the real property of the
lessor. Id.
The question in the case was whether Stroh’s mechanic’s lien
attached to the real property of the owner or solely on the property of the
lessee. Id. The Stroh court cited Iowa Code section 572.2, which at the
time provided that a mechanic’s lien may arise by virtue of a contract with
the owner or his agent. See id.
The Stroh court recognized that, ordinarily, mere knowledge or
consent to the making of improvements did not subject the interest of the
20
owner to a mechanic’s lien. Id. But according to Stroh, if the lessor has
by express or implied agreement contracted for the improvement of his real
property, the mechanic’s lien attaches to the property of the owner. Id.
The Stroh court stated that such express or implied agreement particularly
arose in situations where the building or improvements became the
property of the lessor after a comparatively short term. Id. In such
situations, according to Stroh, “the lessee is considered to be the agent of
the lessor within the meaning of [Iowa Code section] 572.2.” Id.
The Stroh court held that the mechanic’s lien under the facts of the
case attached to the lessor’s real property. Id. The Stroh court noted that
the construction of the car wash materially added to the value of the land,
with the assessed value increasing from $22,491 to $79,060 after
construction of the project. Id. The improvements immediately became
the property of the lessor. Id. Finally, the facility was the primary reason
for the rent of $16,250. Id.; see also A & W Elec. Contractors, 576 N.W.2d
at 114 (“[A] tenant’s authority to bind the land arises only when the
improvement is in some way demanded by the lease.”).
C. Statutory Changes in 2007 and 2012. Iowa’s mechanic’s lien
statute was amended in 2007 and 2012. The 2007 amendments removed
contracts with “the owner’s agent” as giving rise to mechanic’s liens on the
property of the owner under Iowa Code section 572.2(1). See 2007 Iowa
Acts ch. 83, § 3 (codified at Iowa Code § 572.2(1) (Supp. 2007)). The 2007
amendments also eliminated the term “owner’s agent” from other
provisions of the mechanic’s lien statute. See id. §§ 2, 4, 6, 17 (codified at
Iowa Code §§ 572.1(6), .8(1)(c), .10, .28(1) (Supp. 2007)).
The 2012 amendment, among other things, limited the scope of the
term “owner.” See 2012 Iowa Acts ch. 1105, § 2 (codified at Iowa Code
§ 572.1(8) (2013)). As amended in 2007, the term “owner” generally meant
21
“the record titleholder” in the property. 2007 Iowa Acts ch. 83, § 2 (codified
at Iowa Code § 527.1(4) (Supp. 2007)). But the 2007 version additionally
provided that owner included “every person for whose use or benefit
any . . . improvement is made.” Id. In 2012, the legislature eliminated the
additional language. 2012 Iowa Acts ch. 1105, § 2 (codified at Iowa Code
§ 527.1(8) (2013)). Thus, at all times relevant to this proceeding, the term
“owner” in the mechanic’s lien statute was narrowly defined as “the legal
or equitable titleholder of record.” Iowa Code § 572.1(8).
IV. Positions of the Parties.
A. Winger.
1. Proper interpretation of Iowa Code section 572.2(1). On appeal,
Winger first asserts that the district court erred in determining that, under
Iowa Code section 572.2(1), “a contract with the owner’s agent” is no longer
sufficient to provide a basis for a mechanic’s lien. According to Winger,
nothing in Iowa Code section 572.2(1) prevents a mechanic’s lien from
attaching to land where the landowner’s agent contracts for improvements.
According to Winger, the legislative amendment in 2007 was not
designed to eliminate the law of agency in the field of mechanic’s liens.
Winger cites the following explanation attached to the 2007 amendment,
which stated, “The bill eliminates owner agents and trustees from the list
of persons against whom a mechanic’s lien may be filed.” H.F. 774, 82d
G.A., explanation (Iowa 2007) (emphasis added). According to Winger, the
technical correction was not designed to alter the substantive law of
mechanic’s liens, but only related to the manner of filing the liens on the
public record.
2. Notice of lease provisions. In setting up the argument that its
work for HFCA was sufficient to provide a basis for a mechanic’s lien to
attach to Cargill’s property, Winger preliminarily asserts that the potential
22
lienholders in this case did not have actual or constructive notice of section
22.14 of the lease between Cargill and HFCA. That provision states that
nothing in the lease should be deemed as creating a partnership, joint
venture, or any relationship other than the relationship of landlord and
tenant. The provision also states nothing in the lease should be construed
as causing either party to be responsible for the debts or obligations of the
other party.
