Diversified Mortg. Investors v. Lloyd D. Blaylock General Contractor, Inc.

• Decision Date: 20 December 1978
• Docket Number: No. B-6725,B-6725
• Citation: 576 S.W.2d 794
• Parties: DIVERSIFIED MORTGAGE INVESTORS, Petitioner, v. LLOYD D. BLAYLOCK GENERAL CONTRACTOR, INC., et al., Respondents.
• Court: Texas Supreme Court

Page 794

576 S.W.2d 794

DIVERSIFIED MORTGAGE INVESTORS, Petitioner, v. LLOYD D. BLAYLOCK GENERAL CONTRACTOR, INC., et al., Respondents.

No. B-6725.

Supreme Court of Texas.

Dec. 20, 1978.

Saner, Jack, Sallinger & Nichols, T. Rick Frazier, Alfred Sallinger and H. Louis Nichols, Dallas, for petitioner.

Smith, Smith, Dunlap & Canterbury, George C. Dunlap and Bowen L. Florsheim, Dallas, for respondents.

SAM D. JOHNSON, Justice.

ON MOTION FOR REHEARING

We grant the motion for rehearing filed by DMI only insofar as it deals with that part of our previous opinion relating to the issue of equitable subrogation. We therefore set aside our former judgment, withdraw our former opinion, and substitute the following in its place.

This case requires determination of the relative priorities of mechanic's and materialman's liens, deed of trust liens, and a vendor's lien to which the mortgagee may be equitably subrogated. Lloyd D. Blaylock General Contractor, Inc. and Lloyd D. Blaylock, individually, (hereinafter collectively referred to as "Blaylock") hold duly perfected mechanic's liens on certain properties pursuant to a construction contract with Dollar Inns of America, Inc. ("Dollar Inns") and K. R. Riley. Diversified Mortgage Investors ("DMI") holds deed of trust liens on these properties through financing arrangements whereby it provided permanent financing to Dollar Inns for the purchase of land, the purchasing of a prior vendor's lien, and the construction of two motels on these properties. All parties sought a declaration of the priorities of their claims. In addition, Blaylock sought to recover the balance due on the construction contract and to foreclose the mechanic's liens on the properties. In the alternative, Blaylock sought the right to follow the proceeds of the deed of trust foreclosure sales to acquire payment of the construction contract. The trial court rendered judgment against Dollar Inns and Riley, holding them liable on the construction contract; however, the trial court ruled that Blaylock take nothing from DMI because the deed of trust liens were superior to the mechanic's liens. The court of civil appeals reversed and rendered, holding that DMI's deed of trust mortgages were superior to the mechanic's liens only to the extent such mortgages secured the purchase money, not the construction loans. Furthermore, the intermediate court held The liens involved in the instant case arise from the financing and construction of two Dollar Inns motels one in Fort Worth and one in Irving. Although the facts are similar as to each location, the lien priorities must be determined independently for each piece of property; therefore, the facts relative to construction and financing on the two pieces of property will be discussed separately.

that Blaylock could recover $204,776.29 from DMI out of the proceeds of the deed of trust foreclosure sales. 548 S.W.2d 924. We reverse the judgment of the court of civil appeals as to the Fort Worth property and affirm the judgment of the trial court. We modify the judgment of the court of civil appeals as to the Irving property and, as modified, such judgment is affirmed.

FORT WORTH PROPERTY

Construction:

