McConnell v. Mortgage Inv. Co. of El Paso

292 S.W.2d 636, 1956 Tex. App. LEXIS 1692

• Court: Court of Appeals of Texas
• Decided: June 7, 1956
• Docket: 5119
• Status: Published

Opinions

FRASER, Justice.

This is an appeal from a judgment in' favor of the plaintiff Mortgage Investment Company of El Paso, Texas, rendered in the trial court, which judgment held that the deed of trust and mechanics’ and ma-terialmen’s liens of plaintiff, appellee, were superior to the vendor’s lien of appellants, J. C. McConnell and J. C. McConnell Land Company, Inc. The judgment also provided for debts and foreclosures against Chaney & Singleton Bros., but these last mentioned parties have not appealed therefrom. The matter • wa9 tried to the court without a jury, on an agreed stipulation of facts.

It appears that Chaney & Singleton executed a note and deed of trust on April 15, 1953, for the sum of $119,300 in favor of plaintiff (appellee) Mortgage Investment Company. This note was secured by a deed of trust on some fourteen, lots in the McConnell Addition, Odessa, Texas.

. These papers, after being executed and recorded at Odessa, were forwarded with a title binder showing samp to be a first lien, to the plaintiff at El Paso. Defendant McConnell before-said date had a valid vendor’s lien on the premises, which he then subordinated to the said note and deed of trust in favor of plaintiff. These facts were apparently unknown to plaintiff Mortgage Company. The subordination agreement provided that the vendor’s lien should be inferior to plaintiff’s deed of trust, and further provided that in case of a forced sale or judicial sale that any surplus remaining after the balance due plaintiff on his note had been paid, should then go to McConnell. In June 1953 plaintiff discovered that Chaney & Singleton had abandoned the project. In July Chaney & Singleton conferred with plaintiff and executed an, amendment to the deed of trust which was described as the usual rider provisions, which had been omitted from the original deed of trust. It further appeared that Chaney & Singleton did not return to finish the project, and that plaintiff had advanced to them by that time the sum of $73,450. Plaintiff then filed suit against Chaney & Singleton. Subsequently plaintiff Mortgage Company discovered that certain construction had commenced on the fourteen houses prior to the execution of its note and deed of trust, and also claims that it learned for the first time of McConnell’s vendor’s lien. Plaintiff offered to sell its lien in September 1953 to defendant, and also to some of the larger holders of mechanics’ and materialmen’s liens who had furnished labor or materials; a large number of materialmen’ or mechanics’ liens being claimed against the project. No one purchased plaintiff’s lien. It further appears that at the time suit was filed some nine couples who had qualified for F. H. A. loans had paid a thousand dollars down on each of the nine completed houses, had moved into possession and made improve-' ments; the remaining five houses were incomplete. Plaintiff amended its pleadings, adding the new parties and asking for a receiver. During the fall o.f 1953 plaintiff began the purchase of the various laborers and materialmen’s liens. The stipulation contains the fact that the plaintiff purchased liens in the amount of $59,187.61 at-various discounts, paying in all the sum of $33,366.20, and it was stipulated that all said -claims were valid and no payment had been made to the holders, and it was further stipulated that each of such claims'so listed was secured either by a statutory or constitutional mechanic’s and/or materialman’s lien upon the lots and improvements thereon. At the request of plaintiff the trial court appointed a receiver who sold the houses and loose building materials, netting therefrom $98,776.27. The court ordered the sum of $76,000 to be paid to plaintiff by the receiver to apply on plaintiff’s note and deed of trust lien. This was done in two payments under court orders. The receiver then paid the balance of $22,776.27 into the registry of the trial court and the receivership was then closed. On hearing this cause upon the agreed stipulation of facts, the trial court rendered judgment decreeing the liens .of plaintiff (appellee) to ■be first and prior liens upon the proceeds of the receiver’s sale (the receiver having sold all of the assets of the project) and held the liens of appellants to be second and inferior to the liens of plaintiff. Chaney & Singleton did not appeal, but defendant McConnell and McConnell Land Company perfected their appeal to this court.

It is clear at the outset that certain work had started -on the project before plaintiff’s Deed of ■ Trust was executed. It has been held repeatedly that the liens of materialmen and laborers are superior to any mortgage created after the work has-begun, and that all such liens shall be on an equal basis, whether by -materialmen or laborers, so long as they are for work done or material supplied for the erection or completion of the building. It has álso been established that each lien thereby properly created shall be equal to all other such liens, regardless of inception — that is, the lien for he who completes the last bit of building is equal in time and dignity to the lien of he who has labored on the erection of same, the courts holding that all the liens have their inception at the same time, to-wit, the beginning of the erection or construction of the building or buildings, and that all of said liens are superior to any mortgage executed after the erection of the building is begun. Oriental Hotel Co. v. Griffiths, 88 Tex. 574, 33 S.W. 652, 30 L.R.A. 765; Tomlinson v. Higginbotham, Tex.Civ.App., 229 S.W.2d 920.

It is clear that if the erection of the houses on the proj ect here involved had begun before April 15, 1953, then all of the materialmen and laborers’ liens were superior to plaintiff’s deed of trust, and defendant so acknowledges in his brief. If this be true, then when plaintiff’s deed of trust and note were executed it would appear that McConnell’s vendor’s lien was first in priority, followed by the various liens of laborers and materialmen, and that plaintiff’s deed of trust was in third position. But when defendant McConnell executed his subordination agreement he lost his priority, and his lien became inferior to both the second and third liens, as it has been held that he who holds a first lien and subordinates same to a third lien makes his lien inferior or subordinate to 'both second and third liens. Shaddix v. National Surety Co., 221 Ala. 268, 128 So. 220. This case was decided by the Supreme Court of Alabama, and both parties appear to agree that it is .a proper pronouncement of the law. , Plaintiff’s position, therefore, seems to rest pretty squarely on the Oriental Hotel case and the Shaddix case.

