Lyda Swinerton Builders, Inc. v. Cathay Bank

Affirmed in Part and Reversed and Remanded in Part and Majority and
Dissenting Opinions filed August 13, 2013.
In The
Fourteenth Court of Appeals
NO. 14-12-00163-CV
LYDA SWINERTON BUILDERS, INC, Appellant
V.
CATHAY BANK, Appellee
On Appeal from the 113th District Court
Harris County, Texas
Trial Court Cause No. 2008-64001A
MAJORITY OPINION
This lien priority case comes to us on appeal from the trial court’s rulings on
cross-motions for final summary judgment. The appeal presents two issues
involving two special types of real property liens.
We first address the scope of a builder’s release of its mechanic’s lien. See
generally Tex. Prop. Code Ann. Ch. 53 (West 2007 & Supp. 2012). We conclude
that the release at issue here did exactly what it purported to do: it released a
previous mechanic’s lien on one of the tracts of land at issue. The release did not
mention the underlying debt or the filing of future liens, so we conclude that with
one exception, it did not affect the builder’s entitlement to the unpaid portion of its
debt or its ability to file new liens. Nonetheless, there are fact questions regarding
whether the liens that the builder filed after releasing its initial lien comply with
the applicable statutes. These fact questions largely preclude summary judgment
on the validity of the post-release liens.
Next, we apply subrogation doctrines to a tax lien. Subrogation gives
someone who pays a debt the lien priority of the creditor paid. Normally,
subrogation is permissible because it does not alter the rights of junior lienholders;
it merely alters the party to whom they are junior. When a party satisfies a tax lien,
however, allowing subrogation to the taxing authority’s priority position may
inequitably circumvent notice and foreclosure requirements that would otherwise
apply. Fact issues preclude us from resolving the equities on this record.
Therefore, with one exception described below, we reverse the trial court’s
summary judgment and remand the case for further proceedings.
BACKGROUND
Lyda Swinerton Builders, Inc. (the builder) agreed to improve real property
owned by Park 8 Place, L.P. (the developer), but the improvements never
progressed very far. This case began when the builder sued the developer, but the
developer filed for bankruptcy protection and is no longer a party. The only parties
remaining are two of the developer’s unpaid creditors: the builder and Cathay
Bank. Both claim a priority interest in portions of the property that the developer
planned to develop. We refer to these disputed tracts as “Parcel A” and “Parcel
B.”1 Our task is to determine priority as between the builder (which claims priority
1
This case involves six contiguous tracts of land, which Exhibit B to the builder’s
summary judgment motion designates as tracts I–VI. The builder concedes the bank’s superior
2
based upon its mechanic’s liens) and the bank (which claims priority based upon
deeds of trust and a tax lien that it satisfied).
The builder began work on the project in February 2007.2 Over the next
several months, the builder completed “dirt,” utility, and foundation work. During
the same period, the bank lent the developer approximately $800,000 secured by a
deed of trust on Parcel B and approximately $500,000 secured by a deed of trust
encumbering the entire property.3
In October 2007, work ceased due to “payment issues” and never resumed.
That month, the builder filed its first mechanic’s lien affidavit. The affidavit
reflected a lien of approximately $3.2 million and only encumbered Parcel A.
Generally, mechanic’s liens like this one relate back to the start of work for priority
purposes, regardless of when the mechanic files its lien affidavit. See Diversified
Mortg. Investors v. Lloyd D. Blaylock Gen. Contractor, Inc., 576 S.W.2d 794, 800
(Tex. 1978). Thus, although the builder filed its affidavit after the bank had
obtained its deed of trust liens, the builder’s lien nonetheless had priority because it
related back to the start of work in February 2007.
On October 31, 2007, shortly after the builder filed its first lien affidavit, the
bank lent the developer approximately $1.9 million. A deed of trust encumbering
both Parcels A and B secured the bank’s loan. The builder was paid $1.5 million
interest in tracts II, IV, and VI, so this opinion only addresses tracts I, III, and V. We omit
details relating to the parcels that are not in dispute. Moreover, for our purposes, it is
unnecessary to distinguish between tracts III and V, so we refer to those tracts collectively as
“Parcel A.” We refer to tract I as “Parcel B.”
2
“‘Work’ means any part of construction or repair performed under an original contract.”
Tex. Prop. Code Ann. § 53.001(14). For purposes of this appeal, the parties do not dispute when
the builder began work.
3
The exact lien amounts are not relevant to our analysis, so we state them as round
numbers throughout.
3
of the loan proceeds against the developer’s outstanding debt. 4 The builder then
filed a lien release. We will discuss the release in detail later, but for now it
suffices to say that the document recited the receipt of $1.5 million and purported
to release the builder’s $3.2 million lien.
On the same day that the builder signed its release, the bank used a portion
of the loan to satisfy outstanding tax liens against the property. By statute, these
tax liens are automatically senior to most other real property liens. See Tex. Tax
Code Ann. § 32.05(b). The bank later claimed that the principle of subrogation
entitled it to the taxing authority’s lien position for the portion of the loan used to
pay taxes. See generally Smart v. Tower Land & Inv. Co., 597 S.W.2d 333 (Tex.
1980).
On November 13, 2007, soon after filing its release, the builder filed an
“[a]mended” lien affidavit reciting a debt of approximately $2.9 million. This sum
included both the unpaid portion of the developer’s pre-release debt
(approximately $1.7 million) and amounts for post-release expenses that the
builder had since incurred. Like the builder’s first lien affidavit, this one covered
only Parcel A.
The builder contends this post-release affidavit, as a mechanic’s lien, related
back to the start of work in February 2007. As a result, according to the builder, it
now had a $2.9 million lien that was senior to the bank’s deeds of trust,
notwithstanding the lien release it had just filed.
Although the builder stated in its lien affidavit that it had incurred post-
4
Approximately $400,000 of this payment went to a subcontractor that is not a party to
this appeal. In its brief, the builder appears to concede that this payment to the subcontractor
also reduced its claim against the developer, so our analysis assumes this is the case. If we
misapprehend the transaction, nothing in this opinion prevents a party from asserting on remand
that the payment to the subcontractor did not reduce the builder’s claim against the developer.
4
release expenses, no post-release work had occurred on the property. The builder
contends that even though it had stopped working, it remained on the site at the
developer’s request. The post-release expenses reflected in the affidavit were
“administrative and equipment rental costs related to maintaining the site at an
estimated $200,000 per month.”
Over the ensuing months, the developer made at least one partial payment,
but the developer’s payment did not keep pace with the builder’s continually
accruing expenses. In May 2008, the builder sent the developer a letter stating that
if the developer failed to cure its debt, the builder would leave the project site and
terminate the contract. The developer did not cure its debt, but the builder
nonetheless remained on the site.
Indeed, after sending this termination letter, the builder “continued to
maintain its office facilities at the Project, continued to store materials and
equipment at the Project, and maintained water, sewer, power, phones and data
connections at the office complex.” It also continued to bill the developer for these
expenses and to file lien affidavits to secure payment. Each new amended affidavit
reflected the current total owed and each encumbered both Parcel A and Parcel B.
While still on the property accruing expenses (allegedly still at the
developer’s request), the builder sued the developer in October 2008. The bank
intervened shortly thereafter, claiming a superior interest in the property. The trial
court eventually severed this lien priority dispute from the builder’s action against
the developer.
With all this litigation pending, the builder filed its final lien affidavit in
January 2009. This was over a year after the builder’s last work on the project, six
months after its termination letter, and three months after filing its lawsuit. The
final amended affidavit reflected a lien on Parcels A and B in the amount of $6.75
5
million, representing the builder’s total expenses. As a mechanic’s lien, the builder
contends this lien related back to the start of work—almost two years earlier—and
was therefore senior to the bank’s deed of trust liens on Parcels A and B. After
filing this final lien, the builder remained on the property for another thirteen
months.
Shortly after the builder finally decamped from the property in March 2010,
the bank foreclosed on its October 31, 2007 deed of trust. The builder received
notice of the trustee’s sale, but contends it was unaware that the bank intended to
foreclose on a senior tax lien. The builder contends that, “had [it] known that [the
bank] was foreclosing . . . transferred tax liens, [it] could have . . . bid on the
property at the foreclosure sale to preserve its interest.”
But the builder did not bid at the foreclosure sale. Instead, the bank
purchased the property for $10,000. Because this amount was less than the bank’s
alleged senior tax lien, the bank contends its foreclosure extinguished all junior
liens—including the builder’s. See I-10 Colony, Inc. v. Chao Kuan Lee, 393
S.W.3d 467, 472 (Tex. App.—Houston [14th Dist.] 2012, pet. filed) (“It is well
settled in Texas that a valid foreclosure on a senior lien . . . extinguishes a junior
lien . . . if there are not sufficient excess proceeds from the foreclosure sale to
satisfy the junior lien.”). The bank thus argues that, as a result of this sale, it
owned the property outright.
In the severed lien priority litigation, the parties filed cross-motions for final
summary judgment. The builder argued that because its lien related back to
February 2007, it was senior to the bank’s. Thus, the builder argued that the
bank’s purchase of the property at its own foreclosure sale was subject to the
builder’s senior lien.
The bank contended that it was entitled to the property for two reasons.
6
First, the bank argued that the builder’s release fully terminated any interest it had
in the property and prevented it from filing new liens. Second, the bank contended
that its foreclosure of a senior tax lien extinguished the builder’s interest in the
property.
The trial court granted the bank’s motion and denied the builder’s. It held
that the bank owned the property “free and clear” of the builder’s claims. This
appeal followed.
ANALYSIS
I. Standard of review
We review a trial court’s order granting traditional summary judgment de
novo. Olmstead v. Napoli, 383 S.W.3d 650, 652 (Tex. App.—Houston [14th Dist.]