Winger notes that the lease itself was not filed in the Monroe County
recorder’s office, but only a memorandum of lease. Thus, from the public
record, Winger argues it was not on constructive notice of the specific
terms of the unfiled lease, including section 22.14 or any other provision.
Further, Winger asserts the record is devoid of any evidence that it had
actual notice of the terms of the lease.
3. Application of Romp and Stroh. Winger claims Cargill and HFCA
were joint adventurers which subjected Cargill’s property to a mechanic’s
lien under Romp, 244 Iowa at 208–09, 56 N.W.2d at 604. Winger asserts
that while HFCA and Cargill did not share profits and losses, Cargill still
benefitted beyond the payment of rent by obtaining from HFCA a secure
supply of necessary chemicals.
Winger also claims that HFCA had express or implied authority to
contract for improvements under the teaching of Stroh, 247 N.W.2d at 752.
Winger points out that under the lease, HFCA was required to construct
the improvements giving rise to the mechanic’s liens in this case. While
Winger recognizes that the lease calls upon HFCA to return the property
to Cargill in its original condition after fifty years, it argues that in all
likelihood a large chemical facility is not going to be destroyed at the end
of the lease term. To not allow the mechanic’s liens to attach to Cargill’s
land under the circumstances, according to Winger, would be inequitable.
23
4. After-acquired mortgage. Winger launches two arguments
challenging the district court’s conclusion that Cargill as assignee of the
U.S. Bank construction mortgage holds a position superior to the
mechanic’s liens in this case. Winger first asserts that the mortgage held
by Cargill should merge with its fee simple interest in the property. Next,
Winger asserts that equity will not facilitate an artifice for fraud by giving
Cargill’s after-acquired mortgage priority over the mechanic’s liens.
5. Otherwise improved. Finally, Winger asserts that the district
court erred in dismissing its argument, raised in its rule 1.904(2) motion,
concerning the “otherwise improved” language in Iowa Code section
572.2(1). Parsing the statutory language, Winger asserts that it has a lien
for construction services rendered pursuant to its contract with HFCA on
“such building or improvement”—namely, HFCA’s facility—and “upon the
land or lot so graded, landscaped, fenced, or otherwise improved”—
namely, Cargill’s land. Winger indicates that the Oxford comma—the third
comma in the phrase “so graded, landscaped, fenced, or otherwise
improved”—means that the term “otherwise improved” is not limited to
activities similar to grading, landscaping, or fencing, but instead, has a
broader meaning that generally includes “improvements.”
Winger challenges the district court’s conclusion that this claim was
not preserved below. Winger notes that its petition alleges both that its
“labor and services contributed to the improvement, betterment,
alteration, and repair of the EDDYVILLE PROPERTY” and that, as a result,
it “is entitled to . . . a lien on the EDDYVILLE PROPERTY to secure
payment of amounts owed to it for and relating to those services and that
work.” Winger claims that its motion for summary judgment raised “the
betterment issue” by alleging that Cargill received substantial benefit from
the labor furnished and materials provided.
24
6. Joinder by other parties. Tri-City, TAI, and American Piping join
Winger’s appellate briefing. They “further state that each furnished labor
and materials upon [Cargill’s] buildings and land for the improvement,
alteration, or repair thereof” and “are similarly situated to Winger.”
B. Peterson. Peterson generally joins the arguments advanced by
Winger. Peterson emphasizes, however, that it provided services to the
real property including moving dirt; providing concrete paving and erosion
control; building culverts and containment basins; excavating; stripping,
salvaging, and spreading topsoil; clearing and grubbing the land; installing
storm sewers and fencing; seeding; mulching; backfilling; and raising the
grade of the land. As a result, Peterson claims that it is entitled to a
mechanic’s lien on Cargill property on the basis that it otherwise improved
the land under Iowa Code section 572.2(1).
C. Cargill.
1. Proper interpretation of Iowa Code section 572.2(1). Cargill argues
that Iowa Code chapter 572 is straightforward. Cargill emphasizes the
following language in section 572.2(1):
Every person who furnishes any material or labor . . . by virtue
of any contract with the owner, owner-builder, general
contractor, or subcontractor shall have a lien upon such
building or improvement, and land belonging to the owner on
which the same is situated . . . .
