Baker Sand & Gravel Co. v. Rogers Plumbing & Heating Co.

• Decision Date: 29 March 1934
• Docket Number: 6 Div. 406.
• Citation: 228 Ala. 612,154 So. 591
• Parties: BAKER SAND & GRAVEL CO. et al. v. ROGERS PLUMBING & HEATING CO. et al.
• Court: Alabama Supreme Court

154 So. 591

228 Ala. 612

BAKER SAND & GRAVEL CO. et al. v. ROGERS PLUMBING & HEATING CO. et al.

6 Div. 406.

Supreme Court of Alabama

March 29, 1934

Rehearing Denied May 24, 1934.

Appeal from Circuit Court, Tuscaloosa County; Henry B. Foster Judge.

Suits by the Rogers Plumbing & Heating Company, by the Albert Holman Lumber Company, by the Southern Steel Works, by the Tuscaloosa Lumber Company, by the Birmingham Sash & Door Works, by Allen & Jemison Company, by the Moore-Handley Hardware Company, by the Truscon Steel Company, by the Baker Sand & Gravel Company, and by the Barnes Electric Company against E. C. Coston and others, which were consolidated. From the decree, all complainants other than the Rogers Plumbing & Heating Company and the Barnes Electric Company appeal, and defendant F. H. Mohns files cross-appeal.

Decree corrected and, as corrected, affirmed.

Where there was mortgage on land, equity court, in suit to enforce mechanic's and materialmen's liens, could, where removal of building would in large measure operate destruction of security, order sale of whole property (Code 1923, §§ 8832, 8833, 8840, 8854).

The several suits-by Rogers Plumbing & Heating Company, Albert Holman Lumber Company, Southern Steel Works, Tuscaloosa Lumber Company, Birmingham Sash & Door Works, Allen & Jemison Company, Moore-Handley Hardware Company, Truscon Steel Company; Baker Sand & Gravel Company, and Barnes Electric Company-sought enforcement of mechanics' and materialmen's liens against a lot and uncompleted building thereon. Parties defendant to the bills were E. C Coston (Coston Construction Company), original contractor; V. C. Foster, owner; Wade H. Oldham, grantee of the lot and building to whom Foster conveyed during construction; Frank P. Mansfield, mortgagee in first mortgage executed by Foster; F. H. Mohns, transferee of said first mortgage from Mansfield; Industrial Savings Bank, second mortgagee; W. Eugene Watson, third mortgagee; First National Bank of Birmingham, judgment creditor of Foster; and other creditors not filing bills. Each lien claimant also named the other lien claimants as parties respondent to his bill.

The trial court decrees that the property be sold in its entirety and the proceeds applied: First, to the payment of costs and expenses; second, to Mohns in the sum of $5,400; third, to Rogers Plumbing & Heating Company, $4,632.02, and Holman Lumber Company, $913.03; fourth, to Mohns in the sum of $13,974.45; fifth, to other lien claimants filing bills; sixth, to judgment creditor; seventh, to second mortgagee; eighth, to third mortgagee; ninth, to materialmen who had not perfected liens; and, tenth, the balance to the original contractor.

All complainants other than Rogers Plumbing & Heating Company and Barnes Electric Company appeal, and respondent Mohns files cross-appeal.

W. A. Rose and Bradley, Baldwin, All & White, all of Birmingham, and Wright, Warren & Searcy, T. B. Ward, J. M. Ward, and

p>Page Foster, Rice & Foster, all of Tuscaloosa, for appellants.

Foster, Rice & Foster, of Tuscaloosa, for appellee Rogers Plumbing & Heating Co.

Miller, Graham & Wingo and John S. Foster, all of Birmingham, for appellee Mohns.

BOULDIN Justice.

The question of first importance is that of priority between a mortgagee of real estate and materialmen furnishing materials to an original contractor for the erection of a building thereon. The mortgage was executed and recorded prior to the beginning of work on the building.

In such case by express statute, the mortgage has the superior lien on the land, but as to the building liens under the mechanic's lien law are superior to all other liens, mortgages, or incumbrances. Code, § 8833.

In this case the mortgagee claims priority as to the building.

The material facts touching this issue may be briefly summarized thus:

The owner of a lot or parcel of land in the city of Tuscaloosa entered into a contract with an original contractor to erect an apartment house thereon. The contractor undertook to furnish all the labor and material.