2012, no pet.). To be entitled to summary judgment, the movant must demonstrate
that no genuine issues of material fact exist and that he is entitled to judgment as a
matter of law. Tex. R. Civ. P. 166a(c). If the movant does so, the burden shifts to
the non-movant to produce evidence sufficient to raise a fact issue. Olmstead, 383
S.W.3d at 652. When reviewing a summary judgment motion, we cannot read
between the lines or infer from the pleadings or evidence any grounds for summary
judgment other than those expressly set forth before the trial court. Id.
The builder presents two issues on appeal, which we address together:
whether the trial court erred in granting the bank’s motion for summary judgment,
and whether it erred in denying the builder’s motion. When both sides move for
summary judgment and the trial court grants one motion and denies the other, the
reviewing court should review both sides’ summary judgment evidence and
determine all questions presented. Id. When, as here, the trial court’s order
granting summary judgment does not specify the grounds on which it relied, the
7
summary judgment will be affirmed if any of the theories advanced are
meritorious. Id. Here, the two grounds advanced for summary judgment in the
bank’s favor are (1) the builder’s release and (2) the bank’s alleged foreclosure of
tax liens. We address these grounds in turn.
II. Although the builder fully released its initial lien on Parcel A, it
did not waive its right to file new liens covering other property or
securing payment for post-release expenses, and there are fact
questions concerning the validity of those new liens.
One of the parties’ principal disputes concerns the builder’s mechanic’s lien.
Specifically, the parties dispute (1) the effect of the builder’s release upon its initial
lien and upon its ability to file subsequent liens, and (2) the validity of the builder’s
post-release liens. We begin with some undisputed general principles.
“As a general rule, a properly perfected mechanic’s lien ‘relates back’ to a
time referred to as the inception of the lien for the purpose of determining lien
priorities.” Diversified Mortg. Investors, 576 S.W.2d at 800. In most cases, “the
time of inception of a mechanic’s lien is the commencement of construction of
improvements or delivery of materials to the land on which the improvements are
to be located and on which the materials are to be used.” Tex. Prop. Code Ann.
§ 53.124(a).
Here, neither party disputes that the relevant date for inception of the
builder’s liens is February 2007. Thus, if the builder’s lien affidavits are effective,
they all relate back to February 2007, and the bank’s relevant deeds of trust are
junior to them. The bank argues these liens are ineffective, however, because of
(1) the builder’s release and (2) flaws in the post-release liens themselves. As
explained below, we hold that with one exception, the bank is incorrect regarding
the release and that fact issues regarding the validity of the post-release liens
preclude summary judgment for either party.
8
A. The release did exactly what it said: it released the builder’s
initial lien and nothing more.
Omitting the formal parts, the builder’s October 2007 release reads as
follows:
RELEASE OF LIEN
The [builder] is a holder of a lien (“the lien”) in the amount of
$3,228,444.50 (“the indebtedness”) filed originally on or about
October 10, 2007 [in the] Real Property Records of Harris County,
Texas regarding the real property and improvements thereon (“the
property”) generally described as Park 8, Tower B, [the property’s
address] and more particularly described as follows:
[Description of Parcel A].
FOR AND IN CONSIDERATION of $1,500,000.00 and other
good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the [builder] does hereby release and
discharge the property from this lien.
A release is a writing that provides that a duty or obligation owed to one
party to the release is discharged, either immediately or upon the occurrence of a
condition. See Port of Houston Auth. of Harris Cnty. v. Zachry Const. Corp., 377
S.W.3d 841, 854 (Tex. App.—Houston [14th Dist.] 2012, pet. filed). Releases are
subject to the usual rules of contract construction. Id. As in other instances of
contract construction, our primary concern is to ascertain the intent of the parties at
the time of the execution of the alleged release as expressed in the release. Id. To
construe the release, we may examine evidence of the circumstances surrounding
its negotiation and execution. Id. We may also consider the title of the document,
but it is not dispositive. Id.
Here, the parties present multiple alternative interpretations of the two-
sentence release. They dispute the release’s effect on the builder’s initial October
2007 lien, on the underlying debt, and on the builder’s ability to file subsequent
9
liens. Below, we discuss in detail what the release does and why it does not do all
of the work that the parties assign to it.
The short answer is that the release only says that the builder is releasing the
full amount of its initial lien against Parcel A. The builder argues that
notwithstanding the release, it could “re-file” a lien for the unpaid portion of the
same debt against the same parcel of land. We disagree because allowing the
builder to do so would render the release meaningless. Thus, the release
extinguished the builder’s initial lien and prevented it from reasserting the same
lien against Parcel A for the unpaid portion of the pre-release debt.
The bank argues that the release also did other things, but the document in
front of us does not mention them. For example, the bank argues that the release
not only released the lien, but also forgave the unpaid portion of the initial debt.
The release does not say that. The bank also argues that the release prevented the
builder from filing liens for subsequent expenses. The release does not say that
either. Finally, the bank contends that the release prevented the builder from
securing the unpaid portion of its initial debt with a lien on Parcel B. The release
also does not say that—it only mentions Parcel A. Accordingly, the release does
not entitle the bank to the final summary judgment it received below.
1. The release unambiguously released the full amount of the
initial lien, but it did not forgive or cancel the unpaid portion
of the pre-release debt.
To explain these conclusions, we begin with the release’s effect on the
builder’s pre-release lien and debt. The builder argues that it only released its
initial October 2007 lien to the extent of the payment it received. More
specifically, because it only received $1.5 million of the $3.2 million it was owed,
the builder contends it only released $1.5 million of the initial lien. We disagree.
10
The release contains just two sentences. The first describes the lien and the
property, stating that the lien secures a debt of $3.2 million. The second
“release[s] and discharge[s] the property from this lien” “for and in consideration
of $1,500,000.00” (emphasis added and capitalization omitted). This language
does precisely what it says: it releases the whole lien. The builder’s contrary
interpretation is inconsistent with the unambiguous language of the release and
therefore unreasonable.
Notwithstanding this plain language, the builder argues that section
53.152(a) of the Property Code required it to release its lien “to the extent of the
indebtedness paid,” so we should construe its release to have only this effect.
Although “[s]ection 53.152 delineates the minimal obligation of a contractor to
release a lien upon receiving payment, . . . nothing in the statute suggests that
broader releases may not be executed.” Addicks Servs., Inc. v. GGP-Bridgeland,
LP, 596 F.3d 286, 297 (5th Cir. 2010). Here, in exchange for immediate payment,
the builder executed a broader release and thereby fully released its initial lien.
But the release itself does not forgive the unpaid portion of the developer’s
underlying debt.5 Thus, although the release extinguished the lien, nothing in the
document suggests the builder intended to forgive the remaining $1.7 million debt
that had not been paid. To the contrary, the release distinguishes the
“indebtedness” from the “lien” and releases only the lien.
The document’s first sentence is definitional: it defines “the lien,” “the
5
The builder asks us to take judicial notice of a judgment it obtained against the
developer, which was based on an agreed arbitration award and included the unpaid portion of
the pre-release debt. The bank urges us not to take judicial notice. We need not address the
issue because the judgment against the developer does not affect our decision. As discussed
above, the release alone does not establish that the developer’s entire pre-release debt has been
satisfied, and we reject the bank’s argument that it does. Judicial notice that the debt has been
reduced to judgment is unnecessary to reach this conclusion.
11
indebtedness,” and “the property.” The use of separate terms to describe “the lien”
and “the indebtedness” demonstrates a desire to distinguish one from the other.
The release’s second sentence is operative: it “release[s] and discharge[s] the
property from this lien.” The second sentence does not mention the indebtedness.
In this way, the builder unambiguously demonstrated its intent to release only “the
lien” without forgiving the unpaid portion of the separately defined
“indebtedness.”
Moreover, the circumstances of the transaction support this construction of
the release. Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981) (“If,
in the light of surrounding circumstances, the language of the contract appears to
be capable of only a single meaning, the court can then confine itself to the
writing.”). To the extent the release evidences a contract (see n.6, infra), the
parties to that contract are the bank and the builder. The bank sought a priority
interest in the property, while the builder sought partial payment.
There is no evidence, however, that either party sought to reduce the
developer’s debt. As for the builder, it had no reason to forgive the developer’s
debt because it wanted payment for its work. In any event, there is no evidence
that the builder agreed to—or was even asked to—forgive the unpaid portion of the
underlying debt. As for the bank, nothing in the record suggests that the bank had
any interest in reducing the developer’s indebtedness to the builder. The bank
wanted to get the builder’s previously filed lien out of the priority line, not to
protect the developer.
We must also “keep in mind that lien waivers, as their name implies, pertain
to lien rights and not to the more general right to payment.” 3 PHILIP L. BRUNER &
PATRICK J. O’CONNOR, JR., CONSTRUCTION LAW § 8:151 (2002). Here, neither the
release’s text nor the context of the transaction establishes that the parties intended
12
to forgive the developer’s underlying debt. We therefore reject the bank’s
contention that the release had this effect.6
Thus, following the release of its initial October 2007 lien, the builder held
no lien against Parcel A or any other tracts. The developer remained indebted to
the builder, however, for the $1.7 million unpaid portion of the pre-release debt.
2. The release prohibited the builder from re-filing a lien against
the same property for the remaining pre-release debt.
The builder next argues the release did not prohibit it from re-filing a lien
against the same property for the unpaid portion of the same debt. This
construction is unreasonable because it would essentially render the release
meaningless.
The release’s plain language and the context of the transaction demonstrate
that the parties intended for the builder to release its previously filed lien, thereby
ensuring the bank’s priority position on Parcel A. For this reason, the bank paid
the builder $1.5 million, and in exchange the builder fully released its lien. Once
released, the lien could not be revived. See Apex Fin. Corp. v. Brown, 7 S.W.3d
820, 830 (Tex. App.—Texarkana 1999, no pet.). Although a release may be
rescinded for failure of consideration, see Murray v. Crest Const., Inc., 900 S.W.2d
342, 344 (Tex. 1995), in this case the consideration was paid, the release was filed,
and the builder presents no argument that would permit it to rescind the release in
part.
