State Loan Co. v. White Earth Coal Mining Brick & Tile Co.

157 N.W. 834, 34 N.D. 101, 1916 N.D. LEXIS 9

• Court: North Dakota Supreme Court
• Decided: March 4, 1916
• Status: Published

Opinions

Burke, J.

This is a trial de novo, and the facts upon which this ■opinion is based are either undisputed or determined by us. The defendant coal company at all the times hereinafter mentioned was the owner of the N. W. of section 15, 156-94, and apparently was the lessee of the N. E. ¿ of section 16, adjoining. This latter tract is a ■school section. On the 13th of November, 1908, the coal company made a contract with the St. Anthony & Dakota Elevator Company to furnish ■certain building materials to the value of $1,145.90, which were to be used in erecting buildings at or near the opening of the mine. The first •of the lumber was furnished November 13th and the last, December 24, 1908. All of said lumber was used in the erection of a cook house, bunk houses, entrance shed, engine house, dining room, and barns, but said buildings were placed upon section 16, adjoining, being some 200 feet from the line. There is no evidence that any of the lumber was used in the coal mine upon section 15, the testimony being that native trees were cut for posts for this purpose. The first' consignment of lumber was upon the grounds on the 13th of November, 1908. On the 8th of December, 1908, the coal company made, executed, and delivered a real estate mortgage upon said N. W. jjj of section 15, securing the sum of $2,-■500. Through a clerical error the description was written the S. W. ■£ instead of the N. W. and the same was recorded with the register of ■deeds on the 11th of December, 1908. The managing agent of the loan company did not visit the premises before taking the loan, but testifies that he was vice president and treasurer of the plaintiff company; that he personally negotiated the loan represented by the note and mortgage in this case; that his negotiations were with Mr. Kay, the manager of the coal mine; that before making the loan he made no inspection whatever ■of the property.

He was then asked:

Q. Did you learn from Mr. Kay or anybody else at the time that the loan was made, that there was being material furnished by the defendant or anybody else for the construction of the buildings or other improvements on the N. W. \ of section 15 ?

A. Why, I understood that what he needed this money for was to take care of some little bills of that nature, possibly. (His attorney: Just a moment. Read the question.)

(The question was read.)

A. No, sir. I did not.

Q. You understood that there was being material furnished for the improvements on the mining property ?

A. Yes, sir.

Q. And did you know, or were you informed at that time by Mr. Kay or anybody else, that a part of their mining property was in section Id or any other than the land covered in the mortgage ?

Q. When did you first see the mining property in question ?

A. I think it was — it was the following spring or summer. The summer of 1909.

Q. You were out there, went in and saw the place?

Q. Hid you go into the mine out there ?

A. Yes, sir. I went all through it.

Q. On either of these occasions what, if any, improvements in the way of buildings or other improvements in which building material of any kind was used did you find oh the northwest quarter of 15 ?

A. There were no buildings or any improvements whatever on the northwest of 15 or any material was used outside.

Q. When you first visited the mining property or this property which you had this mortgage on in June, 1909, did you observe the buildings in connection with the mining camp there ?

A. I did.

Q. In what direction from the northwest of 15 were the buildings of the mining company at that time ?

A. West from the northwest quarter of 15.

Q. When you were out there last Saturday, was it for the purpose of having the lines between these two quarter sections run, and determine on what property these buildings -were ?

Q. I understand you that at no time during any of your visits to the property in question were there any buildings or improvements of any hind in which building material such as this statement discloses was on the northwest of 15 ?

A. No, sir.

Upon cross-examination:

Q. I believe you said at the time this mortgage was made you knew about the material being furnished to the coal mine, did,you?

A. I didn’t know exactly what material or what was being furnished.

Q. You knew some was being furnished ?

A. I know that he had some bills that he had incurred that he had to pay with this money, but I didn’t know what bills they were.

