Winkworth Fuel & Supply Co. v. Bloomsbury Corp.

Each of plaintiffs has a mechanic's lien on property in Bloomfield township, Oakland county. Each of defendants has a mortgage on the same property. In a proceeding to foreclose the mechanics' liens defendants had decree giving their mortgages priority. Plaintiffs have appealed. The mechanics' liens are for materials used in a new building. The materials were furnished to W.C. Scott who purchased the land on contract August 25, 1931, and received a deed therefor September 15, 1931. On the latter date he gave back a purchase-price mortgage to the Bloomsbury Corporation. The mortgage was recorded September 18, 1931. This mortgage provided that it "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." The mortgage to the Ancient Order of Gleaners was also given September 15, 1931, but was not recorded until December 30, 1931. This belated recording does not affect the rights of the respective parties because the record of the Bloomsbury mortgage gave notice of the Gleaners mortgage.Redford Lumber Co. v. Knight, 242 Mich. 695; Houseman v.Gerken, 231 Mich. 253.

Work on the building began August 20, 1931. The first furnishing of materials by each of the plaintiffs for which a lien is claimed was subsequent to the day Mr. Scott received his deed and subsequent to the date of recording the Bloomsbury Corporation's mortgage.

Plaintiffs' respective liens are not affected by the fact that Mr. Scott did not have title to the property when the work on the building was commenced, August 20, 1931. The statute expressly provides for a lien on "subsequent acquired" title.

"Every person who shall * * * furnish any labor or material * * * shall have a lien therefor upon such house * * * and also upon the entire interest of such owner, part owner or lessee in and to the lot or piece of land * * * to the extent of the right, title and interest of such owner, part owner or lessee at the time the work was commenced or the materials begun to be furnished * * * and also to the extent of any subsequentacquired interest of such owner." 3 Comp. Laws 1929, § 13101.

Mr. Scott subsequently acquired title. If he had acquired no title to the land, these materials having been used in anew building, the liens therefor would have attached to the building only. 3 Comp. Laws 1929, § 13103. But Mr. Scott subsequently acquired the fee and the mechanics' liens, under the quoted statute, attached to it subject only to prior liens, if any.

Are there prior liens? The Bloomsbury Corporation sold this land to Mr. Scott on a contract containing a provision that if within 30 days he would start to build on this land a dwelling to cost at least $12,000 the vendor would give the vendee a deed and take back a mortgage for the balance of the purchase price. The contracting parties complied with this arrangement. Under such circumstances the vendor could not thereafter assert a lien prior to those of the material men. We so held inHart v. Reid, 243 Mich. 175. The syllabus reads:

"Where a contract between the owners of land and the lessee provided not only for the lease of the land but that the lessee should erect a building thereon, under Act No. 140, Pub. Acts 1919, both the building and the real estate are subject to liens for unpaid claims for labor and materials furnished in constructing the building."

Under our holding in the Hart Case, as well as under the express provisions of 3 Comp. Laws 1929, § 13109, hereinafter quoted, it should be held that appellants' liens are prior to the Bloomsbury Corporation mortgage. The latter's claim of priority is not aided by its assertion of a so-called purchase-price mortgage. It is bound by the provision in the land contract that its vendee might take a deed and give back a mortgage within 30 days if he would begin construction on the land of a house to cost at least $12,000; and under the decision in the Hart Case these mechanics' liens are prior to the Bloomsbury mortgage.

The Gleaners Life Insurance Society made a loan of $12,000 on a lot that Mr. Scott had just recently purchased on a contract for $3,800. Obviously this was a construction loan. In fact, at the time this loan was made the new building on the land was in process of construction. To hold under such circumstances that a mortgagee's rights are prior to mechanics' liens is not only a violation of the express provision of the statute but it is a holding which would enable the mortgagee to pay over its money to the land owner and thereafter by way of enforcement of its mortgage lien to secure repayment from the sale of the materials furnished or work done by lien claimants. It is this type of inequitable transactions that is prevented by the statutory provision that those who make loans on property after the work on the building has been commenced must take subject to valid mechanics' liens acquired incident to such construction. The pertinent portion of the statute reads:

"They (mechanics' liens) 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." 3 Comp. Laws 1929, § 13109.