Allowing the builder to re-file a lien for a portion of the same debt against
6
This opinion does not foreclose the parties’ ability on remand to introduce evidence of
agreements supplementing the release’s plain meaning. Although we conclude the release is
unambiguous, the parties have not argued that the release is a fully integrated expression of their
agreement, and we express no opinion on that issue. See generally Garner v. Redeaux, 678
S.W.2d 124, 128–29 (Tex. App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.). The parties’
arguments thus far rely solely upon the release, and we limit our analysis accordingly.
13
the same property, however, would effectively allow a rescission. Nothing in the
record suggests that the parties intended for the builder to retain such unilateral
authority. To the contrary, for the bank to obtain the security it bargained for, the
pre-release lien had to stay fully released. We therefore reject the builder’s
argument that the release permitted it to re-file liens against Parcel A to secure the
unpaid portion of the pre-release debt.
3. The release did not prohibit the builder from filing new liens
on other tracts for the unpaid debt or liens on any tracts for
post-release expenses.
Having determined the release’s effect on the builder’s October 2007 lien
and the developer’s pre-release debt, we turn to the release’s effect on the builder’s
post-release liens.
After filing the release, the builder filed four amended lien affidavits to
secure payment for the unpaid portion of the pre-release debt and for expenses that
the builder continued to incur. The first of these documents, filed shortly after the
release in November 2007, asserted a lien only against Parcel A. The builder filed
a second amended affidavit in June 2008, a third in October, and a fourth in
January 2009. These three subsequent affidavits placed liens on the entire
property, including Parcels A and B. Each affidavit updates the total amount owed
by the developer at the time of filing. The final affidavit states that approximately
$6.75 million is owed.
The bank argues that summary judgment in its favor was proper because the
builder’s release prevented it from filing any further liens on any tracts to secure
any of the developer’s debt. As discussed above, the bank is right insofar as the
release prohibited the builder from re-filing a lien on Parcel A for the unpaid
portion of the pre-release debt, and it is entitled to partial summary judgment to
14
that extent.7 As to the bank’s other contentions, we disagree.
Neither the release itself nor any summary judgment evidence suggests that
the builder agreed to refrain from filing new liens if it incurred additional
expenses. By its terms, the release affected only the builder’s pre-release lien. It
said nothing about the builder’s ability to file future liens for post-release expenses.
In this way, the release differs from that in Apex Financial Corporation v.
Brown, upon which the bank relies. In that case, the waiver released lien rights
based not only upon “labor or materials furnished,” but also upon labor and
materials “to be furnished in the future.” 7 S.W.3d at 830. The court held that this
language allowed the party challenging the subsequently filed liens to “rely on the
fact that the . . . property would not be burdened by a statutory mechanic’s lien.”
Id.
The release here, by contrast, does not purport to waive the builder’s right to
file new liens. Instead, it refers only to the lien already filed and the indebtedness
already incurred. We therefore do not construe the release as barring liens for
post-release expenses.
Similarly, neither the release itself nor any summary judgment evidence
suggests the builder agreed to refrain from filing a lien against tracts other than
Parcel A to secure the unpaid portion of the pre-release debt. The builder’s initial
October 2007 lien only encumbered Parcel A, and its release purported to release
only this lien. The release did not mention Parcel B or the property’s other tracts,
so we do not construe it to prevent the filing of liens against those tracts to secure
the unpaid portion of the developer’s pre-release debt.
7
See Tex. R. App. P. 43.2(a); PAS, Inc. v. Engel, 350 S.W.3d 602, 617 (Tex. App.—
Houston [14th Dist.] 2011, no pet.) (affirming summary judgment on fraud claim to extent based
upon a certain misrepresentation).
15
This construction is consistent with the release’s plain meaning and the
context of the transaction. The builder released Parcel A from its initial lien, and it
cannot avoid this consequence by simply re-filing. But there is no evidence that
the parties intended the release to prevent the builder from securing the remaining
pre-release debt—or any other debt for that matter—with a lien on Parcel B. Nor
is there any contention that Parcel B is outside the “[p]roperty to [w]hich [the]
[l]ien [e]xtends” under Texas Property Code section 53.022. Thus, on the record
before us, nothing prevented the builder from filing a lien against Parcel B to
secure the unpaid portion of the developer’s pre-release debt.
The bank makes additional arguments to avoid this result, but they do not
change our conclusion that the release does not entitle the bank to final summary
judgment. The bank contends that we must construe the release to waive
additional rights because the release’s language differs from language in other
“partial releases” that the builder filed. Although the relevant release does differ
from others in the record, its language still does not waive the builder’s right to file
future liens for post-release expenses or forgive the developer’s unpaid debt.
The bank also contends that the builder could not “amend” its October 2007
lien because it fully released this lien and therefore had nothing to amend. This
contention must be evaluated under the mechanic’s lien statute because the liens at
issue here are creatures of statute. Indeed, “‘[a] subcontractor’s lien rights are
totally dependent on its compliance with the statutes authorizing the lien.’” K & N
Builder Sales, Inc. v. Baldwin, No. 14-12-00012-CV, 2013 WL 1279292, at *3
(Tex. App.—Houston [14th Dist.] Mar. 28, 2013, no pet.) (mem. op.) (quoting
First Nat’l Bank in Graham v. Sledge, 653 S.W.2d 283, 285 (Tex. 1983)).
Although a general contractor may have common law, contractual, and
constitutional lien rights as well, the builder has not relied upon such rights in this
16
appeal. Thus, to determine whether the builder has a statutory lien based upon its
amended affidavits, we need only “compare the steps the [builder] took to perfect
[its] liens with the statutory requirements.” First Nat’l Bank in Graham, 653
S.W.2d at 286.
The required contents of a lien affidavit are prescribed in section 53.054(a)
of the Texas Property Code. We conclude that each post-release affidavit complies
with these requirements, and the bank does not argue otherwise. Nothing in the
statute suggests that the builder sacrificed its entitlement to a lien in its November
2007 affidavit by adding a statement that this affidavit “amends” the original
October 2007 affidavit, which perfected a lien that had been released in the
interim.8 To the contrary, the supreme court has made clear that “substantial
compliance with the statutes is sufficient to perfect a lien.” Id. at 285.
Our dissenting colleague disagrees with this conclusion, relying on the
affidavits’ form rather than their substance. In her view, the first post-release
affidavit in November 2007 is ineffectual because it purports to amend the October
2007 affidavit, but there was nothing to amend because the lien perfected by that
affidavit had been released. Moreover, because the post-release affidavits amend
one another, she contends those affidavits are ineffectual as well.
We disagree with this analysis because it is contrary to the language,
established interpretation, and purpose of the mechanic’s lien statutes. Nothing in
the language of the statutes suggests that a lien’s effectiveness hinges upon
whether affidavits filed after a release describe themselves as “amending” or
“replacing” the pre-release affidavit. This omission is telling because the statutes
8
All of the lien affidavits are substantively identical with the exception of: (1) the
amended affidavits’ references to amendment in the caption and in one numbered sentence; (2)
differences in the amount of the claim; and (3) beginning with the second amended affidavit in
June 2008, an expansion of the property subject to the lien.
17
not only contemplate, but require, releases whenever payment is received. See
Tex. Prop. Code Ann. § 53.152(a). Release documents are “an intended and
customary part of the payment process” in construction transactions. 3 BRUNER &
O’CONNOR, supra.
Given the prevalence and necessity of releases, one would expect that if the
Legislature intended “amended” post-release affidavits to be entirely ineffective, it
would have expressed that intent. Certainly some statutory warning would be
appropriate if, as the dissent argues, a mechanic who proceeds by amendment loses
all security for expenses incurred after filing a statutorily required release.
Because there is no such warning or expression of legislative intent, we adhere to
the requirements the Legislature did establish in section 53.054(a), which are met
here as explained above.
Cases interpreting the mechanic’s lien statutes also counsel against
invalidating a lien on a purely technical basis. For example, “[i]t is well settled
that the mechanic’s and materialman’s lien statutes are to be liberally construed for
the purpose of protecting laborers and materialmen.” Ready Cable, Inc. v. RJP S.
Comfort Homes, Inc., 295 S.W.3d 763, 765 (Tex. App.—Austin 2009, no pet.).
And courts have been more willing to excuse a mistake or omission in cases where
no party is prejudiced by the defect. Id. (citing cases). Indeed, “[t]he Legislature
did not intend that the materialman should lose his lien through the technicalities of
a warning, where the owner was not misled to his prejudice.” Hunt Developers,
Inc. v. W. Steel Co., 409 S.W.2d 443, 449 (Tex. Civ. App.—Corpus Christi 1966,
no writ).
Here, there is no contention that the bank, the developer, or anyone else
relied upon or was misled by the references to amendment in the post-release
affidavits. Each affidavit was properly filed in the real property records, each
18
clearly identifies the encumbered property, and each states the amount of the lien. 9
Moreover, the purpose of these affidavits was to give notice of the builder’s
interest in the property. See Arias v. Brookstone, L.P., 265 S.W.3d 459, 464–65
(Tex. App.—Houston [1st Dist.] 2007, pet. denied) (purpose of serving lien
affidavits on property owner is to give notice). If anything, filing the post-release
affidavits as amendments furthered this purpose. The use of the amendment
format ensured that all of the amendments were filed together, thus clarifying that
each affidavit superseded the previous one and that the most recent stated the full
extent of the builder’s interest.
At bottom, the dissent rests on the rule that “[i]f there is nothing for an
amended instrument to amend, then such an amended instrument is itself
ineffectual nullity.” Post, at 8. The dissent cites no authority for applying this rule
to mechanic’s lien affidavits, but would apparently apply it to instruments of every
kind. Of course, we agree that this rule may apply in some situations. See, e.g.,
Lazo v. RSI Int’l, Inc., No. 14-06-00432-CV, 2007 WL 2447299, at *4 (Tex.
