H.B Zachry Co. v. Waller Creek, Ltd. (In re Waller Creek, Ltd.)

867 F.2d 228, 1989 WL 11729
CourtCourt of Appeals for the Fifth Circuit
DecidedMarch 6, 1989
DocketNos. 88-2199, 88-2200
StatusPublished
Cited by1 cases

This text of 867 F.2d 228 (H.B Zachry Co. v. Waller Creek, Ltd. (In re Waller Creek, Ltd.)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
H.B Zachry Co. v. Waller Creek, Ltd. (In re Waller Creek, Ltd.), 867 F.2d 228, 1989 WL 11729 (5th Cir. 1989).

Opinion

JERRY E. SMITH, Circuit Judge:

This is literally a case on top of a case. These adversary proceedings in bankruptcy, reviewed together here, involve a hotel constructed on top of a parking garage in Austin, Texas. The plaintiff seeks to assert the priority of its mechanic’s, material-man’s, and constitutional liens on the parking garage in the first action, and on the hotel in the second. Defendants, which are secured parties and owners of the parking garage and hotel, contend that because the garage and hotel were constructed under separate contracts, the contractor is precluded from claiming that its liens on the garage property extend to the hotel property. Moreover, they contend that the inception of the contractor’s liens occurred after the secured parties had perfected their interests.

The bankruptcy court, after hearing the contractor’s evidence, ordered an involuntary dismissal of the contractor’s claim; the district court affirmed. Agreeing with the bankruptcy court that the negotiation of two separate construction contracts worked a severance of the properties upon which the contractor could assert its liens, we join the district court in affirming the bankruptcy court’s ruling. However, with respect to four issues which the bankruptcy court left unresolved, we decide in favor of the contractor on two and in favor of a bank on one, and we remand for further findings on the other.

[181]*181I. The Waller Creek Development Project.

The project that concerns us here was the brainchild of Lloyd Hayes, president of Park Commercial Investments, Inc. (“Park Investments”). To make his idea a reality, Hayes formed the Waller Creek Parking Garage (“Waller Parking”) and Waller Creek Hotel (“Waller Hotel”) Limited Partnerships, and installed Park Investments as the general partner of both. Hayes himself purchased the development site on April 13, 1983, and, on the same day, executed a deed of trust and security agreement in favor of Allied Bank Beaumont, N.A. (“Allied Beaumont”), which had loaned Hayes the $1.4 million he used to purchase the property. Hayes recorded all the documents on April 19, 1983.

On April 25, 1983, Hayes went to his contractor, H.B. Zachry, Inc. (“Zachry”), got a bid, and executed a contract to build a parking garage on the property he had acquired on April 13. He signed the contract as president of Park Investments, general partner in Waller Parking. On the same date, Hayes negotiated a separate contract with Zachry to construct a hotel in the air space above the garage. Hayes signed this second contract as president of Park Investments as well, but this time Park Investments was shown as the general partner of Waller Hotel.

At the time Hayes signed both construction contracts, Waller Parking did not own the land on which the garage would be built, and Waller Hotel did not own the air space which the hotel eventually would occupy above the planned garage. Exactly when Waller Hotel did acquire that air space is a matter of dispute.

The limited partnerships financed construction independently through industrial development bonds, issued and sold by the Austin Industrial Development Corporation (“AIDC”). On May 1, 1983, Hayes conveyed all the land he had acquired on April 13 to Waller Parking. AIDC loaned Waller Parking $6.5 million, receiving in return a deed of trust and security agreement on the property. The conveyance, together with the deed of trust and security agreement, was recorded on May 25, 1983. AIDC, via an indenture of trust, assigned the deed of trust to Allied Merchants Bank, N.A. (“Allied Merchants”).

On that same day, Hayes paid off his $1.4 million note to Allied Beaumont, which then relinquished its security interest in the property. Also on May 25, Waller Parking and Waller Hotel executed a deed of trust and a reciprocal easement agreement, according to which Waller Parking conveyed the now-unencumbered air space to Waller Hotel so that the hotel’s construction could go forward. Defendants maintain, however, that Waller Parking did not deliver the deed of conveyance to Waller Hotel until August 9, 1983.

On June 8, 1983, Zachry moved its trailer onto the site. Demolition of existing structures commenced on June 20 and continued through the end of the month. Excavation began on July 15; Zachry’s subcontractor drilled the first pier on August 3 and poured the foundation piers on August 5.

On August 8,1983, Allied Merchants executed a partial release of its lien, releasing the air space above the garage. This document, together with the May 25 conveyance of the air space, opened the way for Waller Hotel to begin work on the hotel. Once again, AIDC provided financing, raising $9.5 million through the sale of revenue bonds and receiving in exchange a deed of trust and security agreement to the hotel property. AIDC again assigned to Allied Merchants the right to repayment and the deed of trust.

The August 8 documents were evidently taken together to the Travis County Clerk’s Office on August 9.1 There, the county recording clerk, per usual practice, endorsed the documents with the hour and minute when they were filed. Allied Merchants’s release of its security interest in [182]*182the air space was file-stamped first at 12:59 p.m. on August 9. Then the clerk file-stamped the deed of conveyance from Waller Parking to Waller Hotel and the reciprocal easement agreement. That document bears the same hour and minute of filing as the release. However, the clerk file-stamped AIDC’s deed of trust and security agreement at 1:01 p.m.

On February 24, 1984, Waller Hotel executed and recorded a second lien deed of trust and security agreement on the air space in favor of the City of Austin, which had made a loan of $1,044,000 for further hotel construction costs. On the same date, Waller Parking also executed a second lien and security agreement on the garage property in favor of the City in return for a loan of $523,000; this second transaction concerned only the garage site and not the air space. On June 23, 1985, the limited partnerships executed and recorded third liens in like manner in favor of Allied Beaumont. Finally, on September 13, 1985, Zachry recorded a lien affidavit against the entire property in the amount of $1,005,965 for material and labor furnished in connection with the parking garage, and in the amount of $1,194,001 for work done on the hotel.

II. Proceedings in the Bankruptcy Court.

Lloyd Hayes’s project failed, and both limited partnerships filed voluntary Chapter 11 petitions on May 1, 1987. On October 1, 1987, Zachry brought the instant proceedings in bankruptcy court against both of the limited partnerships to determine the validity, priority, and extent of its mechanic’s, materialman’s, and constitutional liens.2

Zachry’s theory is as follows: When it began construction work in June 1983, Waller Parking owned the entire development site. Zachry thus claims that the inception date of its lien makes it second in priority only to Allied Merchants's lien, which was recorded on May 25, 1983, when Waller Parking had first purchased the entire property. Zachry further contends that, under Texas caselaw, its construction efforts were sufficient to create a lien on the entire site prior to Waller Parking’s August 9 conveyance of the hotel air space to Waller Hotel. When that transaction occurred, Zachry claims, its lien also attached to the hotel air space.

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Bluebook (online)
867 F.2d 228, 1989 WL 11729, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hb-zachry-co-v-waller-creek-ltd-in-re-waller-creek-ltd-ca5-1989.