The contract price was the actual cost of labor and material, plus a fee of $4,000 to the contractor, total cost not to exceed $45,000.

Payments were to be made to the contractor on estimates of the architect as the work progressed.

To begin the enterprise the owner negotiated a construction loan of $17,500, executing a mortgage therefor.

The contractor, in aid of the procurement of such loan, entered into a separate instrument in writing with the mortgagee, stipulating that in consideration of such loan to the owner, the contractor subordinated his lien on the proposed building to that of such mortgage.

It appears this loan was intended to be temporary in character, it being contemplated the owner would later negotiate a large loan for needed funds to complete the enterprise, out of which this temporary loan should be paid. Accordingly, it was stipulated in the construction contract between owner and contractor that his lien on the building be subordinated to the final mortgage to the extent of $17,500. This final loan was never obtained, leading to the embarrassment presented in the record.

The contract stipulated that the cost "shall be paid by the owner to the contractor, in current funds, and only upon certificate of the architect, as follows: Four Thousand Dollars ($4,000.00) to be paid to the party of the first part on architect certificates issued along as work progresses. As soon as permanent loan has been placed by the party of the second part then the party of the second part is to pay to party of the first part 85% of all labor and material then due and is to continue to pay 85% of all labor and material every two weeks as work progresses."

It was further stipulated: "If at any time there shall be evidence of any lien or claim for which, if established, the owner of the said premises might become liable, and which is chargeable to the contractor, the owner shall have the right to retain out of any payment then due or thereafter to become due an amount sufficient to completely indemnify them against such lien or claim."

This latter provision obviously refers to contemplated liens in favor of laborers and materialmen.

By a supplemental contract of same date as the original, and part of the same transaction, it was stipulated:

"1. Owner elected to furnish all necessary brick to be delivered at building site at Tuscaloosa, Ala., and also approximately 10,000 pieces of reenforced tile which material is to be used by the contractor. Owner further agree to furnish receipted bills for the purchase of this material.

"2. A warranty deed conveying the property subject to the construction loan of $17,500.00 is to be executed by V. C. Foster and placed in escrow with the Mortgage Co. of Alabama, upon the following terms and conditions:

"(a) If within thirty (30) days from the completion of the building, the contractor has not been paid all sums due on said contract (with the exception of $4000.00 construction fee), then the contractor shall have the election to request escrow agent to deliver said deed, in which event the delivery and acceptance of said deed shall be a full and complete discharge of the rights of the party arising out of said contract. Provided that if within 30 days the owner shall submit evidence of payment of all sums due contractor other than $4000.00 then escrow agent shall return deed to owner."

The contractor proceeded with the erection of the building, incurring large bills with numerous concerns for materials to be used and which were used in the building. These bills are unpaid. These materialmen took all needful steps to perfect their liens, and filed separate bills to enforce the same. These suits were duly consolidated, and decrees rendered for the several amounts due, and adjudging liens therefor.

The court ascertained and decreed an unpaid balance due from the owner to the contractor.

It appearing the building could not be removed from the lot without tearing it down, and virtually destroying its value, the court decreed a sale of the property as a whole, and decreed the priorities of the several lien-holders in the proceeds.

The value of the parcel of land, without the building, was ascertained and decreed, and the mortgage above mentioned decreed a first lien on the proceeds of sale to that amount.

It was further decreed that the mortgage lien on the building was superior to materialmen's liens who had dealt with and furnished materials to the contractor; and, accordingly, it was decreed that the balance of the mortgage debt be given priority of payment out of the proceeds of the building, subordinating the decrees for materials.

The trial court, in his ruling, expressed the view that liens of such materialmen are by way of subrogation to the lien of the contractor, and his contract with the mortgagee subordinating his lien to that of the mortgage also subordinated those of the materialmen.

The decree is not based on any finding of actual notice to materialmen of the subordination agreement between mortgagee and contractor. Materialmen here argue the evidence shows a want of such notice, and we do not understand this to be controverted.

Such agreement was recorded long after work was begun on the building. We have no statute in Alabama providing for the record of construction contracts as in some states. The only record of mechanics' liens provided by law is a record of statements of claims of lienors to be filed and recorded in the office of the judge of probate under Code, § 8836. The record of such subordination agreement, even if prior to the beginning of work on the building, cannot operate as constructive notice.

Dealing with the...