App.—Houston [14th Dist.] Aug. 30, 2007, no pet.) (mem. op.) (endorsement to
cancelled insurance policy ineffective). But it does not apply to amended
pleadings, for example. Because an amended pleading replaces the original
pleading, see Tex. R. Civ. P. 65, no one would argue that a fatal defect in the
original pleading that is absent from the amended pleading vitiates the latter simply
because it states that it amends the original pleading. We decline to apply the
dissent’s rule to defeat otherwise valid instruments that effectively serve the
purpose for which they were created.10
9
Although the lien perfected by the original October 2007 affidavit was released, the
affidavit itself did not cease to exist, cf. post, at 8–9, and it is in the record before this Court.
10
Cf. Rogers v. Ricane Enters., Inc., 884 S.W.2d 763, 770 (Tex. 1994) (principle that “a
contract shall be construed . . . in light of the purposes and objects for which it was made” is
19
Here, the amended affidavits gave notice of the builder’s interest in the
property in compliance with the applicable statutes. Accordingly, they perfected
the builder’s lien.11
B. Whether the builder timely filed its post-release lien affidavits and
whether its post-release expenses were for “materials” as defined
in the mechanic’s lien statute involve fact questions that preclude
final summary judgment for either party.
The bank next contends that even if the builder’s release allowed it to file
subsequent lien affidavits, its post-release affidavits were nonetheless ineffective
because (1) they were untimely and (2) the expenses referenced in the affidavits
could not give rise to mechanic’s liens because they were not for “materials
furnished for construction” as required by the mechanic’s lien statute.12 We
address each argument in turn. Because there are fact questions regarding both
arguments, neither party is entitled to final summary judgment regarding the
validity of the post-release mechanic’s liens.
“well-settled”); Union Pac. Res. Grp. v. Neinast, 67 S.W.3d 275, 282 (Tex. App.—Houston [1st
Dist.] 2001, no pet.) (lease covenants will be implied to, among other things, “give effect to the
actual intention of the parties . . . and the purposes sought to be accomplished [by their contract
or conveyance]”); Hicks v. Loveless, 714 S.W.2d 30, 34 (Tex. App.—Dallas 1986, writ ref’d
n.r.e.) (deed restrictions construed “in light of the obvious purpose and intent of the
restrictions”).
11
The dissent’s “Supplemental Background” section discusses the correspondence
between the builder and the bank, perhaps suggesting that this correspondence influences its
interpretation of the post-release affidavits. As far as we can tell, however, it does not. The
dissent’s rule would apply with equal force if the only parties were a property owner and a
mechanic who received payment and filed the statutorily required release. If the mechanic filed
lien affidavits as amendments after filing a release, then the dissent would hold that nothing
secures the mechanic’s post-release expenses. As discussed above, we see no reason why this
should be the case.
12
The bank’s brief conflates timeliness with whether the builder’s expenses entitle it to a
mechanic’s lien, but we construe the brief to raise both issues. See Perry v. Cohen, 272 S.W.3d
585, 587 (Tex. 2008) (“Appellate briefs are to be construed reasonably, yet liberally, so that the
right to appellate review is not lost by waiver.”).
20
1. The timeliness of the builder’s post-release liens presents
questions of fact.
Because mechanic’s liens attach on the day work begins, but need not be
recorded until after work concludes, there can be notice problems. That is, a party
relying solely upon the real property records will be unaware of a mechanic’s
senior lien until after the mechanic files its affidavit. See Diversified Mortg.
Investors, 576 S.W.2d at 801.
The mechanic’s visible construction activity on the property fills this
potential notice gap. Id. at 801–02. Thus, mechanic’s liens first attach at “the
commencement of construction . . . or delivery of materials,” that is “visible from
inspection of the land.” Tex. Prop. Code Ann. § 53.124. Mechanic’s lien statutes
also protect third parties by requiring mechanics to file their affidavits within a
fixed period after their presence on the property ceases. See id. § 53.052. In this
way, when work is ongoing, third parties can observe the mechanic’s presence and
assume that liens may be forthcoming. See Diversified Mortg. Investors, 576
S.W.2d at 801. After work concludes, a party can avoid mechanic’s liens by
waiting for the lien-filing period to expire. See id.
The clock on the filing period starts ticking when “indebtedness accrues.”
Here, the builder had to file its lien affidavit “not later than the 15th day of the
fourth calendar month after the day on which the indebtedness accrue[d].” Tex.
Prop. Code Ann. § 53.052.
Several events can trigger the accrual of indebtedness, but each stands in for
the cessation of work. For example, indebtedness to an original contractor13
accrues on the last day of a month during which either the contractor or the
13
The parties agree that the builder is an “original contractor” and this was an “original
contract.”
21
property owner receives a written declaration from the other party terminating the
contract. Id. § 53.053(b)(1). Absent termination, indebtedness accrues “on the last
day of the month in which the original contract has been completed, finally settled,
or abandoned.” Id. § 53.053(b)(2).
For our purposes, the only relevant accrual triggers are abandonment and
termination. The builder argues it never abandoned or terminated the project until
it left the site in March 2010, so its post-release lien affidavits filed between
November 2007 and January 2009 were all timely. For its part, the bank argues
that the builder abandoned the project when it stopped working in October 2007,
and thus all but the first of the builder’s post-release lien affidavits were untimely
because they were filed after February 15, 2008. We cannot agree with either
party because the summary judgment evidence fails to conclusively establish when
the builder abandoned or terminated the contract.
Fact questions regarding abandonment. Chapter 53 of the Property Code
does not define “abandoned.” See Tex. Prop. Code Ann. § 53.001. Moreover,
neither party has cited, and our research has not revealed, a Texas authority
exploring the meaning of “abandoned” as applied to mechanic’s liens. We
therefore use the word’s ordinary meaning. See TGS-NOPEC Geophysical Co. v.
Combs, 340 S.W.3d 432, 439 (Tex. 2011). “Abandon,” as used in this context,
means “to turn from or relinquish.” WEBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY 2 (1993).
Courts across the country disagree about whether the objective appearance
of abandonment triggers a mechanic’s filing obligation or whether the parties must
actually intend to abandon the project. See Superior Constr. Servs., Inc. v. Belton,
749 N.W.2d 388, 391 (Minn. Ct. App. 2008) (discussing the two approaches). The
courts that focus upon the notice-giving purpose of ongoing work believe that the
22
parties’ “secret purposes” have no place in the analysis. Allison v. Schuler, 36 P.2d
519, 522 (N.M. 1934). These courts consider only the objective appearance of
abandonment. See id. Other courts emphasize the mechanic’s need for certainty in
order to safeguard its rights and therefore include in their analysis the parties’
subjective intent regarding abandonment. See Superior Constr. Servs., 749
N.W.2d at 391.
The parties here have not asked us to adopt one side of this split over the
other, and we conclude that it is unnecessary to do so. Based upon the summary
judgment evidence, both approaches raise fact questions. Accordingly, neither
party is entitled to summary judgment under either approach.
Regarding the parties’ subjective intent, the builder argues that a single fact
conclusively establishes that it did not abandon the project until March 2010: the
developer’s request that it remain on the site until that time. Given the unique facts
of this case, we disagree.
The project began deteriorating long before the builder’s March 2010
departure, and there is evidence that one or both of the parties may have abandoned
the project prior to that time. Indeed, two and a half years passed between the day
the builder stopped working and the day it left the project site. During that time,
the builder did no work, received little payment, sent notice of its intent to
terminate the contract, and sued the developer. The builder is correct that its
continuing presence on the property supports an inference that it did not abandon
the project, but these other developments support a contrary inference. This
evidentiary conflict raises a fact question that cannot be resolved on summary
judgment.
We also reject the builder’s argument that its summary judgment evidence
conclusively established that the parties actually intended to complete the project.
23
The builder relies upon affidavits from its operations manager and a letter that it
sent to the developer in May 2008. One affidavit says that “[the developer]
repeatedly promised that it was in the process of securing additional financing, and
that [the builder] should not demobilize.” The other states that the builder “did not
terminate the contract, abandon the contract or demobilize the Project” when it
stopped working in October 2007 “[b]ecause of [the developer’s] repeated
promises that it was in the process of securing additional financing.”
Neither affidavit reflects exactly when the developer made these promises or
exactly what promises it made. Without this information, the mere existence of
promises as early as October 2007 fails to establish conclusively the non-
abandonment of the project prior to March 2010.
The builder’s letter to the developer falls short for similar reasons. The May
2008 letter states that “[the builder] at the request of [the developer] has remained
mobilized at the site.” Even if the developer made this request prior to May 2008,
however, such a request would not conclusively establish that the intent to
complete the project survived until March 2010. The summary judgment evidence
fails to establish conclusively when the parties intended to abandon the project, so
neither party is entitled to summary judgment based upon abandonment.
Turning to the objective appearance of abandonment, the builder argues that
its equipment remained on the property, signaling to third parties that it was
working and that its liens could come at any time. The bank focuses upon the long
period during which no work occurred, arguing that a third party would surmise
the work was over.
The parties’ arguments are both correct, as far as they go, and demonstrate
the existence of a fact question on abandonment. Maintaining equipment on the
property certainly suggests work may be ongoing. But the builder’s extended
24
period of inactivity suggests that, at some point, the builder and the developer may
have given up the project. Deciding if and when the parties abandoned the contract
is therefore a fact question that cannot be resolved on summary judgment.
Fact questions regarding termination. For purposes of a statutory
mechanic’s lien, a contract terminates when one party receives a written notice of
termination from the other. Tex. Prop. Code Ann. § 53.053(b)(1). The builder
contends that “[i]t is undisputed” that it “never received any notice the Contract
was terminated” (emphasis added). This appears to be correct. But the builder
alleged in its original petition below that it “served notice of intent to terminate the
Contract” “[b]y late May, 2008” (emphasis added). At this point, the builder
contended it had “bec[o]me apparent that [the developer] was incapable of
obtaining the financing necessary to complete the Project.” The builder’s
termination letter stated that, if the developer failed to cure its default, the contract
would terminate on May 27, 2008.14
Although this letter appears in the record, we do not believe it conclusively
proves that the contract terminated in May or June of 2008. First, there is no
evidence that the developer received this written notice, and section 53.053(b)(1)
provides that receipt triggers the accrual of indebtedness, not dispatch. Moreover,
neither party’s brief thoroughly addresses the termination letter’s effect. Thus, the
issue of termination also cannot be resolved on summary judgment.