Iowa Code § 572.2(1). According to Cargill, the statute plainly states that
a mechanic’s lien arises only on a building, improvement, or land
“belonging to the owner.” Here, HFCA has no land belonging to it. The
land belongs to Cargill. As a result, Cargill concludes, the mechanic’s liens
for work provided to HFCA do not attach to Cargill’s fee simple interest in
the land.
25
Cargill backs up its interpretation by citing the amendments to
Iowa’s mechanic’s lien statute passed in 2007. Cargill notes that the 2007
amendment expressly removed the words “the owner’s agent, trustee” from
the list of parties who could enter into contracts giving rise to mechanic’s
liens. 2007 Iowa Acts ch. 83, § 3 (codified at Iowa Code § 572.2(1) (Supp.
2007)).
Further, Cargill notes that the legislative amendments in 2007 and
2012 substantially changed the definition of “owner.” In 2007, the term
“owner” was amended to mean “the record titleholder” but retained the
phrase “every person for whose use or benefit any building, erection, or
other improvement is made.” Id. § 2 (codified at Iowa Code § 572.1(4)
(Supp. 2007)). The definition of owner was again amended in 2012 by
deleting the language about benefitted persons. 2012 Iowa Acts ch. 1105,
§ 2 (codified at Iowa Code § 572.1(8) (2013)). As a result, after 2012,
“owner” under the statute was defined as “the legal or equitable titleholder
of record.” Iowa Code § 572.1(8).
Cargill views the explanation accompanying the bill as insignificant.
Cargill observes that the language in the explanation cited by Winger
makes little sense because mechanic’s liens are charged against property,
not persons. In any event, Cargill asserts that the actual action taken by
the legislature must be given effect notwithstanding the less-than-
clarifying explanation accompanying the bill as originally filed.
According to Cargill, the statutory amendments to the mechanic’s
lien statute plainly undermine the validity of Romp, 244 Iowa at 208–09,
56 N.W.2d at 604, and Stroh, 247 N.W.2d at 752. Under the amended
statute, the fact that a lessor benefits from a lessee’s construction of a
building does not make the lessor an “owner” under the statute. And,
26
mechanic’s liens arise only on property of the “owner” narrowly defined as
the record titleholder.
Cargill rejects the notion that its interpretation of the statute
eliminates the law of agency. Of course, a corporation, for example, acts
through its agents. Cargill asserts that its interpretation does not prevent
an owner from entering contracts through its agents. But according to
Cargill, a contract with the owner’s agent, where the agent is the party to
the contract, is not sufficient to give rise to a mechanic’s lien on the
owner’s property. Cargill asserts that the amendments make clear that a
mechanic’s lien will not attach to property of an owner where there is a
contract with the owner’s agent, but not with the owner. Here, Cargill
explains, HFCA entered into contracts on its own behalf and not on behalf
of Cargill.
2. Notice of lease provisions. Cargill notes in passing that Winger
was on notice from the recorded memorandum of lease that Cargill, not
HFCA, owned the fee interest in the land. According to Cargill, Winger did
not have a contract with Cargill and thus its mechanic’s lien does not
extend to Cargill’s fee interest.
3. Application of Romp and Stroh. Cargill emphasizes that in light
of the 2007 and 2012 statutory amendments, there is no longer any basis
for attaching a mechanic’s lien to Cargill’s fee interest in the real estate.
In the alternative, however, even if the statutory argument is rejected,
Cargill argues that Romp and Stroh have no application under the facts
presented.
4. After-acquired mortgage. Cargill argues that no merger occurs as
a result of U.S. Bank’s assignment of its construction mortgage lien to
Cargill. Cargill admits that it received an assignment of the construction
mortgage lien. But, Cargill notes, HFCA still holds title to the leasehold
27
interest. According to Cargill, Winger seeks merger of HFCA’s leasehold
interest with Cargill’s fee simple interest in the land. Cargill argues that
the fact that Cargill has the right to foreclose on the mortgage lien does
not address the separate issue of whether the leasehold interest has
merged with the dominant estate.
In any event, Cargill points to our precedent stating,
It is a well-settled rule of equity jurisprudence that a purchase
by a mortgagee of the mortgaged premises does not merge the
mortgage in the legal title, when it is the interest of the
mortgagee that it should be kept alive, if the rights of third
persons are not thereby prejudiced.
Kilmer v. Hannifan, 113 Iowa 281, 282, 85 N.W. 16, 16 (1901). Here, prior
to U.S. Bank assigning the mortgage to Cargill, Winger had a mechanic’s
lien in the HFCA facility and in HFCA’s leasehold interest in the land. The
assignment did not affect that interest. According to Cargill, Winger
impermissibly seeks to use the assignment as a sword to advance its
position.
