Bob Degeorge Assocs., Inc. v. Hawthorn Bank

• Decision Date: 11 September 2012
• Docket Number: No. SC 91897.,SC 91897.
• Citation: 377 S.W.3d 592
• Parties: BOB DeGEORGE ASSOCIATES, INC., Respondent, KD Christian Construction Co., Respondent, v. HAWTHORN BANK, Appellant.
• Court: Missouri Supreme Court

377 S.W.3d 592

BOB DeGEORGE ASSOCIATES, INC., Respondent,KD Christian Construction Co., Respondent,

v.HAWTHORN BANK, Appellant.

No. SC 91897.

Supreme Court of Missouri, En Banc.

Sept. 11, 2012.

Clay Britton, John T. Coghlan, Brett Coppage, Lathrop & Gage LLP, Kansas City, for Hawthorn Bank.

Amy J. Tillery, Danne Webb, Ande S. McMurtry, Horn, Aylward & Bandy LLC, Kansas City, for DeGeorge.

G. Stephen Ruprecht, David A. Meyers, Brown & Ruprecht PC, Kansas City, for KD Christian.

Duane E. Schreimann, Michael Smidt, of Schreimann, Rackers, Francka & Blunt LLC, Jefferson City, for Missouri Bankers Ass'n, which filed a brief as a friend of the Court.

Lee B. Brummit, Patrick C. Guiness, Dysart, Taylor, Cotter, McMonigle & Montemore PC, Kansas City, for The Builders' Association and The American Subcontractors Association-Kansas City Chapter, which filed a brief as a friend of the Court.

PATRICIA BRECKENRIDGE, Judge.

Hawthorn Bank appeals the trial court's entry of summary judgment in favor of Bob DeGeorge Associates, Inc., and KD Christian Construction Company on Hawthorn Bank's claim that its purchase-money deed of trust takes priority over the mechanics' liens filed by DeGeorge and KD Christian, despite the purchase-money deed of trust being recorded after the mechanics' liens attached to the property. Hawthorn Bank claims that the trial court erred in finding that the mechanics' liens take priority over the purchase-money deed of trust. It asserts that purchase-money deeds of trust are always superior in priority to mechanics' liens under Missouri law and that the recording statutes, sections 442.380 and 442.400,¹ do not govern the relative priority of a purchase-money deed of trust over a mechanic's lien. Because sections 442.380 and 442.400 provide that Hawthorn Bank's purchase-money deed of trust is not valid until recorded and because the mechanics' liens attached before it was recorded, the purchase-money deed of trust is a subsequent encumbrance that is inferior in priority to the mechanics' liens. The judgment of the trial court is affirmed.

Factual and Procedural Background

On June 4, 2008, Blue Springs Xtreme Powersports purchased a building and three tracts of land. To facilitate the purchase of the property, Xtreme obtained a loan from Hawthorn Bank in the amount of $2,512,500, which Hawthorn Bank secured by taking a purchase-money deed of trust on the property. ² Neither the warranty deed to Xtreme nor Hawthorn Bank's purchase-money deed of trust was recorded at that time.

Prior to its purchase of the property, Xtreme entered in to a contractual agreement with DeGeorge, a general contractor, to remodel the building located on the property. Two days after the purchase, on June 6, 2008, DeGeorge began work on the project. His subcontractor, KD Christian, began work on June 17, 2008. DeGeorge and KD Christian completed work on the project pursuant to the contract, but Xtreme never paid the $147,883.70 it owed to DeGeorge and, as a result, DeGeorgenever paid the $17,532.83 it owed to KD Christian.

On November 18, 2008, DeGeorge filed a mechanic's lien against the property in the amount of $147,833.70 pursuant to section 429.080, RSMo Supp.2011. ³ One day later, on November 19, 2008, the warranty deed to Xtreme and Hawthorn Bank's purchase-money deed of trust were recorded. KD Christian then filed a mechanic's lien on January 20, 2009.

To foreclose on its mechanic's lien, DeGeorge brought an action against Xtreme, and KD Christian intervened to do the same. DeGeorge and KD Christian then brought claims against Hawthorn Bank, seeking to enforce their mechanics' liens by establishing the priority of their mechanics' liens over Hawthorn Bank's purchase-money deed of trust on the property. On January 15, 2010, DeGeorge filed a motion for summary judgment against Hawthorn Bank. In response, Hawthorn Bank filed motions for summary judgment against DeGeorge and KD Christian, asserting the superiority of its purchase-money deed of trust against their mechanics' liens. On May 5, 2010, the trial court found that DeGeorge's mechanic's lien is superior and granted its motion for summary judgment, denying Hawthorn Bank's motions for summary judgment against DeGeorge and KC Christian. On the same date, the trial court entered its judgment, which provided that DeGeorge and KD Christian were entitled to enforce and foreclose on their liens. Hawthorn Bank appealed to the court of appeals. After an opinion, this Court granted transfer. Mo. Const. art. V, sec. 10.