14
The letter is dated May 20, 2008, and states that the developer’s failure to cure its
default within seven days will “terminate the Contract.” The letter also states, however, that it is
a “Notice of Intent to Terminate” and “[p]ursuant to” “Article 14.1.1” of the parties’ construction
agreement. This provision appears to provide for a fifteen-business-day cure period. In any
event, even if the contract terminated in June 2008, a lien affidavit would have been due by the
fifteenth day of the fourth month thereafter, i.e., October 15, 2008. See Tex. Prop. Code Ann.
§ 53.052(a). Thus, if the letter terminated the contract in May or June of 2008 (a matter upon
which we express no opinion), then the builder’s affidavits filed on October 23, 2008, and
January 16, 2009, would appear to be untimely.
25
2. The builder’s filing of a single timely mechanic’s lien does
not render its amended liens timely under the statute.
The builder argues, however, that issues of termination and abandonment do
not prevent final summary judgment in its favor. The builder points out that even
if its later post-release affidavits were untimely, its first amended lien affidavit
filed in November 2007 was still timely. The builder then contends that any late
affidavits “relat[e] back” to this timely one. Under this theory, the builder’s single
timely affidavit enabled it to more than double its lien on the property at any time
regardless of when the statutory filing period expired. We disagree with this
construction of the filing requirements.
The builder’s construction disregards the language of the relevant statutes.
To obtain a valid lien, a mechanic “must file an affidavit” within the statutory
period. Tex. Prop. Code Ann. § 53.052. This affidavit “must contain
substantially . . . a sworn statement of the amount of the claim.” Id. § 53.054(a).
Here, the first amended affidavit, assuming it was timely, did not contain a
substantially correct statement of the amount the builder ultimately claimed. The
first amended affidavit stated a claim for approximately $2.9 million, and the
builder ultimately claimed approximately $6.75 million.
Thus, the builder’s first amended affidavit satisfied both the timeliness
requirement and the amount-of-the-claim requirement only to the extent of the $2.9
million claim it substantially recited. We therefore reject the builder’s argument
that its first amended affidavit satisfied the timeliness requirement as to all
subsequent affidavits.
Although the bank does not dispute the timeliness of the first amended lien
affidavit, we cannot grant a partial summary judgment that this affidavit imposed a
valid mechanic’s lien. As an initial matter, approximately $1.7 million of the first
26
amended lien was for pre-release expenses that we have held the builder could not
reassert against Parcel A. Because the first amended affidavit only mentioned
Parcel A, it was ineffective to re-impose a lien for the pre-release expenses, and the
builder is entitled to partial summary judgment to that extent. The remaining $1.1
million in the first amended affidavit appears to have been for post-release
expenses. As we discuss below, however, the record does not conclusively
establish whether the builder could obtain a mechanic’s lien for those or other post-
release expenses. As a result, notwithstanding the apparent timeliness of the first
amended affidavit, fact questions preclude summary judgment as to its
effectiveness regarding post-release expenses.
3. Whether the builder’s post-release expenses were for
“material furnished for construction” presents fact questions.
Mechanic’s liens secure payment for, among other things, “the labor done or
material furnished for the construction or repair.” Tex. Prop. Code Ann. § 53.023.
As to the post-release liens, there is no contention that the builder “d[id] labor.”
Rather, the builder argues that its services after construction ceased were “material
furnished.”
“Material” means all or part of:
(A) the material, machinery, fixtures, or tools incorporated into
the work, consumed in the direct prosecution of the work, or ordered
and delivered for incorporation or consumption;
(B) rent at a reasonable rate and actual running repairs at a
reasonable cost for construction equipment used or reasonably
required and delivered for use in the direct prosecution of the work at
the site of the construction or repair; or
(C) power, water, fuel, and lubricants consumed or ordered and
delivered for consumption in the direct prosecution of the work.
Tex. Prop. Code Ann. § 53.001(4).
27
The builder generally contends that its post-release expenses fall into these
categories. The builder’s affidavit states that the expenses were for “maintain[ing]
its office facilities at the Project, continu[ing] to store materials and equipment at
the Project, and maintain[ing] water, sewer, power, phones and data connections at
the office complex.”15
The bank contends that none of these post-work expenses are “materials”
because, once work ceased, nothing was “used” or “consumed” in the “direct
prosecution of the work.” See id. We disagree because the definition of materials
does not always require actual use or consumption in the direct prosecution of the
work. Instead, mechanic’s liens are also available when items are “delivered for”
use or consumption. Id. In this way, the availability of a mechanic’s lien becomes
a question of how the parties intended to use equipment and services delivered to
the project, which is generally a question of fact. State ex rel. Perrin v. Hoard, 62
S.W. 1054, 1056 (Tex. 1901).16
Here, we cannot determine conclusively from the summary judgment
evidence exactly when the developer and builder ceased intending to prosecute the
work. Therefore, we cannot tell the extent to which the builder’s expenses were
for equipment or services delivered for that purpose. Standing alone, the fact that
no work ultimately occurred does not answer these questions.
Moreover, to obtain a mechanic’s lien for rental expenses, the equipment
15
Aside from the issues noted below, the parties have not briefed whether each of these
categories of expenses fall within the statutory definition of “materials.” We therefore express
no opinion on whether they otherwise qualify as expenses for materials.
16
See also Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986) (“Intent is
a fact question uniquely within the realm of the trier of fact because it so depends upon the
credibility of the witnesses and the weight to be given to their testimony.”); Viscardi v. Pajestka,
576 S.W.2d 16, 19 (Tex. 1978) (“The intent of the grantor is a question of fact.”).
28
must be not only “delivered for use,” but also “reasonably required” for use in the
direct prosecution of the work. Tex. Prop. Code Ann. § 53.001(4)(B). In this case,
the builder continued to incur rental expenses for several months after work had
ceased even though the developer already owed over $1.7 million and the project
had no apparent prospect of adequate financing. At some point, continuing to
incur these expenses may have become unreasonable, regardless of the parties’
intent. Whether and at exactly what point these expenses stopped being
“reasonably required” are questions of fact that cannot be answered conclusively
on this record. Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56 n.6 (Tex. 1997)
(“[R]easonableness is ordinarily a question of fact.”).
* * *
For these reasons, we affirm the trial court’s grant of summary judgment
insofar as it held that the builder’s lien against Parcel A for the unpaid portion of
the pre-release debt is junior to the bank’s deed of trust lien. Otherwise, to the
extent the trial court’s granted summary judgment for the bank based on the
release, the summary judgment cannot stand.
III. Although the bank’s failure to comply with the tax lien transfer statutes
does not prevent its subrogation to a tax lien, there are fact questions
regarding whether equity requires subrogation here.
The parties’ other principal dispute concerns whether the bank became
subrogated to a senior tax lien that it satisfied with part of its loan proceeds. With
a few exceptions that are not relevant here, tax liens are senior to other liens. See
Tex. Tax Code Ann. § 32.05(b). Thus, if the bank became subrogated to tax liens,
these liens would be senior to the builder’s mechanic’s liens. As a result,
foreclosure of the subrogated tax liens would have extinguished the builder’s
mechanic’s lien because the foreclosure sale proceeds were insufficient to satisfy
29
both. See I-10 Colony, Inc., 393 S.W.3d at 472. The bank would therefore own
the property free of the builder’s liens, and it would be entitled to final summary
judgment regardless of the issues discussed in Part II above.
Subrogation is liberally applied and is broad enough to include every
instance where one person, not acting voluntarily, pays another’s debt. Lancer
Corp. v. Murillo, 909 S.W.2d 122, 127 (Tex. App.—San Antonio 1995, no writ).
As used here, subrogation “essentially allows a subsequent lienholder to take the
lien-priority status of a prior lienholder” by satisfying the prior lien’s associated
debt. Bank of Am. v. Babu, 340 S.W.3d 917, 925 (Tex. App.—Dallas 2011, pet.
denied). One who pays another’s real property taxes often asserts a right to be
subrogated to the taxing authority’s lien. E.g., Smart, 597 S.W.2d at 337–38.
The bank’s subrogation arguments focus on a clause in its deed of trust
signed by the developer. The deed states that the bank “is subrogated to all rights,
liens or interests in any of the Mortgaged Property securing the payment of any
obligation satisfied or paid off out of the proceeds of [its] loans.” A tax lien was
“paid off out of the proceeds of” the bank’s loan, so it contends this provision
entitles it to subrogation under a contractual subrogation theory. As we explain
below, however, the bank’s right to subrogation also depends upon equitable
considerations.
The builder counters that the bank is not subrogated to the tax lien because
(1) the bank failed to comply with a statutory procedure for transferring tax liens,
and (2) equitable considerations make subrogation inappropriate here.17 We
17
The builder also argues that the bank failed to identify the tracts on which it paid taxes.
The bank submitted a tax map, however, as an exhibit to one of its summary judgment filings
(located at volume 5, page 1111 of the clerk’s record). The account identification number on a
tract that appears to contain Parcels A and B corresponds to the number on checks issued from
the title company to the relevant taxing authorities.
30
disagree with the builder’s first argument but conclude there are fact issues
regarding the second that preclude summary judgment on this record.
A. The tax lien transfer statutes do not eliminate contractual or
equitable subrogation of tax liens.
The builder first argues that the bank is not subrogated to the tax lien
because it failed to comply with sections 32.06 and 32.065 of the Tax Code.18 The
principle of subrogation is well established, however. LaSalle Bank Nat’l Ass’n v.