Q. Did Mr. Kay give you the name of any of the people whom he was owing ?

A. I don’t remember that he did.

Q. You remember he stated to you he was owing the St. Anthony & Dakota Elevator Company any money?

A. I don’t think so, at that time.

Despondent insists that this evidence fails to show knowledge upon the part of Mr. Peck that materials were being furnished for which a lien might possibly be claimed upon section 15. It is true, Mr. Peck answers his own attorney to the effect that he did not know that a lien would be claimed on section 15, and he also testifies in the same manner that he did not know that- any materials were being furnished for use upon the northwest quarter of 15. This comes a long way, however, from denying knowledge that materials were being used upon the coal mine, and, in fact, he so states in the testimony above quoted: “You understood that there would be material furnished for the improvement of the mining property? A. Yes, sir.” His testimony as a whole convinces a majority of the court that he was in possession of such facts regarding this building material as constituted notice in law that a lien might be claimed. December 15th the mining company paid the elevator company $258.05, leaving a balance at that time of $887.85. No other payments have been made. On the 17th of February, 1909, the elevator company filed a mechanic’s lien describing the property as “a certain shed adjoining to entrance to mine, an engine •house, a bunk house, barn buildings, cook and dining house, and repairs on said coal mine, upon the following described lands of which the said White Earth Coal Mining Brick & Tile Company was then and is now the owner; to wit, N. W. section 15, 156 — 94, and lessor of N. E. J of 16, 156-94 . . . ; that under and by virtue of said contract the said . . . company furnished the necessary materials for the shed, adjoining to entrance to mine and engine house, bunk houses, bam buildings, cook and dining house, and repairs on said mine as specified in the annexed account. . . . Eor which a mechanic’s lien is hereby claimed . . . upon said shed adjoining to entrance to mine and engine house, bunk houses, barn buildings, cook and dining house, and repairs on said mine, including the land upon which the same is situated, under chapter 77 of the Civil Code of the state of North Dakota.” The buildings are conceded to be entirely on section 16. The elevator company had no knowledge of the existence of the mortgage until all the materials mentioned in its claim had been furnished. In 1912 the defect in the description of the mortgage was discovered, and it was corrected in an action wherein the coal company was the sole defendant. Neither the lien nor the mortgage has been paid-. The mortgagee brings this action in foreclosure, making the elevator company one of the defendants. The main controversy arises over the priority of those two claims. The sections of our Code applicable are § 6237, Bev. Codes 1905, which has ■since been amended and is now § 6814, Comp. Laws 1913. Said section reads as follows: “Any person who shall . . . furnish any materials . . . for the erection ... of any building or other structure upon lands or in making any other improvements thereon . . . under a contract with the owner of such land, . . . shall upon compliance with the provisions of this chapter have for his . . . materials . . . furnished, a lien upon such building, erection or improvement and upon the land belonging to such owner on which the same is situated, or to improve which said work was done or the things furnished. ...” Section 6242, Bev. Codes 1905, Comp. Laws 1913, § 6822, reads as follows: “ . . . Liens under the provisions of this chapter shall be preferred to all other liens or encumbrances upon such building, erection or other improvement, and the land on which the same is situated, or to improve which the labor was done or things furnished or either of them, filed or docketed subsequent to the commencement of such' building, erection or Improvement.” Section 6243, Rev. Codes 1905, Comp. Laws 1913, § •6823, reads: “The entire land upon which any such building, erection •or other improvement is situated, or to improve which the labor was done ■or things furnished, including that portion of the same not covered therewith, shall be subject to all liens created by this chapter to the extent of •all the right, title and interest owned therein, by the owner thereof for whose immediate use or benefit such labor was done or things furnished, ■and when the interest owned in such land by such owner of such building, erection, or other improvement is only a leasehold interest, the .forfeiture of such lease for the nonpayment of rent or of noncompliance with any of the other stipulations therein shall not forfeit or impair such lien so far as it concerns such buildings, erections and improvements, •but the same may be sold to satisfy such lien and be removed within thirty days after the sale thereof by the purchaser.” Section 6238, Rev. •Codes 1905, Comp. Laws 1913, § 6818, provides: “If labor is done or materials furnished under a single contract for several buildings, erections or improvements, the person furnishing the same shall be entitled to a lien therefor as follows:

“1. If such buildings, erections or improvements are upon a single farm, tract or lot, upon' all such buildings, erections and improvements and the farm, tract or lot upon which the same are situated.

“2. If such buildings, erections or improvements are upon separate farms, tracts or lots, upon all such buildings, erections and improvements and the farms, tracts or lots upon which the same are situated; but upon the foreclosure of such lien the court may in the cases provided for in this subdivision, apportion the amount of the claim among the several farms, tracts or lots, in proportion to the enhanced value of the same produced by means of such labor, or materials, if such apportionment is necessary to protect the rights of third persons.”

We have set forth these various statutory provisions because we believe much of the confusion upon the subject of mechanic-lien law arises over the failure to notice the distinction between statutes in the various states. The mortgagee in his brief states its claims as follows: “The position of the plaintiff is that if the elevator company has a lien on the N. W. ¿ section 15, it is inferior to the lien of plaintiff’s mortgage, because the mortgage was taken in good faith without notice of any lien or any right to a lien in favor of the appellant.”