5. Otherwise improved. Cargill asserts that under Iowa Code
section 572.2(1), there are two methods of establishing a mechanic’s lien.
Under the first method, a lien arises on the “building or improvement, and
land belonging to the owner on which the same is situated.” Iowa Code
§ 572.2(1). Under the second method, according to Cargill, “those engaged
in grading, sodding, installing nursery stock, landscaping, sidewalk
building, fencing on any land or lot” are entitled to a lien on “the land or
lot so graded, landscaped, fenced, or otherwise improved, altered, or
repaired.” Id.
Cargill asserts that Winger did not raise the issue of whether it was
entitled to a mechanic’s lien against Cargill’s fee interest under the second
approach in the district court. Cargill recognizes that Winger raised the
28
issue in its 1.904(2) motion after the district court ruled on the motions
for summary judgment, but Cargill argues that new issues not presented
to the district court cannot be raised in a 1.904(2) motion. According to
Cargill, 1.904(2) motions, even under our amended rule, are not a vehicle
to advance a new legal theory.
In any event, Cargill asserts that Winger is not entitled to relief
under the otherwise improved theory. According to Cargill, because the
phrase “otherwise improved” follows a specified list relating to grading,
landscaping, and fencing, the language applies only to similar activity and
does not generally apply to providing material or labor to construct a
building. Cargill argues that Winger’s interpretation of the statute would
render superfluous prior language in the statute providing that provision
of materials and construction services provide a lien on the building and
“land belonging to the owner on which the same is situated.” Iowa Code
§ 572.2(1).
V. Discussion.
A. Proper Interpretation of Iowa Code Section 572.2. A
threshold issue is whether a mechanic’s lien on the underlying fee interest
may arise under the current version of Iowa Code section 572.2(1) where
the contract is with the lessee and not the owner of the property. If the
answer to this question is no, there is no need to consider whether the
mechanic’s liens attach under Romp, 244 Iowa at 208–09, 56 N.W.2d at
604, and Stroh, 247 N.W.2d at 752.
Based on our review of the statute, we conclude that Cargill has the
better argument. A mechanic’s lien is a creature of statute. Carson, 513
N.W.2d at 715. The amendments of 2007 and 2012 narrow the definition
of owner and eliminate contracts with agents as a basis for a mechanic’s
lien against property of an owner. See 2012 Iowa Acts ch. 1105, § 2
29
(codified at Iowa Code § 572.1(8) (2013)); 2007 Iowa Acts ch. 83, § 3
(codified at Iowa Code § 572.2 (Supp. 2007)). We conclude the language
used by the legislature should be given its natural effect.
We do not view the legislative amendments in 2007 and 2012 as
working a profound change in the law of agency. As pointed out by Cargill,
an agent can still enter into a contract on behalf of a principal. When an
agent acts within the scope of authority on behalf of a principal, a contract
arises with the principal.
Under our interpretation of legislative action, Romp and Stroh are no
longer good law. Both of these cases involved contracts with lessees who
were determined to be, in essence, agents of fee owners because of the
beneficial relationship between the lessors and the owners that extended
well beyond the ordinary landlord–tenant relationship. It may be that
under these cases, Winger would have an argument for the attachment of
mechanic’s liens to Cargill’s fee simple interest. But by reworking the
statute to limit mechanic’s liens to property belonging to a narrowly
defined owner, the legislature has adopted an approach in conflict with
Romp and Stroh. Because we find that the language of the statute
precludes the attachment of mechanic’s liens to the fee simple interest of
Cargill, there is no occasion to consider application of our now superseded
precedent.
B. Otherwise Improved. In its summary judgment motion below,
Winger did not assert that it had otherwise improved Cargill’s property
under Iowa Code section 572.2(1). Winger’s statement of undisputed facts
did not include a factual claim that it had furnished seeding, sodding,
excavating, or similar services to Cargill’s land. Its motion for summary
judgment generally asserted that “Cargill received substantial benefit from
the labor furnished and materials provided by the lienholders.”
30
Winger’s memorandum in support of its motion for summary
judgment asserted in a heading that “the land owner is subject to
mechanic liens filed against its property when it benefits from the work
performed and materials provided thereon by its lessee.” The
argumentation under the heading focused on the agency principles
articulated in Romp and Stroh. Under these cases, Winger asserted that
HFCA was an agent for, or in a joint venture with, Cargill and that the
mechanic’s liens in this case could attach to Cargill’s property as a result.