White, 246 S.W.3d 616, 619 (Tex. 2007). “Perhaps the courts of no state have
gone further in applying the doctrine of subrogation than ha[ve] the court[s] of this
state.” Faires v. Cockrill, 31 S.W. 190, 194 (Tex. 1895) overruled in part on other
grounds by Fox v. Kroeger, 35 S.W.2d 679, 680 (Tex. 1931). Moreover, the
doctrine has long been applied to tax liens. See Stone v. Tilley, 101 S.W. 201, 201
(Tex. 1907). Thus, to address the builder’s argument, we must determine whether
the tax lien transfer statutes provide an exclusive means for acquiring the taxing
authority’s priority, thereby abrogating common law subrogation of tax liens.
“Of course, statutes can modify common law rules, but before we construe
one to do so, we must look carefully to be sure that was what the Legislature
intended.”19 Energy Serv. Co. of Bowie, Inc. v. Superior Snubbing Servs., Inc., 236
We note, however, that the area of the tract on the tax map appears to be .01 acres smaller
than the combined areas of Parcels A and B on the builder’s map. We cannot tell whether this
discrepancy results from rounding or if, in fact, the tract on the tax map excludes a small portion
of the contested parcels depicted in the builder’s map. To the extent this discrepancy creates a
fact issue, the parties can address it on remand.
18
The builder claims that the version of the statute in effect when the bank satisfied the
tax lien prevented subrogation. We therefore analyze the builder’s arguments under that version,
see Tex. Tax Code Ann. § 32.06, .065 (West 2008), rather than the current version, see Tex. Tax
Code Ann. § 32.06, .065 (West Supp. 2012).
19
We understand “common law” in this context to mean “[t]he body of law derived from
judicial decisions, rather than from statutes or constitutions.” BLACK’S LAW DICTIONARY 313
(9th ed. 2009). Thus, although equitable subrogation is technically an equitable remedy as
distinguished from a remedy at law, we nonetheless look carefully to determine whether the
31
S.W.3d 190, 194 (Tex. 2007). When evaluating an argument that a statute
deprives a person of a common law right, we will not extend the statute beyond its
plain meaning or apply it to cases not clearly within its purview. Id. at 194 n.17
(citing Cash Am. Int’l Inc. v. Bennett, 35 S.W.3d 12, 16 (Tex. 2000)). With this
rule in mind, we construe the tax lien statutes, looking first to the plain and
common meaning of their words. See State ex rel. State Dep’t of Highways & Pub.
Transp. v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002).
1. The statutes’ text shows that they supplement, rather than
abrogate, common law subrogation doctrines for tax liens.
We conclude that the statutes upon which the builder relies do not abrogate
common law subrogation doctrines for several reasons. The statutes contain
language permitting statutory transfers, but not requiring them. Moreover, the
statutes expressly limit their foreclosure and notice requirements to statutory
transfers; by their terms, the statutes do not apply to subrogated lienholders.
Finally, the statutes make tax lien priority available to parties that could not
acquire it at common law, suggesting an intent to supplement rather than abrogate
pre-existing avenues for obtaining the taxing authority’s priority.
We begin with the text of the statutes themselves. The Tax Code permits tax
lien transfers by providing that “[a] person may authorize another person to pay the
delinquent taxes imposed by a taxing unit,” and “[a] tax lien may be transferred to
the person who pays the taxes.” Tex. Tax Code Ann. § 32.06(a-1), (a-2). Parties
wishing to transfer a tax lien under this statute must substantially comply with
several requirements. See Genesis Tax Loan Servs. Inc. v. Kothmann, 339 S.W.3d
Legislature intended abrogation. Cf. LaSalle Bank, 246 S.W.3d at 619 (construing amendment to
Texas Constitution not to abrogate equitable subrogation); Smart, 597 S.W.2d at 338 (describing
the “right to equitable subrogation” as “aris[ing] in accordance with certain well-established
rules of law” (emphases added)).
32
104, 108–111 (Tex. 2011). For example, the transferee—the party receiving the
tax lien—must file “a sworn document” with “the collector for the [taxing] unit.”
Tex. Tax Code Ann. § 32.06(a-1). The document must, among other things,
authorize payment of taxes, and it must identify the transferee and the encumbered
property. Id.
The transferee’s compliance with the authorization section triggers
obligations for the tax collector. “If a transferee authorized to pay a property
owner’s taxes pursuant to [the statute’s authorization section] pays the taxes,” the
tax collector must issue a receipt, certify that the taxes are paid, and
“identify . . . the date of the transfer” “in a discrete field in the applicable property
owner’s account.” Id. § 32.06(b).
After receiving this certification, the transferee must notify “any mortgage
servicer and . . . each holder of a recorded first lien encumbering the property” of
the transfer. Id. § 32.06(b-1). In addition, the transferee must “record a tax lien
transferred as provided by this section with the [tax collector’s certification] . . . in
the deed records of each county in which the property . . . is located.” Id.
§ 32.06(d).
There are also special requirements to foreclose tax liens transferred under
the statute. For example, absent agreement to the contrary, “foreclosure of a tax
lien transferred as provided by [section 32.06] may not be instituted within one
year from the date on which the lien is recorded.” Id. § 32.06(i). Moreover, the
foreclosure must be either “in the manner provided by law for foreclosure of tax
liens” or by court order pursuant to Texas Rule of Civil Procedure 736, which
governs expedited foreclosure proceedings. Tex. Tax Code Ann. § 32.06(c).
When proceeding under Rule 736, the transferee must still comply with section
51.002 of the Property Code, concerning deed of trust foreclosures, and section
33
32.065 of the Tax Code. Tex. Tax Code Ann. § 32.06(c)(2). Section 32.065
requires, among other things, that any holder of a recorded lien on the property
receive a notice that “THE FORECLOSURE SALE REFFERED TO IN THIS
DOCUMENT IS A SUPERIOR TRANSFER TAX LIEN.” Id. § 32.065(b)(6).
This statutory scheme makes the transfer of a tax lien an option and
discusses the rules that apply if the lien is transferred. But nothing in the text of
the statute addresses what happens if the lien is not transferred or suggests a
legislative intent to prohibit common law subrogation if a party pays a tax lien
without transferring it. For example, the statutes provide that parties “may
authorize” payment of taxes, and with such authorization “[a] tax lien may be
transferred,” but transfer is not required. Tex. Tax Code Ann. § 32.06(a-1), (a-2).
The statutes also provide foreclosure requirements, but they specifically limit these
requirements to “transferee[s] [who] seek[ ] to foreclose a tax lien on the property
under [the statute’s foreclosure subsection]”; they do not mention subrogated
lienholders at all. Id. § 32.06(c-1). The statutes create recording requirements, but
only for “tax lien[s] transferred as provided by [Section 32.06].” Id. § 32.06(d).20
The permissive language and narrowly defined scope of these statutory provisions
demonstrates that the statutes do not provide the exclusive means of acquiring the
taxing authority’s priority position.
The statutes also broaden the ability of a party who pays a tax lien to protect
itself, but this policy choice to supplement common law subrogation doctrines does
20
The builder argues that section 32.065 of the Tax Code governs all contracts for the
payment of taxes. In fact, that section’s requirements are specifically limited to
“contract[s] . . . between a transferee and the property owner under Section 32.06.” Tex. Tax
Code Ann. § 32.065(b). Thus, section 32.065 only applies to contracts involving statutory lien
transfers. Moreover, section 32.065 specifically notes that “Section 32.06 does not abridge the
right of an owner of real property to enter into a contract for the payment of taxes.” Id.
§ 32.065(a). We therefore reject the builder’s argument that all tax payment contracts must
comply with section 32.065’s requirements.
34
not indicate an intent to supersede those doctrines. Specifically, the statutes enable
tax lien transfers when common law subrogation would not apply if parties satisfy
conditions that common law subrogation would not require. At common law, for
example, a “mere volunteer” with no prior interest in the property could not obtain
equitable subrogation. Smart, 597 S.W.2d at 337. Under the statute, anyone can
obtain the taxing authority’s priority position by meeting the statutory
requirements. At common law, the taxpayer’s authorization is unnecessary to
obtain subrogation. See id. at 335, 338 (discussing subrogation where taxpayer did
not authorize). Under the statute, it is required. See Tex. Tax Code Ann.
§ 32.06(a-2). At common law (as our next section details), the right to subrogation
may depend partially upon equitable considerations, making entitlement to
subrogation unpredictable. The statute eliminates this uncertainty. These features
make the transfer statutes a useful alternative to traditional subrogation doctrines
and demonstrate that the statutes were intended to supplement, rather than
eliminate, common law subrogation.
2. Most courts agree that the statutes do not eliminate common
law subrogation.
The Texas Supreme Court has endorsed the view that prior versions of the
tax lien transfer statutes did not abrogate common law subrogation. In particular, it
refused the writ in a case holding that a lender was equitably subrogated to a tax
lien, as well as a case holding that such subrogation was not affected by the
transfer statutes. See Chicago Title Ins. Co. v. Lawrence Invs., Inc., 782 S.W.2d
332 (Tex. App.—Fort Worth 1989, writ ref’d) (holding lender was equitably
subrogated to tax liens, but not discussing transfer statutes); McDermott v. Steck
Co., 138 S.W.2d 1106, 1109 (Tex. Civ. App.—Austin 1940, writ ref’d) (“It is not
material whether the bank acquired a lien upon the property under [the tax lien
transfer statute]. . . . [A party asserting the bank’s interest] was in equity entitled
35
to subrogation to that lien as against a junior incumbrancer . . . .”);21 see also Yancy
v. United Surgical Partners Int’l, Inc., 236 S.W.3d 778, 786 n.6 (Tex. 2007) (“writ
refused” cases have same precedential value as Texas Supreme Court opinions).
Relying upon one of these cases, Dotson v. Pahl also reached the result we do
today. 206 S.W.2d 272, 273 (Tex. Civ. App.—Austin 1947, no writ) (parties were
“entitled to invoke the doctrine of subrogation, notwithstanding the failure to
comply with [the prior version of the tax lien transfer statute]”).22
Furthermore, in discussing tax-lien subrogation, the Texas Supreme Court
has noted that “[e]ven in the absence of statutory or contractual authorization, a
limited right to equitable subrogation may arise in accordance with certain well-
established rules of law.” Smart, 597 S.W.2d at 338. Thus, “[u]nder various
circumstances [a non-volunteer who satisfies a tax lien] may be subrogated to the
taxing authority’s lien to the extent necessary for his own equitable protection.”