The instant case is governed by Kay v. Towsley, 113 Mich. 281 . Applying the above quoted statute, the court there said:

"Subdivision 3, § 9, Act No. 179, Pub. Acts 1891, as amended by Act No. 199, Pub. Acts 1893 (3 Comp. Laws 1929, § 13109), provides that mechanics' liens '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, subsequent to the commencement of said building, erection, structure, or improvement.' This provision has been passed upon frequently by the courts, and it has been uniformly held that the lien has priority over a mortgage executed upon the lands or premises after the actual commencement of the building, though no part of the labor performed or materials furnished for which the lien is claimed was done or performed until after the execution and recording of the mortgage. Haxtun Steam Heater Co. v. Gordon, 2 N.D. 246 (50 N.W. 708, 33 Am. St. Rep. 776); Murray v. Swanson, 18 Mont. 533 (46 P. 441); Phillips on Mechanics' Liens (3d Ed.), § 216; 2 Jones, Liens (2d Ed.), § 1470; Davis v.Bilsland, 18 Wall. (85 U.S.) 659; Dubois' Administrator v.Wilson's Trustee, 21 Mo. 213; American Fire Ins. Co. v.Pringle, 2 Serg. R. (Pa.) 138; Lampson v. Bowen, 41 Wis. 484;Vilas v. McDonough Manfg. Co., 91 Wis. 607 (65 N.W. 488, 30 L.R.A. 778, 51 Am. St. Rep. 925); Hewson-Herzog Supply Co. v.Cook, 52 Minn. 534 (54 N.W. 751). It is held that, under such a provision, liens attach as of the date of the commencement of the building, erection, or other improvement, regardless of the time when, or the person by whom, the particular work was done or the materials furnished for which a lien is claimed. 2 Jones, Liens (2d Ed.), § 1470."

See, also, Kerr-Murray Manfg. Co. v. Kalamazoo Heat, Light Power Co., 124 Mich. 111; Peninsular Stove Co. v. Crane,226 Mich. 130, 137; and In re Sweet Laboratories Co., 261 Fed. 810.

Under our former decisions above cited and the statutory provisions quoted, appellants' liens should also be held prior to the mortgage of the Gleaners Life Insurance Society.

Entirely apart from the foregoing, in consequence of the statutory provision hereinbefore cited which provides liens for materials and labor used in constructing a new building, appellants are clearly entitled to prior liens upon the building, if not upon both the building and the land.

"Any person furnishing services or materials for the erection of a new building or structure upon land to which the person contracting for such erection has no legal title, shall have a lien therefor upon such buildings (building) or structure; and the forfeiture or surrender of any title or claim of title held by such contracting person to such land shall not defeat the lien upon such building or structure of such person furnishing services or materials as aforesaid." 3 Comp. Laws 1929, § 13103.

Not only does the statute expressly give appellants prior liens on this new building, but even under the equities of the case a priority cannot justly be decreed to the Bloomsbury Corporation. It sold the land to Scott, but not the valuable building subsequently erected thereon. The Bloomsbury Corporation has not expended a dollar in the erection of this dwelling, but these lien claimants have. Equitably their liens on the building are prior to the so-called vendor's lien of the Bloomsbury Corporation which owned and sold to Scott the vacant lot only. And the mortgage of the Gleaners Life Insurance Company likewise was taken by it as one covering practically only a vacant lot, or at best a lot on which the construction of a building was just fairly commenced. That was the extent of its mortgage security. Equitably this mortgagee has no right to appropriate to the payment of its loan made to Scott the labor and material subsequently furnished by these lien claimants. Obviously the mortgagee had full knowledge that the new building was in process of construction when the loan was made, and it was bound to know the law embodied in the statute above quoted (3 Comp. Laws 1929, § 13109) which gives priority to valid mechanics' liens as against mortgage loans made subsequent to the commencement of building operations. Reasonable diligence could have and would have fully protected the rights of the Gleaners Life Insurance Company by handling the mortgage money as a construction loan. If its negligence in failing to do so has resulted in a loss, such loss should not be shifted to the appellants who have complied with every statutory requisite to perfect, preserve and enforce their respective liens. As to the Gleaners Life Insurance Company's mortgage the equities are also with the lien claimants.

In accordance with the authorities noted in the earlier part of this opinion and for the reasons there stated, I think appellants' liens are prior to defendants' mortgages on both the land and the building erected thereon. However, some of my brethren are of the opinion that plaintiffs' priority of liens should be made applicable to the building only. In the instant case this will afford plaintiffs ample remedy. Therefore the decree entered in the circuit court will be set aside and one entered in this court giving plaintiffs prior liens upon the building but not upon the land. Costs to appellants.

NELSON SHARPE, C.J., and FEAD, WIEST, BUTZEL, BUSHNELL, and EDWARD M. SHARPE, JJ., concurred with NORTH, J.