In its reply brief to Cargill’s resistance, Winger defended its claim that
HFCA was Cargill’s agent but did not raise the otherwise improved
language of the statute.
Nowhere in the summary judgment proceedings did Winger make
the factual claim to have provided landscaping-type work on Cargill’s land,
and Winger did not make the legal argument that it was entitled to a
mechanic’s lien by virtue of the otherwise improved language under Iowa
Code section 572.2. Once the district court ruled on the summary
judgment motions, Winger raised the otherwise improved theory in its rule
1.904(2) motion. In that motion, Winger generally asserted that it provided
labor which improved the Cargill land and specifically raised the
alternative statutory theory that it provided materials and services that
otherwise improved Cargill’s land.
Peterson is in a slightly different position. Peterson on appeal notes
that, in its “Answer and Counterclaim and Cross-Claim to Foreclose
Mechanic’s Lien,” it alleged that it provided services to Cargill’s land and
provided an affidavit supporting the claim. But the district court’s case
management order required the parties to determine lien priority in a
summary judgment proceeding. With respect to the summary judgment
motions that were filed pursuant to the case management order, Peterson
31
joined Winger’s summary judgment motion and brief. It did not make any
independent filing of its own related to the otherwise improved issue. The
same is true for Tri-City, TAI, and American Piping. For all purposes
relevant to the “otherwise improved” issue, Peterson, Tri-City, TAI, and
American Piping were hitchhikers of Winger. Thus, like Winger, these
parties raised the issue in a 1.904(2) motion.
We think Winger, Peterson, Tri-City, TAI, and American Piping did
not raise the otherwise improved issue before the district court when the
motions for summary judgment were considered. Although the otherwise
improved language appears in the same statutory provision relied upon by
Winger and the other four parties, it presents a different legal theory with
a different factual predicate than the issues actually litigated in the
summary judgment proceedings. Winger’s motion for summary judgment,
which the other four parties joined, along with its supporting brief, urged
the court to find that Cargill was either an agent or joint adventurer under
Romp or Stroh. Aside from the agency and joint venture theories, Winger
did not present an alternate theory to support the attachment of
mechanic’s liens to Cargill’s land. Under the circumstances, we think the
claim was not presented to the district court in the cross-motions for
summary judgment, and therefore, it is not surprising that the district
court did not rule upon the unpresented claim. As a result, the alternate
issue was not preserved. Meier v. Senecaut, 641 N.W.2d 532, 538 (Iowa
2002) (explaining that a motion under the precursor to rule 1.904(2) is not
designed as a replacement of the requirement to preserve error).
Winger asserts, however, that our amendment to rule 1.904(2)
altered our approach to issue preservation. Winger argues that a timely
motion for reconsideration under the new rule not only stays the time to
32
file an appeal in all cases but also involves a different approach to issue
preservation.
We do not agree. Our amendment to rule 1.904(2) was designed to
eliminate the difficult choice faced by lawyers in determining whether a
1.904(2) motion was a valid request to consider an issue overlooked by the
district court or whether it was a mere rehash and therefore did not
operate to stay the time for filing an appeal. As revealed by our comment
to the rule change, it was not designed to overhaul our preservation
doctrine. Iowa R. Civ. P. 1.904 cmt. (“[T]he rule does not address whether
a rule 1.904(2) motion preserves error for purposes of appeal as to evidence
or arguments raised for the first time in that motion.”).
C. Merger. No one disputes that Winger and the other four parties
have a lien against HFCA’s facility and its leasehold interest. The question
arises, however, whether Cargill’s construction mortgage lien acquired by
assignment from U.S. Bank is superior to the mechanic’s liens. Winger
seeks to defeat the priority of Cargill’s after-acquired construction
mortgage lien by asserting that Cargill’s interests as reflected in its
construction mortgage lien merges with its fee simple interest in the land.
We disagree. There is authority for the proposition that, at least
under some circumstances, when an owner of land in fee simple acquires
a leasehold interest in the property, the interests merge. See In re Estate
of Herring, 265 N.W.2d 740, 741 (Iowa 1978). Here, however, as the
district court found, Cargill has not acquired HFCA’s leasehold interest in
the property or any ownership of the facility and HFCA still owns the
leasehold interest and the facility. On appeal, Winger maintains that
“[l]andlord Cargill holds the dominate estate in relation to the lessee
HFCA.” What Cargill has acquired by assignment from U.S. Bank is an
interest in a construction mortgage, and resulting lien, against the
33
property interest of HFCA. As a result, the differing interests of Cargill do
not merge.