Id. In reaffirming this equitable entitlement, the court specifically discussed
statutory transfer procedures, further demonstrating that these procedures do not
abrogate common law subrogation.
In Genesis Tax, however, the Texas Supreme Court said of a prior version of
section 32.06 “that a tax lien is enforceable only if transferred in accordance with
21
In McDermott, the tax collector “transferred” tax liens at the verbal request of a bank,
but the transfer statute required written authorization from the party owing the taxes. 138
S.W.2d at 1107. The court held that the effectiveness of this intended transfer “[wa]s not
material” because equity required subrogation based upon satisfaction of the tax lien. Id. at
1109. Because the court expressly stated that compliance with the statute was not material, the
case holds that equitable subrogation may entitle a party to a priority tax lien notwithstanding
failure to transfer the lien under statutory procedures. See id.
22
The builder contends that “[the bank] failed to cite any case giving a lender first-
priority-lien status based upon subrogation to a taxing authority’s ‘special lien’ rights.” We
disagree. The bank cites McDermott, which gave an otherwise junior lienholder the taxing
authority’s senior priority based upon equitable subrogation. 138 S.W.2d at 1109. Chicago
Title, although not cited by either party, also equitably subrogated a junior lienholder to the
taxing authority’s priority position. 782 S.W.2d at 335.
36
the section’s requirements.” 339 S.W.3d at 108. The builder contends this quote
signals the end of common law subrogation doctrines.
We disagree for two reasons. First, subrogation was not at issue in Genesis
Tax. The case addressed the effectiveness of a section 32.06 tax lien transfer when
the party failed to comply strictly with certain statutory requirements. See id. at
109–11. The opinion does not mention subrogation, nor does it cite the
subrogation authorities that we analyze above. Thus, read in context, the case’s
statement that “a tax lien is enforceable only if transferred in accordance with
[Section 32.06]” refers only to transfers, not to subrogation. See id. at 108–09.
Second, the statutory language that Genesis Tax interpreted differs from that
at issue here. The statute in Genesis Tax provided: “‘To be enforceable, a tax lien
transferred as provided by this section must be recorded . . . .’” Id. at 108 & n.15.
The version we now consider alters this language and provides: “A transferee shall
record a tax lien transferred as provided by this section . . . .” Tex. Tax Code Ann.
§ 32.06(d). In this way, while the Genesis Tax version arguably conditioned
enforceability of tax liens on recordation, the version at issue here clarifies that
only transferees (as distinguished from subrogees, for example) must comply with
statutory recording requirements. The version here also specifically limits the
statutory recording requirements to liens transferred “as provided by [Section
32.06].” Id.
We have found only one Texas case holding that the tax lien transfer statutes
eliminate common law subrogation, and we disagree with its interpretation of the
relevant precedents. In Cameron Life Insurance Co. v. Pactiv Corp., the court
concluded “there is nothing . . . indicating that [the section giving tax liens superior
priority] applies to anyone other than the taxing authorities [and their statutory
transferees].” No. 13-05-760-CV, 2007 WL 2388906, at *5 (Tex. App.—Corpus
37
Christi Aug. 23, 2007, pet. denied) (mem. op.). We disagree because the above-
cited cases bind us and directly contradict this conclusion. Indeed, many cases not
only “indicate” but directly hold that a party can obtain the taxing authority’s lien
priority through equitable subrogation.23
We also disagree with Cameron Life’s analysis of the writ-refused Chicago
Title case, which granted equitable subrogation to a tax lien. Cameron Life
dismissed Chicago Title by saying “[i]t is unclear . . . what procedure the bank [in
Chicago Title] used to pay the tax lien.” Id. The court thus implied that the
subrogation rights at issue in Chicago Title may, in fact, have been acquired by
statutory transfer. Id.
But Chicago Title does not even mention the transfer statutes and expressly
grounds it holding in equitable subrogation. See 782 S.W.2d at 332–35. If the
subrogated party in Chicago Title had actually acquired its lien by statutory
transfer, it would have been unnecessary to rely upon—or even discuss—equitable
subrogation. See Genesis Tax, 339 S.W.3d at 108–11 (not discussing subrogation
doctrines where party relied upon statutory transfer). Chicago Title did discuss
equitable subrogation, however, and its holding rested exclusively upon that
doctrine. 782 S.W.2d at 334–35. Thus, we disagree with Cameron Life’s
conclusion that Chicago Title may have actually turned upon statutes not
mentioned in the opinion.
* * *
For these reasons, we hold that the tax lien transfer statutes do not abrogate
common law subrogation doctrines. We note, however, that parties who rely
exclusively upon equity to obtain the taxing authority’s priority may face
23
In addition to the authorities already cited, see LaSalle Bank Nat’l Ass’n, 246 S.W.3d
at 620; Benchmark Bank v. Crowder, 919 S.W.2d 657, 662 (Tex. 1996).
38
additional obstacles not present under the statutes.
For example, equitable subrogation is only available to “the extent necessary
[for the subrogee’s] equitable protection.” Smart, 597 S.W.2d at 338. “When not
compelled by the equities of the situation, full subrogation to all special privileges
accompanying the taxing authority’s constitutional and statutory lien will be
denied.” Id. This rule limits the extent of subrogated rights.
In addition, as we explain in the next section, subrogation to a tax lien can
materially alter the lien’s terms and thereby prejudice intervening lienholders. See
Providence Inst. for Sav. v. Sims, 441 S.W.2d 516, 520 (Tex. 1969). Here, this
prejudice triggers a factual inquiry to resolve the equities. Proceeding by statute
avoids the time and expense of determining title in this manner. 24
B. Because subrogation would prejudice the builder, an equitable
inquiry is required, and fact questions prevent us from resolving
the equities on this record.
Having concluded that the bank’s failure to comply with the transfer statutes
does not foreclose common law subrogation, we turn to whether the bank is
entitled to the taxing authority’s priority here.
As an initial matter, the bank argues that a subrogation provision in its deed
of trust entitles it to contractual subrogation as a matter of law and that we cannot
examine the equities of subrogation. We disagree because even though the bank
and the developer agreed to subrogation under the terms of the deed of trust, the
24
The builder contends that if the tax lien transfer statutes do not eliminate common law
subrogation, “these [statutes] would never apply.” That is, parties will never use statutory
procedures when equity may entitle them to the same rights without the statutory hoop-jumping.
We doubt this is the case. Compliance with statutory procedures guarantees the lender’s ability
to enforce the taxing authority’s priority lien. Subrogation doctrines guarantee—at best—a shot
at this position and high potential for litigation. Notwithstanding the viability of common law
subrogation, we believe many lenders will continue to obtain tax liens through statutory
transfers.
39
builder was not a party to that agreement. Our analysis therefore involves
equitable considerations as well.
When two parties have a subrogation contract, “equitable considerations that
might control . . . in the absence of an agreement” cannot invalidate it. Fortis
Benefits v. Cantu, 234 S.W.3d 642, 650 (Tex. 2007). This rule works between the
parties because “[t]he parties hav[e] fixed their rights by contract” and “additional
rights . . . will not be created by judicial intervention.” Smart, 597 S.W.2d at 338.
This reasoning’s force diminishes in cases like this one, however, where
enforcing a subrogation contract would alter a nonparty’s rights. See Chase Home
Fin., L.L.C. v. Cal W. Reconveyance Corp., 309 S.W.3d 619, 631 (Tex. App.—
Houston [14th Dist.] 2010, no pet.). “In these cases, the right of subrogation is not
wholly dependent on the application of a contract.” Id. Instead, as to the nonparty,
subrogation depends partially on equitable principles. Id. Thus, “such cases fall
into a third, hybrid category.” Id.
The cornerstone of this equitable analysis is prejudice to the intervening
lienholder that is not a party to the subrogation contract. See Providence Inst. for
Sav., 441 S.W.2d at 520; Med Ctr. Bank v. Fleetwood, 854 S.W.2d 278, 286 (Tex.
App.—Austin 1993, writ denied). For example, merely changing the identity of
the senior lienholder does not affect the intervening lienholder’s rights and
therefore is not prejudicial. Med Ctr. Bank, 854 S.W.2d at 285–86. Although
subrogation may alter who holds the senior lien, the junior lienholder is still junior
and still in the same amount. See id. Whether subrogation prejudices intervening
interests is determined as of the time of the transaction supporting subrogation. Id.
at 285. The consequences of subsequent transactions or events are not relevant to
this inquiry. Id.
In many cases, subrogation changes only the intervening lienholder’s
40
identity. This change creates no prejudice, so subrogating the intervening
lienholder is appropriate as a matter of law. See, e.g., id.; Chase Home Fin.,
L.L.C., 309 S.W.3d at 631–32; Texas Commerce Bank Nat’l Ass’n v. Liberty Bank,
540 S.W.2d 554, 556–57 (Tex. Civ. App.—Houston [14th Dist.] 1976, no writ);
see also Providence Inst. for Sav., 441 S.W.2d at 520. Indeed, one court has stated
that “there is no prejudice to intervening interest holders” “absent a showing that
subrogation results in [(1)] additional debt having priority over or parity with the
intervening interest, [(2)] a material change in the terms of the superior interest, or
[(3)] other pecuniary loss resulting from the subrogation.”25 Med Ctr. Bank, 854
S.W.2d at 286.
In the absence of prejudice, subrogation must be allowed, but the mere
presence of prejudice does not necessarily prevent subrogation. See Fleetwood v.
Med Ctr. Bank, 786 S.W.2d 550, 555 n.2 (Tex. App.—Austin 1990, writ denied).