(1) Logically the first question for consideration is -whether the elevator company acquired any lien upon the N. W. J of section 15. The mining company does not contest this point, and the mortgagee “concedes that, as between the coal mining company and the appellant, the latter may sustain and enforce a lien against the N. W. ¿ of section 15, provided, however, that it appears satisfactorily to the court, that the-contract between the coal company and the appellant was sufficient to say that the building material was to be used for improvements on such tract of land.” Two excellent notes, one at 26 L.R.A.(N.S.) page 831,. and another at 31 L.R.A. (N.S.) page 746, cover the law upon this subject exhaustively. We will not try to recite here the authorities collected at those two notes. At page 749 of the 31 L.R.A.(N.S.) note it is said: “Since mechanics’ liens are of legislative creation, it becomes important to note the phraseology of the statutes in the various jurisdictions, for a part of what has been frequently termed the conflict, among the cases is indeed traceable to the varying statutory provisions.” The cases are arranged in groups. At page 750 of the note is the group of cases construing' statutes which give a lien for material furnished “for” structures. At page 750 is the group of cases construing statutes-which give a lien for materials furnished “for construction or erection of structures” Two pages later is given a group of decisions under statutes giving liens for material “used or tobe used” in the structure. And upon the last page of the note the following summary is given: “Broadly and briefly to summarize the foregoing cases ... it may be fairly said that there is a conflict among the decisions construing statutes which provide for a lien for materials furnished ‘for’ a structure; that where the lien is given for materials furnished ‘for the construction’ of an improvement, the decided weight of authority inclines to the view that the actual use of the articles furnished is not necessary. That, likewise, the actual use of the materials is held unnecessary where the legislature has subjected buildings to debts contracted for materials furnished for or in the erection thereof; but that where the lien is given for furnishing material ‘used’ or ‘to be used’ in an improvement, the rule is that the use of the materials furnished is a prerequisite to the enforcement of a lien.”

As already stated, our statute is more favorable to the lien than any of those announced in the notes; for it not only gives a lien for materials msed “for the erecting” of the building, but moreover provides that the lien shall attach to “the entire land upon which any such building, erection, or other improvement is situated, or to improve which the labor was done or the things furnished.” The following are some of the cases nearest in point: Beckel v. Petticrew, 6 Ohio St. 247; Small v. Foley, 8 Colo. App. 435, 47 Pac. 64; Burns v. Sewell, 48 Minn. 425, 51 N. W. 224; Berger v. Turnblad, 98 Minn. 163, 116 Am. St. Rep. 353, 107 N. W. 543. At page 838, 26 L.R.A.(N.S.) is found a group of mining eases under statutes somewhat similar to, though of course not identical with, our own. The only testimony covering the nature of the contract made between the coal company and the elevator company was furnished by one Hanson, who made the sale of the lumber in question, who testifies that the lumber was all to be used on section 15. , Construing the language of our own statute then, we have no hesitancy in holding that the lien attached to the N. W. J of section 15, although the buildings were actually erected upon the adjoining land. In view of respondent’s concession that upon the facts, as we find them, the lumber company has a lien against the land, and that the main issue is the priority of such lien and the mortgage, we will not devote further time to this question. If more were needed to show that the lien is prior to the mortgage, we have but to point to the fact that the lien was actually filed against the N. W. ¿ of 15, on February 17, 1909, and that the mortgage, through the clerical error, was not filed against the proper land until 1912. Thus the mortgagee at that time had the additional knowledge and notice that a lien had actually been claimed and filed. It is further undisputed that the elevator company had absolutely no knowledge whatever -of the' mortgage. Under those circumstances the reformation of the mortgage had the effect of creating a new lien so far as the rights of the lumber company were concerned. See Chapman v. Fields, 70 Ala. 403; Provost v. Rebman, 21 Iowa, 419; Thompson-McDonald Lumber Co. v. Morawetz, 127 Minn. 277, L.R.A. 1915E, 302, 149 N. W. 300.

(2) The next and most important question — the only one really .argued in the briefs — is whether the mechanic’s lien held by the lumber company is superior to the mortgage held .by the loan company. We have already cited our statute, § 6242, Rev. Codes 1905, Comp. Laws 1913, § 6822, reciting that the lien shall be superior to all encumbrances filed or docketed subsequent to the commencement of such building, erection, or improvement. This section is more favorable to tbe lienor than was § 5478, Comp. Laws 1887, upon wbicb tbe decisions in Haxtum Steam Heater Co. v. Gordon, 2 N. D. 246, 33 Am. St. Rep. 776, 50 N. W. 708; James River Lumber Co. v. Danner, 3 N. D. 470, 57 N. W. 343; Bastien v. Barras, 10 N. D. 29, 84 N. W. 559; Turner v. St. John, 8 N. D. 245, 78 N. W. 340, were based.