In any event, Iowa caselaw declares that in situations where the
mortgagee purchases the equity of redemption from the mortgagor, the
mortgage debt, and the mortgage, is extinguished but “if it is to the interest
of the mortgagee, and it can be done without prejudice to the rights of the
mortgagor or third persons, the doctrine of merger . . . will not apply.”
Vannice v. Bergen, 16 Iowa 555, 562 (1864). Here, Winger and the other
four parties are not prejudiced by lack of merger as their lien position prior
to Cargill obtaining the assignment of the mortgage was inferior to the
construction mortgage lien of U.S. Bank. Thus, the position of Winger and
the other four parties has not been affected by the transfer of the mortgage
interest. Further, as noted in later caselaw,
[i]f there was no expression of his intention in relation to the
matter at the time he acquired the equity of redemption, it will
be presumed, in the absence of circumstances indicating a
contrary purpose, that he intended to do that which would
prove most advantageous to himself.
Tom Riley Law Firm, P.C. v. Padzensky, 430 N.W.2d 416, 418 (Iowa 1988)
(quoting Overland-Wolf, Inc. v. Koory, 162 N.W.2d 889, 890–91 (Neb.
1968)).
In sum, Cargill obtained its construction mortgage interest under
less than desirable circumstances, namely, upon the collapse of the HFCA
project and the satisfaction of debt by U.S. Bank under the financing
arrangements. When Cargill obtained the interest in the construction
mortgage, it had no possible interest in merging the construction mortgage
estate with its fee simple estate and thereby losing its superior lien position
that arises from the construction mortgage.
34
D. Fraud or Unjust Enrichment. Winger generally asserts that
Cargill will be unjustly enriched and that its actions amount to a fraud.
We do not agree. A mechanic’s lien is a creature of statute. Carson, 513
N.W.2d at 715. Outside of the statute, there are no substantive rights to
a mechanic’s lien.
There is nothing in the record to suggest that Winger and the other
four parties were defrauded by Cargill out of their statutory rights. They
were on notice of the legislative changes. Further, there is no suggestion
that Cargill at any time misrepresented that Cargill owned the land but
that the facility and the lease were owned by HFCA. Moreover, by
examining the public record, Winger and the other four parties would have
known that HFCA did not own the land but was a mere lessee. Winger
and the other four parties did not claim that their contracts were in fact
with Cargill and that HFCA was acting as an agent to bind Cargill as
principal. They knew that HFCA was the party to their construction
contracts. As a result of the above, Winger and the other four parties
cannot be said to have been defrauded of a statutory right that they no
longer had.
Winger also argues that it was fraudulent for Cargill to claim a
superior right over their mechanic’s liens through the acquisition of the
construction mortgage lien from U.S. Bank. Prior to the assignment of
U.S. Bank’s interest, however, the liens of Winger and the other four
parties were subject to U.S. Bank’s interest. The assignment of the
construction mortgage lease to Cargill did not deprive them of anything.
Further, the after-acquired mortgage acquired by Cargill was not on its
own property, as suggested by Winger, but was on the property owned by
HFCA, namely, HFCA’s facility and the leasehold interests.
35
The case is thus distinguishable from Veale, 197 Iowa at 241–43,
195 N.W. at 249, where the improvements were made on the owner’s land
by a builder, and after the improvements were made, the property was to
be sold to the builder at a price which reflected the improvements. The
Veale court emphasized that the improvements were made on the owner’s
own property. Id. at 244, 195 N.W. at 250. Unlike in Veale, Cargill did
not finance the construction of its own building which it was going to sell
at a profit. The HFCA project was largely financed by U.S. Bank. Cargill
did finance part of the construction, but with respect to the U.S. Bank
financing, agreed to a put in the event of an HFCA default to close the deal.
Cargill was the assignee of a construction mortgage that financed the
building owned by HFCA when the default occurred. We decline to find
fraud under the circumstances presented.
VI. Conclusion.
For the above reasons, the rulings of the district court on the
motions for summary judgment are affirmed. The matter is remanded to
the district court for any further proceedings that may be required.
AFFIRMED.
All justices concur except Waterman, J., who takes no part.