Rather, “when prejudice exists, the trial court should, in exercising its equitable
discretion, consider the totality of the circumstances, of which the existence of
prejudice to one or more parties is a part.” Id. Factors to consider include the
extent of prejudice, its foreseeability, and whether the party claiming prejudice
could have avoided it. Id.
1. Subrogation would prejudice the builder by materially
changing the terms of the superior interest.
Applying this analysis, we conclude that subrogating the bank to the tax
liens would prejudice the builder because it would alter the foreclosure
requirements that otherwise apply to tax liens. Statutory and constitutional
constraints dictate a tax lien’s terms. For example, with the exception of
25
Because we conclude that one of these circumstances exists here, we decline to address
whether these are, in fact, the only circumstances that may demonstrate prejudice to an
intervening lienholder.
41
abandoned property, tax liens must be foreclosed judicially rather than by trustee’s
sale. See Tex. Tax Code Ann. § 33.41 (West 2008); City of Wichita Falls v. ITT
Commercial Fin. Corp., 827 S.W.2d 6, 10 (Tex. App.—Fort Worth 1992) (“[A]d
valorem tax liens must be judicially foreclosed . . . .”), aff’d in part, rev’d in part
on other grounds, 835 S.W.2d 65 (Tex. 1992). Texas Rule of Civil Procedure 39
requires the taxing authority to join any party with an interest in the property in the
foreclosure suit. Murphee Prop. Holdings, Ltd. v. Sunbelt Sav. Ass’n of Texas, 817
S.W.2d 850, 852 (Tex. App.—Houston [1st Dist.] 1991, no writ); see also Kothari
v. Oyervidez, 373 S.W.3d 801, 810 (Tex. App.—Houston [1st Dist.] 2012, pet.
denied) (“[A]t least generally, ‘a lienholder must be joined in a delinquent tax suit
in order to be bound by it.’”). The Due Process Clause of the United States
Constitution also requires that such lienholders receive actual notice of foreclosure.
Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798–99 (1983). If the
foreclosure suit succeeds, all parties to the suit must then receive notice of the
foreclosure sale. Tex. Tax Code Ann. § 34.01 (West 2008).
These foreclosure requirements protect intervening lien holders, and the
bank’s deed of trust eliminated them here. The deed of trust does not require the
trustee to notify junior lien holders prior to foreclosure, and the builder had no
statutory right to notice. See Jones v. Bank United of Texas, FSB, 51 S.W.3d 341,
344 (Tex. App.—Houston [1st Dist.] 2001, pet. denied); Kothari, 373 S.W.3d at
808–09.
In sum, before subrogation, the tax lien could only be foreclosed through a
judicial proceeding requiring the builder as a party, but after subrogation, the bank
could foreclose (thereby extinguishing the builder’s lien) without even notifying
the builder. Indeed, the builder has offered evidence that it had no knowledge that
any tax lien existed or that the bank was asserting the taxing authority’s priority
42
position in its foreclosure.
Eliminating protections that existed prior to subrogation constitutes a
“material change in the terms of the superior [tax lien],” triggering an equitable
inquiry. See Med Ctr. Bank, 854 S.W.2d at 286; cf. First Nat’l Bank of Kerrville v.
O’Dell, 856 S.W.2d 410, 416 (Tex. 1993) (where “[b]ank through its ‘secret’ (as to
[junior lienholder]) foreclosure would obtain the title and extra equity” and deprive
junior lienholder of his interest, court “would not allow such an inequitable result
under the guise of ‘equitable’ subrogation”).
2. Questions of fact regarding the equities of subrogation
preclude summary judgment.
Although summary judgment is available in equitable actions, certain factors
counsel against summary dispositions in equitable subrogation cases. Fleetwood,
786 S.W.2d at 556–57. For example, the “material facts” in these cases are
difficult to define precisely. Id. at 556. “The main guiding principle is the
prevention of an unfair or unjust result.” Id. Trial courts have a “measure of
discretion” in weighing the circumstances and adjusting the remedy to accomplish
this main goal. See id. at 555–57 & n.2.
But a trial court does not have unfettered discretion to determine the equities
of subrogation. Rather, the right to subrogation must be determined in light of its
purpose: preventing unjust enrichment. See Smart, 597 S.W.2d at 337. Thus, the
principal issue is the extent to which subrogation is necessary to prevent the bank’s
property tax payments from unjustly enriching the builder. See id. at 337–38.
The unresolved factual issues here become clearer when one understands the
usual basis for finding unjust enrichment in this type of case. 26 When a junior
26
Equitable subrogation is generally used to avoid unjustly enriching the debtor (here, the
developer). See First Nat’l Bank of Kerrville, 856 S.W.2d at 415. But as discussed above, the
43
lienholder satisfies a tax lien to protect its own interest, everyone with an interest
in the property benefits as a result. Instead of a tax-lien foreclosure potentially
extinguishing all interests, everyone keeps what they have. Subrogating the party
who actually satisfies the senior debt places the parties where equity would have
them. The junior interest holders who declined to satisfy the lien remain subject to
it. The party who paid the senior debt gets what it paid for.
Factual questions regarding whether this reasoning applies here cannot be
resolved on this record. The prejudice to the builder if subrogation is allowed, the
extent of unjust enrichment to the builder if subrogation is not allowed, and the
extent to which subrogation is necessary for the bank’s equitable protection all
play a role in the analysis as discussed above. For example, whether the builder
knowingly allowed the bank to protect the property from any foreclosure, the
imminence of a tax foreclosure suit without the bank’s intervention, and the
developer’s potential alternatives to foreclosure may be relevant considerations.
Cf. World Help v. Leisure Lifestyles, Inc., 977 S.W.2d 662, 682 (Tex. App.—Fort
Worth 1998, pet. denied) (holding party who purchased vendor’s and deed of trust
liens knowing taxes were due on property and subsequently paid taxes was not
equitably subrogated to tax liens).
Whether the bank intended to be subrogated to the tax lien initially is also
relevant. See Fleetwood, 786 S.W.2d at 556 (remanding to consider, among other
things, whether parties initially intended subrogation). If the bank sought
subrogation initially, its reason for not complying with the tax lien transfer statute
would be relevant. For example, if the bank intentionally avoided a statutory
transfer to surprise the builder, this fact would likely cut against subrogation.
equitable balance necessary to determine whether prejudice to an intervening lienholder prevents
subrogation focuses upon the would-be subrogee (the bank) and the intervening lienholder (the
builder). See Fleetwood, 786 S.W.2d at 556–57.
44
With a more developed record, these and other fact issues that bear on the
equities of subrogation can be better addressed. See id. at 557 (reversing summary
judgment where the “record does not fully develop the facts on which the trial
court’s equitable discretion must be exercised, and where the facts that are
developed, [even if] uncontroverted, can give rise to more than one reasonable
inference”).27 For now, “[a]s long as there is a probability that a case has for any
reason not been fully developed, [we] ha[ve] the discretion to remand rather than
render a decision.” Pena v. Smith, 321 S.W.3d 755, 759 (Tex. App.—Fort Worth
2010, no pet.); see also Scott Bader, Inc., v. Sandstone Prod., Inc., 248 S.W.3d
802, 822 (Tex. App.—Houston [1st Dist.] 2008, no pet.).28 Because the bank is not
entitled to summary judgment on this record on the ground that it is subrogated to
the tax liens, we reverse the remainder of the summary judgment in favor of the
bank and remand for further proceedings consistent with this opinion.
CONCLUSION
For these reasons, there are fact issues regarding the parties’ claims that
largely preclude summary judgment. We therefore sustain in part the builder’s
first issue on appeal, in which it argues that the trial court erred in granting
27
On remand, the parties and the trial court should consider which facts material to the
equitable analysis are uncontroverted, as well as which are disputed and may need to be found by
a jury. See State v. Tex. Pet Foods, Inc., 591 S.W.2d 800, 803 (Tex. 1979) (“Although a litigant
has the right to a trial by jury in an equitable action, only ultimate issues of fact are submitted for
jury determination. The jury does not determine the expediency, necessity, or propriety of
equitable relief.”). We recognize the possibility that additional discovery may resolve some or
all of the fact questions that now prevent summary judgment. This opinion does not prevent the
parties from filing future motions for summary judgment, including motions that seek to narrow
or resolve the subrogation dispute.
28
The builder argues it is nevertheless entitled to summary judgment based upon Conroy
Mortgage Corporation v. Fielder, 375 S.W.2d 344 (Tex. App.—Fort Worth 1964, writ ref’d
n.r.e.). We disagree because the equities in Conroy were much clearer than those here. The
party seeking subrogation in Conroy appears to have been a volunteer, and the intervening
lienholder had no notice whatsoever of the foreclosure sale that extinguished its interest in the
property. Neither of those circumstances are present here.
45
summary judgment for the bank. Nonetheless, neither the builder nor the bank has
established an entitlement to final judgment as a matter of law. Thus, we overrule
the builder’s second issue, in which it argues its entitlement to summary judgment.
Specifically, fact issues preclude final summary judgment for either party
based upon the builder’s mechanic’s liens because we cannot determine when the
contract was terminated or abandoned and whether the builder’s post-release
expenses entitle it to mechanic’s liens. The release does establish, however, that
the builder was not entitled to re-file a mechanic’s lien against Parcel A to secure
the unpaid portion of the pre-release debt. We therefore affirm in part the trial
court’s grant of summary judgment for the bank, holding that the bank’s interest in
Parcel A is not subject to the builder’s lien for the unpaid pre-release debt.
As to the bank’s contention that the tax liens entitle it to summary judgment,
fact issues regarding the equities of subrogating the bank to these liens preclude
summary judgment on the present record. We therefore reverse the remainder of
the trial court’s summary judgment and remand this case for further proceedings
consistent with this opinion.29
/s/ J. Brett Busby
Justice
Panel consists of Chief Justice Hedges and Justices Brown and Busby (Hedges,
C.J., dissenting).
29
We do not intend this opinion to dictate how the trial court should proceed in
addressing the live issues in this case. The trial court should exercise its discretion to address
these issues in the order and manner it deems most appropriate.
46