From tbe first case we quote: “One lien or tbe other must be superi- or ; and tbe legislature, in its wisdom, bas seen proper to require that tbe mortgagee should take care of tbe mechanic’s lien — usually insignificant in amount as compared with tbe mortgage — rather than that tbe mechanic, often a day laborer, should take care of tbe mortgage of tbe capitalist.-”

From tbe second case (Danner) we quote: “Tbe strife is between a mortgagee of real property and tbe bolder of a mechanic’s lien thereon. So far, tbe mortgagee bas been successful. . . . Tbe appellant does not challenge tbe correctness of this ruling, so far as tbe land itself is concerned, but insists that bis lien upon tbe building on tbe land is superior to that of tbe respondent’s mortgage. . . . Tbe statute gives tbe lien priority with respect to tbe entire erection.” In tbe Barras Case tbe court says: “Tbe sole controversy in tbe case is whether the mortgage constitutes a prior lien. . . . Plaintiff’s mortgage was executed and recorded on February 24, 1897. A building known as Tbe ‘French College’ was then in process of construction on tbe premises covered by such mortgage. Tbe building was commenced on December 9, 1896, and was not completed until March 24, 1898. Three mechanics’ liens were filed against tbe premises. 'They-were filed approximately a year after plaintiff’s mortgage was recorded, — tbe exact date not beiiig material, — and were for labor and material furnished long subsequent to tbe recording of tbe mortgage. ... If this were an action between tbe mortgagee and tbe lien claimants, in wbicb tbe latter were seeking to make their lien relate back, tbe principle would be applicable, and, undoubtedly, such lien claimants could, by appropriate proceedings, have claimed and established their liens as prior to tbe mortgage upon tbe strength of tbe fact that tbe building was being erected when tbe mortgage was given.” ,

From tbe St. John Case we quote: “It will be observed that tbe em tire controversy is between parties asserting conflicting interests in the same property, and is not between Turner, tbe creditor, and St. John, his debtor. . . .- Actual work was begun March 4, 1891, and the building was completed January 3, 1892. January 11, 1892, Turner filed a mechanic’s lien for an alleged unpaid balance of $22,680.25. . . . On June 1, 1891, he [St. John] executed a first mortgage for $40,000 on this property to the Security Trust Company. . . . Again, on November 27, 1891, St. John executed a second mortgage to the Security Trust Company for $10,000. . . . It is evident that these loans, which were negotiated by St. John, through Mr. Clifford, who was the secretary and general manager of the Security Trust Company, were made for purposes connected with the construction of this building. . . . It’s lien is a valid lien, inferior to plaintiff’s [Turner’s], but superior to the interests of all the remaining defendants [the mortgagees]. . . . It is ordered and adjudged that the district court enter judgment of foreclosure and sale herein, establishing plaintiff’s lien as a first lien upon the premises described in the complaint.”

See also Kay v. Towsley, 113 Mich. 281, 71 N. W. 490; also four-case notes as follows: 12 L.R.A. 33; 13 L.R.A. 705; 14 L.R.A. 306; 2 L.R.A. (N.S.) 615.

It follows that the mechanic’s lien in the case at bar is superior to the mortgage if the mortgage was taken while the buildings were in course of erection. Upon this point we have already quoted the evidence. It is undisputed that the lumber was upon the ground on the 13th of November, 1908, almost a month before the mortgage was taken. We have also quoted the testimony of the managing agent of the loan company that, at the time the loan was made, he knew that buildings were being erected in connection with the coal mine, and that the property was on both 15 and 16. He also knew that the money was to be used in paying for these improvements. This, we think sufficient to show that the buildings were being erected at the time the mortgage was taken, and under the well-settled law the lien is superior to the mortgage.

(3) Section 6238, Eev. Codes 1905, Comp. Laws 1913, § 6818, above quoted, gives authority to the court, upon the foreclosure, to apportion the amount of the claim in proportion to the enhanced value of the tract if necessary to protect the rights of third persons. 'Whether the statute contemplates the assessment of a certain amount against the buildings when situated upon lands belonging to a stranger is not clear. However, the general powers of a court of equity would allow such a holding. We therefore think that, in the sale of the premises to satisfy said lien, provision should be made that the buildings situated upon section 16 be first sold with the privilege of removal, and the balance, if any, due upon the lien be collected by sale of the land in 15. The trial court will modify its judgment to conform to the views herein expressed. Appellant will recover the costs of this appeal.