Standard of Review

Summary judgment is appropriate only when the moving party demonstrates that “there is no genuine dispute as to the facts” and that “the facts as admitted show a legal right to judgment for the movant.” ITT Commercial Fin. Corp. v. Mid–Am. Marine Supply Corp., 854 S.W.2d 371, 380 (Mo. banc 1993). The movant bears the burden of establishing both a legal right to judgment and the absence of any genuine issue of material fact required to support the claimed right to judgment. Id. at 378. The propriety of summary judgment is purely an issue of law, and this Court's review is essentially de novo. Id. at 376. “As the trial court's judgment is founded on the record submitted and the law, an appellate court need not defer to the trial court's order granting summary judgment.” Id.

In Hawthorn Bank's sole point on appeal, it claims that the trial court erred in overruling its motion for summary judgment because established law provides that a purchase-money deed of trust takes priority over a mechanic's lien, regardless of when it arises. A trial court's overruling of a motion for summary judgment generally is not subject to appellate review. Dhyne v. State Farm Fire and Cas. Co., 188 S.W.3d 454, 456 n. 1 (Mo. banc 2006). In rare circumstances, however, the overruling of a party's motion for summaryjudgment can be reviewed when its merits are intertwined completely with a grant of summary judgment in favor of an opposing party. Id.; see also Transatlantic Ltd. v. Salva, 71 S.W.3d 670, 675–76 (Mo.App.2002). In this case, the trial court overruled Hawthorn Bank's motion for summary judgment and granted DeGeorge's parallel motion. Because the merits of each motion for summary judgment involve the relative priority of two mechanic's liens and a purchase-money deed of trust, the merits are intertwined completely. This Court, therefore, will review the propriety of the trial court's grant of summary judgment to DeGeorge, which will include review of the overrulings of Hawthorn Bank's motions for summary judgment.

Discussion

The relative priorities of a mechanic's lien and a purchase-money deed of trust are governed by operation of Missouri's recording statutes and the statutory rules of priority for mechanic's liens. Missouri's recording statutes are enumerated in sections 442.380 and 442.400. Section 442.380 states, “Every instrument in writing that conveys any real estate or whereby any real estate may be affected, in law or equity ... shall be recorded in the office of the recorder of the county in which such real estate is situated.” This provision provides a centralized depository for land-title information and “imparts notice to all persons and all subsequent purchasers” of prior conveyances and encumbrances that are recorded on the property. Godwin v. Gerling, 362 Mo. 19, 239 S.W.2d 352, 360 (1951). For instruments covered by section 442.380, section 442.400 provides the consequence for failing to record the instrument with the applicable office of the recorder. Section 442.400 states, “[N]o such instrument in writing shall be valid, except between the parties thereto, and such as have actual notice thereof, until the same shall be deposited with the recorder for record.” The practical effect of section 442.400 is to postpone the effectiveness of an unrecorded instrument against a third party who does not have actual knowledge of the instrument. Smith v. Equitable Life Assur. Soc. of U.S., 448 S.W.2d 588, 594–95 (Mo.1970). Accordingly, the recording statutes serve to protect persons who acquire an interest in the real property without notice of prior encumbrances and to “establish[ ] a system of statutory priorities” for encumbrances affecting the real property. See Dreckshage v. Cmty. Fed. Sav. & Loan Ass'n, 555 S.W.2d 314, 319 (Mo. banc 1977) (quoting 6 Powell on Real Property 913 (1977)).

As a written instrument affecting real estate, a purchase-money deed of trust falls under the requirements of Missouri's recording statutes. A deed of trust is a form of mortgage consisting of an instrument that uses an interest in real property as security for performance of an obligation. Restatement (Third) of Property (Mortgages) section 1.1 (1997). A deed of trust constitutes a purchase-money deed of trust when it is one that “a buyer gives the seller, when the property is conveyed, to secure the unpaid balance of the purchase price.” Black's Law Dictionary 1235 (6th ed.1990). Because the purchase-money deed of trust in this case conveyed an interest in real estate to secure the balance of the purchase price, it is subject to the recording statutes and, therefore, invalid against third parties with no actual notice until recorded. Seesection 442.380; Woodard v. Householder, 315 Mo. 1155, 289 S.W. 571, 574–75 (1926) (holding a purchase-money mortgage inferior to a subsequent mortgage that was recorded prior-in-time under the recording statute).

In contrast to a purchase-money deed of trust, mechanics' liens are not governed by Missouri's recording statutes because they arise by operation of statute. Mechanics' liens arise for the purpose of giving “security to mechanics and material for labor and materials furnished in improving the owner's property[.]” R.L. Sweet Lumber Co. v. E.L. Lane, Inc., 513 S.W.2d 365, 371 (Mo. banc 1974). Because the mechanics' lien statutes are remedial in nature, they are construed favorably to uphold the rights of...