Defendant claims inter alia that the court erred in his conclusions of law in several respects, and that the court, of course, was in error in ordering the payments made to plaintiff, and in concluding that plaintiff’s liens were superior. Among other things the court concluded that defendant subordinated his lien to that of plaintiff with the knowledge that the proceeds of the note executed to plaintiff were to be used for the payment of labor and materials in the construction of the fourteen hoúses on the properties involved in this suit; that plaintiff advanced to Chaney & Singleton $73,450 and paid the sum of $33,366.20 for valid constitutional and/or statutory laborers’ and materialmen’s liens, and that the two amounts were less than the full amount of the note and deed of trust executed by Chaney & Singleton to plaintiff, and to which McConnell subordinated his liens. The court further concluded that such moneys advanced and paid were for the very purpose for which the loan was made by plaintiff; that the subordination agreements were vhlid and had not been breached, and made the liens of defendant McConnell inferior to the liens of plaintiff; that the amendment to plaintiff’s deed of trust in no way prejudiced defendant McConnell and the provisions of same were never. enforced; that the “construction” or “erection” of the improvements herein involved had begun prior to the date of plaintiff’s note , and deed of trust and that therefore the laborers’ and materialmen’s liens were superior to plaintiff’s lien, and were first liens at the time, they were purchased by plaintiff; that plaintiff’s lien was second and defendant McConnell’s third in priority; that plaintiff became subrogated to all rights of the laborers and material-men lien holders when he purchased their liens, either as the assignee thereunder or treating them as advancements under plaintiff’s deed of trust. Appellant in his first and second points assigns error in the trial court’s holding that the liens as purchased by 'plaintiff were superior to • appellants’ vendor’s lien, and that plaintiff’s deed of trust lien was superior to appellants’ vendor’s lien. Defendant maintains that the “erection” or “construction” had not actually begun, saying that there had only been'some temporary things accomplished, but the stipulated facts reveal that before plaintiff’s deed of trust was executed the architect’s plans had been drawn and completed, the lots surveyed and the corners marked, poles set for electric lines, men began to set up saws and batter boards and to string string's denoting the boundaries of the houses; to build concrete forms, other men dug trenches into which concrete was to be poured, plumbers roughed in the plumbing pipe so that they would be above the slab floor when it was poured; steel reinforcing bars were set in the trench, and a layer of gravel for the concrete slab had been spread, but no concrete had been poured. We think the trial court was correct- in concluding that the “erection” and “construction” of these houses had begun; under the theory of the Oriental Hotel case. It is true that in the Oriental Hotel case the foundation had been completed, but it seems clear that in the case at bar that'certainly what was done was the beginning of “construction” or “erection” and cannot reasonably 'be construed as entirely temporary in nature. It would seem that the materiálmen would be entitled to liens for the delivery of material they had furnished, and the laborers for the labor done, and that such was the inception or initial stage of construction. MacAtee & Sons v. House, 137 Tex. 259, 153 S.W.2d 460; Sanguinett & Saats v. Colorado Salt Co., Tex.Civ.App., 150 S.W. 490.

Appellant also contends that the amending of the deed of trust prejudiced appellants as junior lien holders, and violated the terms of the subordination agreement. It does not appear'that this is true, as there is not any evidence that any action was ■taken or right asserted under such amendment. We think the trial court’s conclusion was correct that the money spent in buying, up the liens was used for the very purpose contempláfed by the deed 'of trust given to plaintiff, to-wit; .the construction and completion of the fourteen houses on the property involved.

Appellant also contends that the Oriental Hotel case does not apply in the present case, because it applies only' to statutory mechanics’ and materialmen’s liens, and that the stipulation only provided that the mechanics’. and materialmen’s liens were valid constitutional liens. However, it has been held that the Oriental Hotel case applies to both constitutional and statutory liens, and we think this is a correct pronouncement of the law. Brick & Tile, Inc., v. Parker, 143 Tex. 383, 186 S.W.2d 66. From the above cases and the cases cited thereunder it appears thaf no. distinction was made ½ situations of this sort between constitutional or statutory liens.

Therefore, it appears that the trial judge was correct in' his conclusions in holding that when McConnell subordinated his first Hen to the third lien, his lien became inferior also to the second lien,' and that •plaintiff had not prejudiced McConnell in any way in either amending the deed of trust or in having executed a bond for performance, and that plaintiff in buying up the various liens held by materialmen and laborers was using the money ior the.very purpose contemplated ydien Chaney & Singleton executed the note and deed of trust to pla.intiff. We also-.hold that'the trial court, as indicated above, was correct in his holding that the actual “erection” and “construction” of' -the houses on the project had begun before the execution of plaintiff’s note and deed of trust. We therefore overrule appellants’ first and second points.

Both appellant and appellee in their sixth points assert that the trial court was in error in allowing only six per. cent on their respective judgments against Chaney & Singleton Brothers. It appears that each point is well taken, as appellant is suing under a vendor’s lien note and appellee under his deed of trust note, both of which provide for ten per cent. These points are each accordingly granted, and the judgment of the trial court will be reformed in compliance therewith.

Appellant has presented and briefed a number of other points but they appear to all be related to and disposed of by our disposition of the first two points. All of these points are therefore overruled.

As reformed, the judgment of the trial court is affirmed as reformed.