In the fall of 1972 Blaylock and Dollar Inns began negotiations for construction of two motels. Thereafter, on December 29, 1972, Dollar Inns and Blaylock entered into a preliminary agreement whereby Blaylock agreed to construct motels on both the Fort Worth and Irving sites pursuant to a general construction contract to be executed at a later date. At this time, Dollar Inns further directed Blaylock to proceed with construction on the land as much as possible until the building permit could be obtained. Pursuant to such an agreement, subcontractors of Blaylock began subsurface investigation of the site on January 24, 1973. Such work involved the drilling of core borings and analysis of the content of the soil. Thereafter, between January 25, 1973 and March 1, 1973, another subcontractor of Blaylock performed job site engineering and topographical survey work upon the site, which entailed the placing of various stakes and iron rods to locate drives, grades, and building sites upon the land. By March 1, 1973 approximately one hundred fifty stakes and eight iron rods were placed on the land and stood visibly one to three feet above the ground. During this period, on February 21, 1973, Blaylock and Dollar Inns finalized their agreement in a written construction contract. On March 5, 1973 lumber for batter boards was delivered, and delivery of fill dirt was begun. Erection of the batter boards was begun on the same day as delivery and such work was completed by March 9, 1973. Batter boards are L-shaped structures which stand two feet off the ground and extend five feet in each direction. Such boards define the corners of the building and are preparatory to building the foundation. At the same time the batter boards were being erected, and continuing for approximately forty-five days, Blaylock began spread operations with the fill dirt being delivered. Such operations entailed the moving of dirt upon the land to prepare the ground for the foundation and the grading of the lot and involved six trucks and front-end loaders working on the property. Excavation for a retaining wall was also begun. As of March 9, 1973 all batter boards were erected, and a sign was placed at the job site indicating that construction of a Dollar Inns motel was in progress. Thereafter, on March 16, 1973, a building permit was obtained for the Fort Worth project. After the permit was received, foundation work was begun by a subcontractor of Blaylock. Such foundation work required the subcontractor to excavate for perimeter beans around the foundation and to lay the concrete foundation upon the dirt pad formed during the spread operations. After the completion of construction, on January 19, 1974, Blaylock filed its mechanic's lien pursuant to Article 5453, Texas Revised Civil Statutes Annotated, to secure the unpaid portion of the construction contract relative to the Fort Worth project, amounting to $68,009.29.

Financing:

In November 1972 Dollar Inns began negotiations with DMI concerning permanent financing for the construction of two motels. Similar negotiations were conducted with Palomar Mortgage Investors in January 1973. On December 11, 1972 Dollar Inns, acting through K. R. Riley, contracted

                to purchase property in Fort Worth from J. M. Loffland, Jr., trustee.  1  Under such contract of sale, Dollar Inns placed $5,000 earnest money in escrow.  Later, Dollar Inns placed an additional $5,000 in escrow in order to extend the closing date beyond the January 15, 1975 closing date specified in the contract of sale.  The $10,000 earnest money was later applied toward the total cost of closing.  On February 16, 1973 Dollar Inns and Palomar executed a loan agreement by which Palomar agreed to provide interim financing for the purchase of the Fort Worth property and construction of a motel thereon.  Palomar, in exchange for its funds, received Dollar Inns' promissory note in the amount of $1,200,000 and secured the same through a deed of trust covering the Fort Worth property and improvements erected thereon.  Such loan agreement incorporated by reference a commitment of DMI dated November 10, 1972 and a commitment of Palomar dated January 15, 1973.  In such commitments and a tri-party agreement executed by Dollar Inns, DMI, and Palomar, it was agreed that Palomar would provide interim financing for the purchase of land and construction of the motel and that DMI would provide permanent financing after construction was completed.  Thereafter, on March 8, 1973, Dollar Inns consummated the purchase of the Fort Worth property at a purchase price of $135,000.  At that time the property was free and clear of any liens.  Palomar, through the title company, paid Dollar Inns $598,352.45, $135,000 of which was used to purchase the Fort Worth property.  2  On March 9, 1973 the deed of trust was filed and recorded.  On February 5, 1974, after construction was completed on the Fort Worth motel, Palomar assigned its security interest in the Fort Worth motel and property, as well as to the Irving motel and property, to DMI for a total consideration of $2,757,150.  After the assignment, Dollar Inns defaulted on its deed of trust.  DMI foreclosed its deed of trust lien on the property with the motel located thereon and purchased the same at the foreclosure sale on December 3, 1974 for a price of $600,000
                

IRVING PROPERTY

Construction:

As stated, Dollar Inns and Blaylock began negotiations concerning construction of two motels in the fall of 1972; they entered into a preliminary agreement on December 29, 1972 whereby Blaylock agreed to construct motels on both sites pursuant to a general construction contract to be executed at a later date. At this time, Dollar Inns directed Blaylock to proceed with construction on the land as much as possible until the building permit could be obtained. Thereafter, on January 25, 1973, wooden stakes were delivered to the property and topographical work and job site engineering were conducted, continuing until March 1, 1973. As a result of such work, the layout of the building was visibly staked on the property as of March 1, 1973. During this period, on February 21, 1973, Blaylock and Dollar Inns entered into a written construction agreement. On March 25, 1973 lumber for the batter boards was delivered and erection of such batter boards began and Financing:

was completed by April 2, 1973. On April 5, 1973 a subcontractor to Blaylock commenced general site clearance and excavation which included the removal of several large trees, the clearing of the land, and the removal of a swimming pool which had previously been located on the property. Also at this time fill dirt was delivered to the site and spreading operations were begun, involving truck haulers and a truck loader...